<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMPUCREDIT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 6141 58-2336689
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Identification No.)
Code Number)
</TABLE>
------------------------
TWO RAVINIA DRIVE
SUITE 1750
ATLANTA, GEORGIA 30346
(770) 901-5840
(Address, including zip code, and telephone number,
including area code, of registrant's executive offices)
------------------------------
BRETT M. SAMSKY
CHIEF FINANCIAL OFFICER
COMPUCREDIT CORPORATION
TWO RAVINIA DRIVE
SUITE 1750
ATLANTA, GEORGIA 30346
(770) 901-5840
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
DANIEL T. FALSTAD, ESQ. DAVID S. KATZ, ESQ.
Troutman Sanders LLP Orrick, Herrington & Sutcliffe LLP
NationsBank Plaza, Suite 5200 3050 K Street, N.W.
600 Peachtree Street, N.E. Washington, D.C. 20007
Atlanta, Georgia 30308-2216 Telephone: (202) 339-8497
Telephone: (404) 885-3000 Facsimile: (202) 339-8500
Facsimile: (404) 885-3995
</TABLE>
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
TO BE REGISTERED REGISTERED(1)(2) UNIT(1) PRICE(2)(3)
<S> <C> <C> <C>
Common Stock, no par value per share............... -- -- $160,000,000
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES AMOUNT OF
TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, no par value per share............... $44,480
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended
(the "Securities Act") the number of shares being registered and the
proposed maximum offering price per share are not included in the table.
(2) Includes shares reserved for an over-allotment option granted to the
Underwriters.
(3) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) under the Securities Act.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
[LOGO] SHARES
COMPUCREDIT CORPORATION
COMMON STOCK
------------------
This is CompuCredit Corporation's initial public offering of Common Stock.
This is a firm commitment underwriting. We expect the public offering price to
be between $ and $ per share. Currently, no public market exists for the
shares. After pricing of the offering, we expect that the Common Stock will
trade on the Nasdaq National Market under the symbol "CCRT."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE OF THIS PROSPECTUS.
---------------------
<TABLE>
<CAPTION>
Per Share Total
----------- ---------
<S> <C> <C>
Public Offering Price....................................................... $ $
Underwriting Discount....................................................... $ $
Proceeds, before expenses, to CompuCredit................................... $ $
</TABLE>
The underwriters may also purchase up to an additional shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this Prospectus to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We expect that the shares of Common Stock will be ready for delivery in New
York, New York on or about , 1999.
-------------------
PAINEWEBBER INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
The date of this Prospectus is , 1999
<PAGE>
[Inside front cover graphic to be provided.]
You should rely only on the information contained in this Prospectus. The
Company has not, and the underwriters have not, authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. The Company is not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this Prospectus is accurate as of the date on the
front cover of this Prospectus only. The Company's business, financial
condition, results of operations and prospects may have changed since that date.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire Prospectus, including the financial data and
related notes, before making an investment decision. The terms "the Company" or
"CompuCredit," as used in this Prospectus, refer to CompuCredit Corporation and
its subsidiaries and its predecessor, CompuCredit L.P., except where it is made
clear that such term means only the parent company. Except where it is otherwise
indicated, all of the information in this Prospectus:
- assumes the underwriters have not exercised their over-allotment option;
- does not include 1,200,000 shares of Common Stock the Company may issue
pursuant to its Amended and Restated 1998 Stock Option Plan;
- assumes the Company has already effected a 15.2-for-1 stock split which
will occur concurrently with the closing of this offering; and
- assumes the Company has already exchanged all of its outstanding Preferred
Stock, including accrued dividends for shares of Common Stock, which
will occur concurrently with the closing of this offering.
THE COMPANY
CompuCredit is an information-based, technology-driven credit card company.
The Company originates and purchases credit card receivables and is a direct
marketer of fee-based products and services to its credit card clients. The
Company's current credit product is the Aspire-Registered Trademark-
Visa-Registered Trademark- credit card, which the Company offers to its clients
on an unsecured basis. There are currently four types of Aspire Visa branded
cards: Classic, Gold, Platinum and Aspire Diamond-TM-. In addition, the Company
markets products and services to its clients for which it earns fees. These
products include life insurance, card registration, telecommunication products
and services, memberships in preferred buying clubs, travel services and debt
waiver programs in the event of disability or unemployment of the client. The
Company uses proprietary analytical techniques and information provided by
credit bureaus to target consumers who management believes are under-served by
more traditional providers of credit-related products. Consumers in this
under-served market typically rely more heavily on finance companies and retail
store credit cards to meet their consumer credit needs and are less likely than
others to have general-purpose credit cards. Some of these consumers have had a
delinquency, a default or a bankruptcy in their credit histories, but have, in
the Company's view, demonstrated recovery. Other consumers in this target market
are establishing or expanding their credit.
The Company was formed in August 1996 and has grown significantly since it
began soliciting clients in February 1997. For the nine months ended September
30, 1998, the Company had net income of $20.0 million as compared to a net loss
of $725,000 for the year ended December 31, 1997. As of September 1998, the
Company had 249,000 accounts with an aggregate managed portfolio of $406.3
million of credit card receivables. The Company intends to continue the growth
of its portfolio through offers of credit cards to pre-selected consumers and
purchases of credit card receivables and may utilize either or both of these
means to varying degrees, depending upon its assessment of the most
cost-efficient means of account growth.
BUSINESS STRATEGY
Since its inception, the Company has developed unique proprietary scoring
models which evaluate consumer credit and bankruptcy risk using credit bureau
data and repayment history on consumer loans. Management has built on its
extensive experience in consumer credit and collections to develop the target
marketing and account management strategies and criteria reflected in these
models. The Company uses its models, including its unique segmentation tools, to
develop risk-based pricing
1
<PAGE>
matrices. These matrices determine the amount of credit, applicable interest
rates and other charges offered to each targeted client. CompuCredit believes
that its proprietary scoring models allow it to evaluate credit risk more
effectively than most traditional credit grantors. In particular, these models
allow CompuCredit to identify unique pools of consumers with similar risk
characteristics and to offer profitable credit options to these potential
clients. In contrast, the Company believes that traditional credit grantors make
credit decisions more frequently based on standard credit scores such as the
Fair, Isaac & Company, Inc. ("FICO") score. Since the Company began soliciting
clients in February 1997, its models have been revised and refined to
incorporate the Company's experience with its clients. The Company believes that
this revision and refinement has improved, and will continue to improve, the
accuracy and reliability of its models.
Based on research it has conducted with a national credit bureau, the
Company believes that there are approximately 82 million consumers in the United
States that are under-served by consumer credit grantors. The Company believes
that these consumers are not solicited with offers of credit cards on a
pre-selected basis as often as other consumers. Using its proprietary scoring
models, the Company believes that, at any given time, approximately 20 to 25
million of these 82 million under-served consumers present levels of credit risk
acceptable for the Company's credit card. Since 1996, the Company has conducted
periodic research that indicates that, while the size of this universe of 20 to
25 million potential clients has been relatively constant, the composition of
this group has changed to a significant degree over time as individuals' credit
characteristics change relative to the Company's criteria (i.e., different
consumers are included in the pool of potential clients at any given time).
The Company's database accumulates client behavior information throughout
the client relationship. In addition to employing risk-based analysis in
determining its target market and the pricing for each client account, the
Company also monitors transactions and the type of usage that occurs on its
Aspire Visa cards as part of its account management process. The Company
believes that the combination of its proprietary databases, custom scoring
models, risk-based pricing strategy, account management strategy and collections
experience enables it to provide credit to an under-served market, to assess the
risk of its client portfolios and to price its products accordingly.
CompuCredit's operational strategy is to focus on those functions that
constitute its competitive advantages and core competencies while outsourcing
certain back office and fulfillment functions. The Company's core competencies
include credit and risk decisioning, account acquisition strategies, management
of system and model development, collections and ongoing account management. The
Company issues its Aspire credit card pursuant to an Affinity Card Agreement
with Columbus Bank and Trust Company ("CB&T"), a state-chartered banking
subsidiary of Synovus Financial Corporation. CB&T and its affiliate, Total
Systems Services, Inc. ("TSYS"), perform additional services for the Company
such as card embossing/mailing, fraud detection, cycle billing, payment
processing and transaction processing. The Company believes that outsourcing
allows the Company to leverage the vast expertise already available to the
credit card industry.
The Company finances the growth in its credit card receivables primarily
through asset-backed securitizations. As the Company originates or acquires
credit card receivables, it sells the receivables through the Company's credit
card master trust (the "Master Trust") or through wholly-owned special purpose
entities to third party asset-backed commercial paper conduits. The receivables
that are sold through securitization are removed from the Company's Balance
Sheet for financial reporting purposes. From its inception to September 30,
1998, the Company has received cumulative net proceeds of approximately $286.1
million from the securitization of its credit card receivables. The significant
growth to date of the Company's credit card receivables portfolio has been
supported by the Company's contributed capital, retained earnings and the
securitization of receivables. The Offering will provide the Company with
additional capital to fund future growth.
2
<PAGE>
HISTORY
CompuCredit was formed in August 1996 by David G. Hanna, President, and
Richard W. Gilbert, Chief Operating Officer, after completing almost two years
of research and development. Both Mr. Hanna and Mr. Gilbert have extensive
experience in the consumer credit and collections industries. Mr. Hanna and Mr.
Gilbert both held executive positions with Nationwide Credit, Inc. ("Nationwide
Credit"), a national third party collection agency, during the 1980's until its
sale to First Financial Management Corporation (currently known as First Data
Corporation) in 1990. Mr. Hanna also founded Account Portfolios L.P. ("Account
Portfolios") in 1989 with Frank J. Hanna, III, his brother, who is a principal
shareholder of CompuCredit and will be a director of the Company upon
consummation of the Offering. Account Portfolios was sold in 1995 to Outsourcing
Solutions, Inc., a company controlled by McCown, De Leeuw & Co., a private
venture capital firm. Account Portfolios utilized proprietary scoring models to
analyze and collect on large purchased portfolios of non-performing loans and
consumer receivables. Before joining the Company in 1996, Mr. Gilbert served
initially as Chief Operating Officer of Equifax Credit Information Services,
Inc.'s ("Equifax") collection division and subsequently as General Manager of
Strategic Client Services for Equifax. Richard R. House, Jr., CompuCredit's
Chief Credit Officer, joined the Company in April 1997 from Equifax. While at
Equifax, Mr. House served as Vice President for Equifax's Decision Solutions
division, which provided consulting and modeling services to many of the
nation's largest credit grantors. Collectively, CompuCredit's founders and
executive officers have over 53 years of experience in various aspects of
consumer finance.
RECENT PORTFOLIO PURCHASE
In November 1998, the Company purchased a portfolio of credit card
receivables. The portfolio included approximately 58,000 accounts and in excess
of $130.0 million in receivables. The purchased portfolio was subsequently
securitized by the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company (1)...... shares
Common Stock to be outstanding after the
Offering (2)............................... shares
Use of Proceeds.............................. To finance the growth of the Company through
the origination and purchase of credit card
receivables and for marketing costs, working
capital and other general corporate purposes.
Risk Factors................................. See "Risk Factors" for a discussion of
factors to consider carefully before deciding
to invest in shares of the Common Stock.
Proposed Nasdaq National Market Symbol....... "CCRT"
</TABLE>
- ------------------------
(1) Assumes that the Underwriters do not exercise their over-allotment option to
purchase up to an additional shares of Common Stock from the Company.
See "Underwriting."
(2) Excludes 1,200,000 shares of Common Stock the Company has reserved for
issuance under the Company's Amended and Restated 1998 Stock Option Plan.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. The Company has based
these forward-looking statements on its current plans, expectations and beliefs
about future events. These forward-looking statements are primarily contained in
the sections of this Prospectus entitled "Risk Factors," "The Company," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." In these sections and others, words like
"anticipates," "believes," "estimates," "expects," "plans," "intends" and other
similar expressions as they relate to the Company or its management are meant to
identify forward-looking statements.
Risks and uncertainties are discussed under the caption "Risk Factors" in
this Prospectus. In light of these risks, uncertainties and assumptions, there
is a risk that the Company's actual experience will differ from the expectations
and beliefs reflected in the forward-looking statements in this Prospectus.
Moreover, with the passage of time the Company's plans, expectations and beliefs
will change. However, the Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION AND OPERATING DATA
The following summary financial and other data should be read in conjunction
with the Company's Consolidated Financial Statements and the related Notes
thereto and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The following
summary financial data for the year ended December 31, 1997 and the period ended
December 31, 1996 are derived from the Company's audited Consolidated Financial
Statements, which have been audited by Ernst & Young LLP, independent auditors.
The financial data for the nine months ended September 30, 1998 and 1997 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for the period. Operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1998.
In order to provide funds for operations and to improve liquidity, in August
1997, the Company began selling (referred to as "securitizing") substantially
all of its credit card receivables through the Master Trust or through
wholly-owned special purpose entities to third party asset-backed commercial
paper conduits. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity, Funding and Capital Resources" and
"Business -- Securitizations." In each securitization transaction, the Company
removes such credit card receivables from its Balance Sheet and records a gain
on the sale. The Company manages, reviews and analyzes its financial performance
on a "managed loan" portfolio basis as if the receivables securitized were still
on the Company's Balance Sheet. The information in the following table under
"Selected Credit Card Data" is presented on a managed loan basis.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
AUGUST 14, 1996
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1996 1997 1997 1998
----------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Interest income................................................ $ -- $ 2,658 $ 1,707 $ 1,220
Interest expense............................................... -- 361 361 536
----- ------------- --------- ---------
Net interest income.......................................... -- 2,297 1,346 684
Provision for loan losses...................................... -- 1,422 763 --
Securitization income.......................................... -- 628 (97) 27,774
Other operating income......................................... -- 1,383 709 13,417
Other operating expense........................................ 148 3,611 1,991 9,378
----- ------------- --------- ---------
Income (loss) before income taxes............................ (148) (725) (796) 32,497
Income taxes................................................... -- -- -- 12,478
----- ------------- --------- ---------
Net income (loss).............................................. $ (148) $ (725) $ (796) $ 20,019
----- ------------- --------- ---------
----- ------------- --------- ---------
Net income (loss) attributable to common shareholders.......... $ (1,341) $ (959) $ 18,669
------------- --------- ---------
------------- --------- ---------
PRO FORMA STATEMENT OF OPERATIONS DATA (1):
Pro forma net income (loss) per share (unaudited).............. $ $ $
------------- --------- ---------
------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF SEPTEMBER 30,
DECEMBER 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Retained interests in credit card receivables securitized (2).............. $ -- $ 14,494 $ 16,634 $ 26,726
Amounts receivable from securitization (2)................................. -- 1,060 253 31,053
Total assets............................................................... 253 20,215 19,997 68,170
Shareholders' equity....................................................... 152 19,127 19,056 49,099
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
AUGUST 14, 1996
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1996 1997 1997 1998
----------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
SELECTED CREDIT CARD DATA (3):
Average managed loans......................................... $ -- $ 11,151 $ 7,874 $ 259,266
Period-end managed loans...................................... -- 27,899 17,325 406,297
Period-end total accounts..................................... -- 45 19 249
Net interest margin on managed loans (4)...................... --% 19.4% 20.9% 20.5%
Net charge-off ratio on managed loans (5)..................... -- 3.6 1.2 8.4
Pro forma charge-off ratio on managed loans (6)............... -- 3.6 1.2 3.5
Delinquency ratio on managed loans (7)........................ -- 5.3 3.7 10.5
</TABLE>
- ------------------------
(1) Pro forma per share information has been computed by dividing net earnings
or loss by the weighted average number of shares of Common Stock outstanding
during the period after giving effect to (i) a 15.2-for-1 stock split to be
effected concurrently with the consummation of the Offering, and (ii) the
exchange of all of the outstanding shares of the Company's Preferred Stock,
including accrued dividends thereon, for shares of Common Stock to be
effected concurrently with the consummation of the Offering.
(2) The Company's Balance Sheet includes undivided ownership interests in the
Master Trust (classified as "Retained Interests in Credit Card Receivables")
and interests in the wholly-owned special purpose entities (classified as
"Amounts Receivable from Securitization") through which the Company sells
its receivables under its asset-backed securitization programs. The retained
interests equal the amount of the retained certificates or participation
interests of each series held by the Company plus the amount of the
receivables in excess of the principal balance of the certificates or
participation interests. Substantially all of the Company's credit card
receivables have been securitized. As such, the Company has removed the
securitized credit card receivables from its Balance Sheet, and as
securitizations have occurred, the Company has also relieved the allowance
for loan losses.
(3) During the nine months ended September 30, 1998, the Company purchased a
portfolio of credit card receivables. The presented managed loan data
excludes certain of these receivables and the related accounts which at the
time of purchase were closed accounts in a certain delinquency status.
Management believes that these accounts were either in the process of being
charged off by the seller due to a contractual 180 day delinquency or were
likely to be charged off in the near term. Because of the accounts' closed
and delinquent status at the time of purchase, management believes that the
Company would have very little opportunity to influence the delinquency or
default rates of these accounts prior to charge-off. As such, the accounts,
the receivables and any activity in the accounts since the date of purchase
have been excluded from any managed loan data presented. At the time of
purchase, there were approximately 25,000 such accounts, representing 18% of
the accounts purchased, with $97.1 million of outstanding receivables.
(4) Includes the Company's net interest and late fee income less actual cost of
funds plus all costs associated with asset securitizations, including the
interest expense paid to the investors and the amortization of the portion
of the discount on the Company's purchased portfolio that is in excess of
discounts related to credit quality. See footnote (6).
(5) Net charge-off ratio reflects actual principal amounts charged off, less
recoveries, as a percentage of average managed loans on an annualized basis.
(6) As noted in footnote (3), the Company purchased a portfolio during the nine
months ended September 30, 1998. The purchase price was at a substantial
discount from the face amount of the credit card receivables outstanding.
The discount totaled $211 million at the time of purchase. A portion of the
discount relates to $97.1 million in receivables identified by the Company
as being at or near charge-off at the time of purchase, and such receivables
are excluded from all managed loan data. Approximately $70 million of the
discount at the time of purchase related to the credit quality of the
remaining loans in the portfolio and reflects the difference between the
purchased face amount and the future cash collections management expects to
receive with respect to the purchased face amount. For purposes of reporting
pro forma charge-off ratios on managed loans, this discount related to
credit quality has been utilized to offset a portion of actual net
charge-offs. The remaining portion of the $211 million initial discount was
approximately $44 million at the time of purchase. Management considers this
$44 million to be a discount in excess of the discount the Company has
ascribed to the credit quality of the purchased receivables. The $44 million
discount is being amortized into interest income using the interest method
for purposes of managed loan reporting. See "Asset Quality--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(7) Delinquencies represent credit card receivables that were at least 60 days
past due at period end.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing any of the shares of Common Stock offered
hereby. Certain statements in "Risk Factors" constitute "forward-looking
statements." See "Prospectus Summary--Forward-Looking Statements."
LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE OPERATING RESULTS
The Company was formed in August 1996 and began originating and servicing
credit card receivables in February 1997. Accordingly, the Company has a limited
operating history upon which to base an evaluation of its business and
prospects. In addition, the Company's results of operations, financial condition
and liquidity depend, to a material extent, on its ability to manage its credit
card business and on the performance of the credit card receivables outstanding.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company incurred a net loss of $725,000 in 1997 (its first full
year of operations) and had net income of $20.0 million for the nine months
ended September 30, 1998. Because of its limited operating history, the Company
has limited underwriting and servicing experience and limited delinquency and
default experience with respect to its credit card receivables. Although the
Company has experienced growth in credit card receivables outstanding (including
a substantial portfolio purchase in April 1998 and an additional portfolio
purchase in November 1998), revenues and net earnings, there is a risk that the
Company will not be able to sustain these rates of growth or remain profitable
in the future.
LACK OF SEASONING OF CREDIT CARD PORTFOLIO
The average age of a credit card issuer's portfolio of accounts is an
indicator of the stability of delinquency and default levels of that portfolio;
a portfolio of older accounts generally behaves more predictably than a newly
originated portfolio. As of September 30, 1998, all of the Company's originated
receivables, representing 23.3% of its total portfolio, were less than two years
old. Until these originated accounts become more seasoned, it is likely that the
levels of such delinquencies and defaults will increase as the average age of
the Company's originated accounts increases. Any material increases in
delinquencies and defaults above management's expectations would have a material
adverse effect on the Company's results of operations and financial condition.
RISKS ASSOCIATED WITH ACQUISITIONS OF RECEIVABLES FROM THIRD PARTIES
The Company acquired a significant portion of its credit card receivables
through two portfolio acquisitions during 1998. The Company anticipates that it
may make additional portfolio acquisitions as part of its growth strategy. The
originators of the credit card receivables purchased by the Company may have
used credit criteria different from the Company's underwriting guidelines. As a
result, these credit card receivables may be of a different credit quality than
receivables originated by the Company. These purchased credit card receivables
also may perform differently than the receivables previously originated and
purchased by the Company (including exhibiting materially different delinquency
and charge-off rates), which could result in material fluctuations in the
Company's reported managed loan data from quarter to quarter as portfolio
acquisitions occur and are reflected in the Company's reported managed loan
data.
Furthermore, the Company has primarily relied upon certain representations
and warranties made by the sellers in determining whether its purchased
receivables satisfy the representations and warranties which the Company must
make with respect to such receivables when they are securitized. Accordingly,
receivables acquired by the Company through portfolio acquisitions, representing
76.7% of the total portfolio as of September 30, 1998, could subsequently be
determined to have breached the representations and warranties made by the
Company in such securitizations. If such breach cannot be
7
<PAGE>
cured, the Company may be required to pay to the investors in the
securitizations an amount equal to the amount of such receivables. While the
Company has certain rights to indemnification by the sellers, which may be
applicable and may obtain similar indemnification rights from sellers of
portfolios purchased in the future, there is the risk that the Company will not
be able to enforce its indemnification rights. There is also a risk that such
indemnification rights will not be sufficient in each case to reimburse the
Company fully for any amounts it may be required to pay to the investors in any
securitizations of the purchased portfolios.
SUBSTANTIAL NEED FOR LIQUIDITY
The Company has a substantial ongoing need for liquidity to finance its
operations, and the Company expects this need to increase to the extent that the
volume of its business increases. As a result of the Company's growth since
inception, the Company's cash requirements exceed cash generated from
operations. The Company's primary cash requirements include the funding of its
originated credit card receivables, the funding of its purchases of credit card
receivables portfolios and, to a lesser extent, fees and expenses in connection
with its securitization program, marketing, solicitation, servicing expenses,
federal and state income tax payments and ongoing administrative and other
operating expenses. Net cash used in operating activities during the period from
August 14, 1996 (inception) to December 31, 1996 and for the year ended December
31, 1997 was $247,000 and $1.7 million, respectively. The Company currently
funds its cash requirements primarily through securitizations, and it has
financed substantially all of its originated credit card receivables and its
purchases of credit card receivables portfolios through securitizations. At
September 30, 1998, the Company had cash of approximately $6.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity, Funding and Capital Resources."
There is a risk that the Company will not have access to the capital markets
in the future for additional equity or debt issuances or for securitizations on
acceptable terms or that financing through borrowings will not be available on
acceptable terms to satisfy the Company's cash requirements. The Company's
inability to access the capital markets or to otherwise obtain acceptable
financing on a timely basis could have a material adverse effect on the
Company's results of operations or financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON THIRD PARTIES FOR BANK CHARTER AND CERTAIN OPERATIONS
The Company's Aspire credit card is issued pursuant to an Affinity Card
Agreement between CB&T and the Company. Because the Company does not have a bank
charter, it currently cannot issue credit cards without an affinity card
agreement with a bank. The Company filed an application for a state bank charter
on October 26, 1998. Unless the Company obtains a bank charter, it will continue
to rely upon CB&T to issue the Company's credit cards. CB&T, together with its
affiliate, TSYS, also performs many back office and account processing functions
with respect to the Aspire accounts. If CB&T and/or TSYS were either unwilling
or unable to continue to perform such services for the Company, the Company
would be required to enter into another contract with a provider of such
services. There is a risk that the Company would not be able to enter into such
an agreement with an alternate provider on terms that the Company deems
favorable or in a timely manner such that the Company's business would not be
disrupted. Any disruption in the Company's relationship with CB&T and TSYS could
have a material adverse effect on the Company's results of operations or
financial condition. See "Business--Account and Portfolio Management."
Moreover, the Company's business depends on a number of services provided by
third parties, including nationwide credit bureaus, postal and telephone service
providers, bank card associations and other providers of transaction processing
services. The Company has contingency plans designed to minimize the impact of a
disruption in the services it obtains from these third parties. However, a
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<PAGE>
major disruption in one or more of these services could have a material adverse
effect on the Company's results of operations or financial condition.
RISKS ASSOCIATED WITH SECURITIZATIONS
The Company depends heavily upon the securitization of its credit card
receivables portfolio to fund its operations and has been able to complete
securitization transactions to date on terms that it believes are favorable to
the Company. The Company believes that it will require additional securitization
facilities or an increase in one or more of its existing facilities in order to
fund its growth. There is a risk that such additional or increased facilities
will not be available or that future securitization transactions will not be
available on terms acceptable to the Company, or at all. The timing of any
securitization transaction is affected by a number of factors, any of which
could cause substantial fluctuations in quarterly earnings, including, without
limitation, the volume of originated or purchased receivables, market conditions
and the approval by all parties of the terms of the securitization. Any delay in
the transfer of credit card receivables beyond a quarter-end could reduce the
gain on sale recognized in such quarter and could result in decreased earnings
or possible losses for the quarter being reported by the Company. In addition,
the Company's ability to securitize its assets depends on the continued
availability of acceptable credit enhancement terms and the continued favorable
legal, regulatory, accounting and tax environments for securitization
transactions. Any inability to obtain this additional funding or any adverse
change in the securitization market could force the Company to reduce its volume
of managed loans or to rely on other potentially more expensive funding sources.
Certain adverse changes in the Company's securitized receivables, including
delinquencies and losses, could have a material adverse effect on the Company's
results of operations or financial condition and the performance of the Master
Trust or special purpose entities created by the Company to securitize its
receivables. Such changes may also cause early amortization of the outstanding
securitization certificates or participation interests. These changes could also
impact the Company's ability to effect other securitization transactions on
acceptable terms, thereby decreasing the Company's liquidity and forcing the
Company to rely on other funding sources to the extent available.
RISKS ASSOCIATED WITH GAIN ON SALE ACCOUNTING
The Company uses gain on sale accounting. Gains from the sale of receivables
in the Company's securitization transactions have constituted, and are likely to
continue to constitute, a significant portion of the Company's income. A portion
of the gains are based primarily on management's estimates of future payment and
default rates and other considerations in light of conditions existing at the
time of the estimate. If actual payments with respect to receivables occur more
quickly than the Company projected at the time the receivables were sold, or if
default rates are greater than projected at the time such receivables were sold,
the Company would be required to record a charge to earnings. If actual payments
occur more slowly or if default rates are lower than estimated with respect to
receivables sold, total gains will exceed previously estimated amounts.
ABILITY TO SUSTAIN AND MANAGE GROWTH
The Company has experienced rapid growth and expansion of its business. In
order to meet its strategic objectives, the Company must continue to grow its
credit card receivables portfolio. Continued growth in the Company's credit card
receivables portfolio depends on the following:
- the Company's ability to attract new clients through originations or
portfolio purchases;
- growth in both existing and new account balances;
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<PAGE>
- the degree to which the Company loses accounts and account balances to
competing credit card issuers;
- levels of delinquencies and losses;
- the availability of funding (including, but not limited to,
securitizations) on favorable terms; and
- general economic and other factors beyond the control of the Company.
The Company's growth also depends on how much the Company spends to solicit
new clients and the number of responses the Company receives with respect to
solicitations for its consumer credit, fee-based and other financial service
products. Any increases in postal rates could have a negative impact on the
level and cost of direct mail marketing activities.
In order to grow, the Company must employ and train new personnel, expand
its facilities, expand its management systems and access additional capital.
Furthermore, the Company's ability to manage delinquency and default rates
depends upon efficient collection procedures, adequate collection staffing,
internal controls and automated systems. There is a risk that the Company's
personnel, procedures, staff, internal controls or systems will not be adequate
to support growth. If the Company does not manage its growth effectively, the
Company's profitability and its ability to achieve its strategic objectives will
be adversely affected.
DELINQUENCY, DEFAULT AND OTHER CREDIT RISKS RELATED TO TARGET MARKET
The Company targets its consumer credit products to clients who management
believes have been under-served by more traditional providers of credit-related
products. Some of the consumers included in the Company's target market are
consumers who are dependent upon finance companies, consumers with only retail
store credit cards and/or lacking general purpose credit cards, consumers who
may have had a delinquency, a default or, in some instances, a bankruptcy in
their credit histories, but have, in the Company's view, demonstrated recovery,
and consumers who are establishing or expanding their credit. This target market
generally entails a higher risk of nonpayment, higher frequencies of
delinquencies and higher defaults than consumers who are served by more
traditional providers of credit. Although the Company believes that its
underwriting criteria and collection methods enable it to control the higher
risks inherent in extending credit to its target market, no assurance can be
given that such criteria and methods will adequately protect the Company against
such risks. Consumer credit grantors traditionally do not solicit such consumers
to the same extent as they solicit consumers in other market segments with
perceived lower levels of risk. As a result there is less historical experience
with respect to the credit risk and performance of under-served consumers. There
is a risk that the Company may not successfully target and evaluate the
creditworthiness of such consumers and price its credit products so as to remain
profitable.
Primary risks associated with unsecured lending, which may be greater with
respect to the Company's target market, are that:
- the Company may experience greater levels of delinquencies and credit
defaults in future economic downturns;
- a greater number of clients may default on the payment of their
outstanding balances or seek protection under bankruptcy laws, resulting
in increased credit defaults;
- fraud by clients and third parties may be higher; and
- unfavorable changes in clients' attitudes toward financing purchases with
debt or in client payment behavior, such as increases in discretionary
repayment of account balances, may result in diminished interest income.
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<PAGE>
Additionally, general economic factors, such as the rate of inflation,
unemployment levels and interest rates may affect the Company's target market
clients more severely than other market segments.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company experiences the highest demand for its financial products and
services between October and December and experiences the lowest demand for its
financial products and services between January and March. The Company's
strategy of pursuing potential portfolio acquisitions may also create periodic
fluctuations in the Company's managed loans. These significant fluctuations in
its business directly impact the Company's operating results and cash needs. In
addition, the timing of any securitization transaction is affected by a number
of factors, any of which could cause substantial fluctuations in quarterly
earnings, including, without limitation, the volume of originated or purchased
receivables, market conditions and the approval by all parties of the terms of
the securitization. Any delay in the transfer of credit card receivables in a
securitization beyond a quarter-end could reduce the gain on sale recognized in
such quarter and could result in decreased earnings or possible losses for the
quarter being reported by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company depends upon the skills and experience of certain executive
officers, including David G. Hanna, its President, Richard W. Gilbert, its Chief
Operating Officer, Brett M. Samsky, its Chief Financial Officer and Richard R.
House, Jr., its Chief Credit Officer. The Company does not maintain key-man life
insurance for the benefit of the Company on any executive officer. The loss of
the services of certain members of the Company's senior management could have a
material adverse effect on the Company. The Company intends to enter into
employment agreements with its executive officers, including Mr. Hanna, Mr.
Gilbert, Mr. Samsky and Mr. House, which will contain confidentiality and
non-compete provisions. However, such agreements may not effectively limit such
persons' ability to depart the Company to pursue other opportunities. See
"Management."
INTEREST RATE RISK
The Company's credit card accounts generally have variable interest rates
based on a spread above the prime rate as published in THE WALL STREET JOURNAL.
All of the Company's accounts also have an interest rate minimum should the
designated index fall below a certain amount. Although the Company intends to
manage its interest rate risk through asset and liability management,
fluctuations in the interest rate environment may result in changes in the
Company's cost of funds as well as in the relationship between the indices used
in the Company's securitizations and other funding vehicles and the indices used
to determine the finance charges on account balances. These changes could have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Interest Rate Sensitivity and Market Risk."
GENERAL ECONOMIC RISKS
The Company's business is directly related to consumer spending, which is
affected by employment rates, prevailing interest rates and other domestic
economic conditions. The risks associated with the Company's business become
more significant in an economic slowdown or recession. During periods of
economic slowdown or recession, the Company may experience a decreased demand
for its financial products and services and an increase in rates of
delinquencies and the frequency and severity of losses. Because of the Company's
focus on the under-served market, the Company's actual rates of delinquencies
and frequency and severity of losses may be higher in the future under adverse
economic
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<PAGE>
conditions than those experienced in the consumer finance industry generally.
Any sustained period of economic slowdown or recession could have a material
adverse effect on the Company's results of operations or financial condition.
CONSUMER AND DEBTOR PROTECTION LAWS AND REGULATIONS
The operations of the Company and of CB&T, as the issuer of the Aspire
credit card, are regulated by federal, state and local government authorities
and are subject to various laws and the rules and regulations promulgated
thereunder (including the federal Truth-In-Lending Act, the federal Equal Credit
Opportunity Act, the federal Fair Credit Reporting Act, the federal Fair Debt
Collection Practices Act and the federal Telemarketing and Consumer Fraud and
Abuse Prevention Act) and judicial and administrative decisions imposing various
requirements and restrictions. Among other things, these legal requirements
regulate credit granting activities, establish maximum interest rates, establish
maximum fee rates, require various disclosures to clients and regulate
collection procedures and other trade practices. Any failure by the Company or
CB&T (as the issuer of the Aspire credit card or in conjunction with the account
servicing activities it conducts on behalf of the Company) to comply with such
legal requirements also could adversely affect the ability of the Company or
CB&T to collect the full amount of the account balances. The Company also faces
the risk of litigation under state and federal consumer protection statutes, the
rules and regulations promulgated thereunder and other laws. The Company does
not currently own a bank. However, the Company has filed an application and is
seeking to organize a state-chartered "credit card bank" under the laws of the
State of Georgia. Such bank, if organized, is expected to become the issuer of
the Company's Aspire credit card. If the Company completes that process, such
banking subsidiary will be subject to the various state and federal regulations
generally applicable to such institutions. See "Business--Consumer and Debtor
Protection Laws and Regulations."
IMPACT OF CHANGES IN LAW
Numerous legislative and regulatory proposals are advanced each year which,
if adopted, could adversely affect the Company's profitability or limit the
manner in which the Company conducts its activities. Changes in federal and
state bankruptcy and debtor relief laws also could adversely affect the Company
if such changes result in, among other things, additional administrative
expenses and charge-offs. Although the Company believes that it and CB&T (to the
extent material to the Company's business) are in compliance in all material
respects with applicable local, state and federal laws, rules and regulations,
there is a risk that more restrictive laws, rules and regulations will be
adopted in the future. Such laws, rules and regulations could make compliance
more difficult or expensive, further limit or restrict the amount of interest
and other charges imposed on credit card accounts originated or marketed by the
Company or the Company's ability to make changes to such terms on existing
accounts or otherwise have a material adverse effect on the results of
operations or financial condition of the Company.
INTENSE COMPETITION
The Company faces intense and increasing competition from other consumer
lenders. In particular, the Company's credit card business competes with
national, regional and local bank card issuers, and with other general purpose
credit card issuers, including American Express-Registered Trademark-,
Discover-Registered Trademark- and issuers of Visa-Registered Trademark- and
MasterCard-Registered Trademark-. The Company also competes, to a lesser extent,
with retail card issuers, such as department stores and oil companies, and other
providers of unsecured credit. In addition, new issuers have entered the market
in recent years. Many of these competitors are substantially larger than the
Company and have greater financial resources.
The Company believes that clients choose credit card issuers largely on the
basis of price (mostly interest rates and fees), credit limit and other product
features. For this reason, client loyalty is often
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<PAGE>
limited. The Company may lose entire accounts, or may lose account balances, to
competing card issuers offering lower interest rates and fees or other more
attractive terms or features. The Company's future growth depends largely upon
the success of its marketing programs and information-based strategies. Although
management believes that opportunities exist for continued growth in account
origination and account balances, the Company's competitors may already be or
may begin employing many of the programs and strategies that the Company has
utilized to attract new accounts and encourage account usage.
The Company's competitors are continually introducing new tactics to attract
clients and increase their market share. The most heavily-used techniques are
advertising, target marketing, balance transfers, price competition, incentive
programs and co-branding (for example, using the name of a sports team or a
professional association on their credit cards). In response to competition,
many issuers of credit cards have lowered interest rates and offered incentives
to retain existing clients and attract new ones. These competitive practices, as
well as competition that may develop in the future, could have a material
adverse affect on the Company's ability to obtain clients and maintain its
profitability.
The Company has numerous competitors in the fee-based products market,
including insurance companies, financial service institutions, other
membership-based consumer services providers and, to some degree, other credit
card issuers, many of which are larger, have more capital and are more
experienced than the Company. See "Business--Competition."
OTHER INDUSTRY RISKS
Other industry risks that the Company faces include the risk of fraud by its
clients and third parties and the risk that clients will repay their receivables
more rapidly than they have in the past, reducing the amount of interest paid to
the Company. In addition, certain critics of the credit card industry have
focused on marketing practices that they claim encourage consumers to borrow
more money than they should, as well as on pricing practices that they claim are
either confusing or result in prices that are too high. Increased criticism of
the industry or criticism of the Company in the future could hurt client
acceptance of the Company's products or lead to changes in the law or in the
applicable regulatory environment, which would have a material adverse effect on
the Company.
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK MARKET
Prior to the Offering, there has been no public market for the Common Stock.
There is a risk that an active trading market will not develop or that
purchasers of the Common Stock will not be able to resell their Common Stock at
prices equal to or greater than the Offering Price. The Offering Price of the
Common Stock was determined through negotiations between the Company and the
Representatives of the Underwriters (as defined herein) and may not reflect the
market price of the Common Stock after the Offering. See "Underwriting" for a
discussion of factors considered in determining the Offering Price.
In addition, the stock market has in recent years experienced extreme price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies. Such fluctuations, and general economic
and market conditions, may adversely affect the market price of the Common
Stock. Further, the market price of the Common Stock could be subject to
significant fluctuations in response to the Company's operating results and
other factors, including the performance of other credit card issuers or
consumer finance companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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<PAGE>
CONTROL BY MANAGEMENT AND CURRENT SHAREHOLDERS
Upon the completion of the Offering (assuming that the Underwriters' option
to purchase up to an additional shares of Common Stock from the Company
to cover over-allotments is not exercised), the Company's executive officers and
directors, in the aggregate, will beneficially own % of the outstanding
Common Stock of the Company. David G. Hanna and Frank J. Hanna, III, who are
brothers, will beneficially own, in the aggregate, % of the outstanding
Common Stock. As a result David G. Hanna and Frank J. Hanna, III and the
Company's executive officers and directors, in the aggregate, will be able to
exercise significant influence over all matters requiring shareholder approval,
including the election of directors and the approval of significant corporate
transactions. In addition, under the Company's Amended and Restated Articles of
Incorporation (the "Amended Articles"), to be effective concurrently with the
consummation of the Offering, the Board of Directors will have the authority to
issue undesignated preferred stock, no par value per share (the "Preferred
Stock"), and, subject to certain limitations, to determine the rights,
preferences, privileges and restrictions, including voting rights, of such
shares without any further vote or action by the shareholders. The voting power
of David G. Hanna and Frank J. Hanna, III and the Company's executive officers
and directors, or the issuance of Preferred Stock under certain circumstances,
could have the effect of delaying or preventing a change in control of the
Company. See "Principal Shareholders" and "Description of Capital Stock."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company will have no shares of Preferred Stock outstanding as of the
consummation of the Offering and has no current plans to issue Preferred Stock.
However, the Company's Amended Articles, to be effective concurrently with the
closing of the Offering, will authorize the Company to issue shares of Preferred
Stock in the future without shareholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, including voting
rights, as the Board of Directors of the Company may determine. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, a majority of
the outstanding voting stock of the Company. See "Description of Capital
Stock--Preferred Stock" and "--Anti-Takeover Effects of Provisions of the
Amended and Restated Articles of Incorporation."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock and could impair the Company's ability to raise capital.
Immediately after completion of the Offering, the Company will have
shares of Common Stock outstanding, of which the shares offered hereby
will be eligible for sale without regard to volume or other limitations pursuant
to Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), unless owned by "affiliates" of the Company, as
that term is defined under Rule 144. The Company and all of its existing
shareholders have agreed pursuant to lock-up agreements that, without the prior
written consent of PaineWebber Incorporated, on behalf of the Representatives
(as defined herein), they will not sell or otherwise dispose of any shares of
Common Stock beneficially owned by them for a period of 365 days from the date
of this Prospectus. PaineWebber Incorporated, on behalf of the Underwriters,
may, in its discretion and at any time without notice, release all or a portion
of the shares subject to these lock-up agreements. The Company intends to
register on one or more registration statements on Form S-8 1,200,000 shares of
Common Stock issuable under its Amended and Restated 1998 Stock Option Plan. In
addition, the holders of a total of 1,984,862 shares of Common Stock have the
right to require the Company to register such shares under the Securities Act
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<PAGE>
under certain circumstances. See "Description of Capital Stock--Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
YEAR 2000 PROBLEM
The Company's software systems may be hampered by software deficiencies
relating generally to formatting and date calculations stemming from the year
2000 (the "Year 2000 Problem"). In addition, the Year 2000 Problem also affects
the clients, suppliers and financial institutions with which the Company
transacts business. Although most of the Company's existing information systems
are less than two years old and were originally designed for year 2000
compliance, the Company has created a year 2000 project team to identify,
address and monitor internal systems and vendor issues related to the Year 2000
Problem. All internally developed information and operational systems, including
hardware, software, and systems interfaces, have been tested for year 2000
compliance and converted, where necessary, to a format the Company believes will
assure system and date integrity in the year 2000 and thereafter.
For functions or services provided by third party vendors, efforts are under
way to minimize the potential impact to the Company. The Company is monitoring
each vendor's progress in becoming year 2000 compliant. The Company's
contingency plans include the identification of substitute vendors who are
already year 2000 compliant who could potentially replace any existing third
party vendors. The Company's most critical outside vendors have provided their
year 2000 project plans to the Company and have warranted the accuracy and
reliability of systems, reports and data related to the performance of the
services provided by them in relation to the year 2000 issue. The Company
believes that its most significant year 2000 risks arise out of the possibility
that the legacy systems of its principal outside service provider, TSYS, may not
be year 2000 compliant. This vendor has an extensive, detailed plan to test for
and remediate any year 2000 problems. In addition, the Company's year 2000
project team is participating in testing being performed by TSYS to ensure its
year 2000 compliance. However, any failure by TSYS to fully remediate any year
2000 problems could have a material adverse effect on the Company. Although
management does not currently anticipate significant implementation problems,
the existence, nature and scope of the Year 2000 Problem and other
implementation problems cannot be accurately predicted at this time. To the
extent that the Year 2000 Problem associated with the Company's software systems
and the systems of its vendors is more extensive than management currently
anticipates, remediation of the Year 2000 Problem could have a material adverse
effect on the Company's results of operations or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Year 2000."
DILUTION
Purchasers of the Common Stock will experience immediate and substantial
dilution in net tangible book value per share of Common Stock of $ per
share based upon an Offering Price of $ per share. See "Dilution."
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<PAGE>
THE COMPANY
The Company is an information-based, technology-driven credit card company.
The Company originates and purchases credit card receivables and is a direct
marketer of fee-based products and services to its credit card clients. The
Company targets consumers who management believes are under-served by more
traditional providers of credit-related products. The Company's current credit
product is the Aspire Visa credit card, which the Company offers to its clients
on an unsecured basis. In addition, the Company markets products and services to
its clients for which it earns fees. These products include life insurance, card
registration, telecommunication products and services, memberships in preferred
buying clubs, travel services and debt waiver programs in the event of
disability or unemployment of the client.
The Company was formed as CompuCredit, L.P. in August 1996 and was merged
into CompuCredit Corporation in August 1997. The Company began soliciting
clients in February 1997. As of September 30, 1998, the Company had 78
employees. All of the Company's employees are based in Atlanta, Georgia.
CompuCredit's executive offices are located at Two Ravinia Drive, Suite
1750, Atlanta, Georgia, 30346, and its telephone number is (770) 901-5840.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $ million (or $ million if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions, and estimated Offering expenses payable
by the Company. The Company expects to use the net proceeds from the Offering to
finance the growth of the Company through the origination and purchase of credit
card receivables and for marketing costs, working capital and other general
corporate purposes. However, the Company has made no commitments that it will be
required to fund with the proceeds of the Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity,
Funding and Capital Resources" and "Business."
DIVIDEND POLICY
The Company currently intends to retain all future earnings after
consummation of the Offering for use in the expansion and operation of its
business. The Company does not anticipate paying dividends on the Common Stock
in the foreseeable future. The payment of future dividends will be at the sole
discretion of the Company's Board of Directors and will depend on, among other
things, future earnings, capital requirements, the general financial condition
of the Company and general business conditions.
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DILUTION
The pro forma net tangible book value of the Company at September 30, 1998,
after giving effect to (i) a 15.2-for-1 stock split to be effected concurrently
with the consummation of the Offering and (ii) the exchange of all of the
outstanding shares of the Company's Preferred Stock, including accrued dividends
thereon, for shares of Common Stock concurrently with the consummation of
the Offering, was $ , or $ per share. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares outstanding.
After giving effect to the receipt by the Company of the net proceeds from the
sale of the shares of Common Stock offered hereby at an assumed Offering Price
of $ per share, the pro forma, as adjusted, net tangible book value of
the Company at September 30, 1998 would have been $ , or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to the existing shareholders and an immediate
dilution of $ to new investors purchasing shares in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C>
Offering Price per share (1)................................... $
Pro forma net tangible book value per share as of September
30, 1998 (2).............................................
Increase in pro forma net tangible book value per share
attributable to new investors............................
Pro forma, as adjusted, net tangible book value per share after
the Offering(3)..............................................
Dilution per share to new investors............................ $
</TABLE>
- ------------------------
(1) Before deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company.
(2) After giving effect to (i) a 15.2-for-1 stock split to be effected
concurrently with the consummation of the Offering and (ii) the exchange of
all of the outstanding shares of the Company's Preferred Stock, including
accrued dividends thereon, for shares of Common Stock concurrently
with the consummation of the Offering.
(3) Excludes shares of Common Stock issuable upon exercise of options
to be granted pursuant to the Company's Amended and Restated 1998 Stock
Option Plan. See "Management--1998 Stock Option Plan."
The following table summarizes on a pro forma basis as of September 30,
1998, the differences between the existing shareholders and the new investors
(before deducting underwriting discounts and commissions and estimated Offering
expenses) with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share:
<TABLE>
<CAPTION>
SHARES OWNED AFTER THE OFFERING TOTAL CONSIDERATION
-------------------------------- --------------------------------
NUMBER PERCENT AMOUNT PERCENT
--------------- ------- ------- -------
<S> <C> <C> <C> <C>
Existing shareholders........................................
New investors................................................
Total..................................................
<CAPTION>
AVERAGE PRICE
PER SHARE
-------------------
<S> <C>
Existing shareholders........................................
New investors................................................
Total..................................................
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company (i)
on an actual basis as of September 30, 1998, (ii) on a pro forma basis giving
effect to (a) the 15.2-for-1 stock split to be effected concurrently with the
consummation of the Offering and (b) the exchange of all of the outstanding
shares of the Company's Preferred Stock, including accrued dividends thereon,
for shares of Common Stock concurrently with the consummation of the
Offering, and (iii) on such pro forma basis, as adjusted to reflect the sale of
shares of Common Stock by the Company at an assumed Offering Price of $
per share, after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company. The information below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Borrowings................................................................... $ -- $ $
Shareholders' Equity:
Preferred Stock, $100 par value; 500,000 shares authorized, 200,000 shares
issued and outstanding; 10,000,000 shares authorized, no shares issued
and outstanding, pro forma; no shares issued and outstanding pro forma,
as adjusted.............................................................. 20,000
Common Stock, no par value; 3,000,000 shares authorized; 2,130,583 shares
issued and outstanding; 60,000,000 shares authorized, shares issued
and outstanding, pro forma; shares issued and outstanding pro
forma, as adjusted....................................................... --
Additional paid-in capital................................................. 9,953
Retained earnings.......................................................... 19,146
--------- ----------- -----------
Total shareholders' equity................................................. 49,099
--------- ----------- -----------
Total capitalization....................................................... $ 49,099 $ $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth, for the periods indicated, certain selected
consolidated financial and other data for the Company. The selected consolidated
financial and other data below should be read in conjunction with the Company's
Consolidated Financial Statements and the related Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The following selected
financial data for the year ended December 31, 1997 and the period ended
December 31, 1996 are derived from the Company's audited Consolidated Financial
Statements, which have been audited by Ernst & Young LLP, independent auditors.
The financial data for the nine months ended September 30, 1998 and 1997 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for the period. Operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1998.
In order to provide funds for operations and to improve liquidity, in August
1997, the Company began selling (referred to as "securitizing") substantially
all of its credit card receivables through the Master Trust or through
wholly-owned special purpose entities to third party asset-backed commercial
paper conduits. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity, Funding and Capital Resources" and
"Business -- Securitizations." In each securitization transaction, the Company
removes such credit card receivables from its Balance Sheet and records a gain
on the sale. The Company manages, reviews and analyzes its financial performance
on a managed loan portfolio basis as if the receivables securitized were still
on the Company's Balance Sheet. The information in the following table under
"Selected Credit Card Data" is presented on a managed loan basis.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 1997 1998
----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Interest income.......................................... $ -- $ 2,658 $ 1,707 $ 1,220
Interest expense......................................... -- 361 361 536
------ ------------- ----------- -----------
Net interest income...................................... -- 2,297 1,346 684
Provision for loan losses................................ -- 1,422 763 --
Securitization income.................................... -- 628 (97) 27,774
Other operating income................................... -- 1,383 709 13,417
Other operating expense.................................. 148 3,611 1,991 9,378
------ ------------- ----------- -----------
Income (loss) before income taxes........................ (148) (725) (796) 32,497
Income taxes............................................. -- -- -- 12,478
------ ------------- ----------- -----------
Net income (loss)........................................ $ (148) $ (725) $ (796) $ 20,019
------ ------------- ----------- -----------
------ ------------- ----------- -----------
Net income (loss) attributable to common shareholders.... $ (1,341) $ (959) $ 18,669
------------- ----------- -----------
------------- ----------- -----------
PRO FORMA STATEMENT OF OPERATIONS
DATA (1):
Pro forma net income (loss) per share (unaudited)........ $ $ $
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Retained interests in credit card receivables securitized (2)......... $ -- $ 14,494 $ 16,634 $ 26,726
Amounts receivable from securitization (2)............................ -- 1,060 253 31,053
Total assets.......................................................... 253 20,215 19,997 68,170
Shareholders' equity.................................................. 152 19,127 19,056 49,099
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1996 1997 1997 1998
----------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
SELECTED CREDIT CARD DATA (3):
Average managed loans.................................... $ -- $ 11,151 $ 7,874 $ 259,266
Period-end managed loans................................. -- 27,899 17,325 406,297
Period-end total accounts................................ -- 45 19 249
Net interest margin on managed loans (4)................. --% 19.4% 20.9% 20.5%
Net charge-off ratio on managed loans (5)................ -- 3.6 1.2 8.4
Pro forma charge-off ratio on managed loans (6).......... -- 3.6 1.2 3.5
Delinquency ratio on managed loans (7)................... -- 5.3 3.7 10.5
</TABLE>
- ------------------------
(1) Pro forma per share information has been computed by dividing net earnings
or loss by the weighted average number of shares of Common Stock outstanding
during the period after giving effect to (i) a 15.2-for-1 stock split to be
effected concurrently with the consummation of the Offering, and (ii) the
exchange of all of the outstanding shares of the Company's Preferred Stock,
including accrued dividends thereon, for shares of Common Stock to be
effected concurrently with the consummation of the Offering.
(2) The Company's Balance Sheet includes undivided ownership interests in the
Master Trust (classified as "Retained Interests in Credit Card Receivables")
and interests in the wholly-owned special purpose entities (classified as
"Amounts Receivable from Securitization") through which the Company sells
its receivables under its asset-backed securitization programs. The retained
interests equal the amount of the retained certificates or participation
interests of each series held by the Company plus the amount of the
receivables in excess of the principal balance of the certificates or
participation interests. Substantially all of the Company's credit card
receivables have been securitized. As such, the Company has removed the
securitized credit card receivables from its Balance Sheet, and as
securitizations have occurred, the Company has also relieved the allowance
for loan losses.
(3) During the nine months ended September 30, 1998, the Company purchased a
portfolio of credit card receivables. The presented managed loan data
excludes certain of these receivables and the related accounts which at the
time of purchase were closed accounts in a certain delinquency status.
Management believes that these accounts were either in the process of being
charged off by the seller due to a contractual 180 day delinquency or were
likely to be charged off in the near term. Because of the accounts' closed
and delinquent status at the time of purchase, management believes that the
Company would have very little opportunity to influence the delinquency or
default rates of these accounts prior to charge-off. As such, the accounts,
the receivables and any activity in the accounts since the date of purchase
have been excluded from any managed loan data presented. At the time of
purchase, there were approximately 25,000 such accounts, representing 18% of
the accounts purchased, with $97.1 million of outstanding receivables.
(4) Includes the Company's net interest and late fee income less actual cost of
funds plus all costs associated with asset securitizations, including the
interest expense paid to the investors and the amortization of the portion
of the discount on the Company's purchased portfolio that is in excess of
discounts related to credit quality. See footnote (6).
(5) Net charge-off ratio reflects actual principal amounts charged off, less
recoveries, as a percentage of average managed loans on an annualized basis.
(6) As noted in foootnote (3), the Company purchased a portfolio during the nine
months ended September 30, 1998. The purchase price was at a substantial
discount from the face amount of the credit card receivables outstanding.
The discount totaled $211 million at the time of purchase. A portion of the
discount relates to $97.1 million in receivables identified by the Company
as being at or near charge-off at the time of purchase, and such receivables
are excluded from all managed loan data. Approximately $70 million of the
discount at the time of purchase related to the credit quality of the
remaining loans in the portfolio and reflects the difference between the
purchased face amount and the future cash collections management expects to
receive with respect to the purchased face amount. For purposes of reporting
pro forma charge-off ratios on managed loans, this discount related to
credit qualifty has been utilized to offset a portion of actual net
charge-offs. The remaining portion of the $211 million initial discount was
approximately $44 million at the time of purchase. Management considers this
$44 million to be a discount in excess of the discount the Company has
ascribed to the credit quality of the purchased receivables. The $44 million
discount is being amortized into interest income using the interest method
for purposes of managed loan reporting. See "Asset Quality--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(7) Delinquencies represent credit card receivables that were at least 60 days
past due at period end.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
CONSOLIDATED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND THE RELATED NOTES THERETO INCLUDED HEREIN. CERTAIN STATEMENTS IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" CONSTITUTE FORWARD-LOOKING STATEMENTS. SEE "PROSPECTUS
SUMMARY--FORWARD-LOOKING STATEMENTS."
GENERAL
CompuCredit is an information-based, technology-driven credit card company.
The Company originates and purchases credit card receivables and is a direct
marketer of fee-based products and services to its credit card clients. The
Company's current credit product is the Aspire Visa credit card, which the
Company offers to its clients on an unsecured basis. There are currently four
types of Aspire Visa branded cards: Classic, Gold, Platinum and Aspire Diamond.
In addition, the Company markets products and services to its clients for which
it earns fees. These products include life insurance, card registration,
telecommunication products and services, memberships in preferred buying clubs,
travel services and debt waiver programs in the event of disability or
unemployment of the client. The Company uses proprietary analytical techniques
and information provided by credit bureaus to target consumers who management
believes are under-served by more traditional providers of credit-related
products. Consumers in this under-served market typically rely more heavily on
finance companies and retail store credit cards to meet their consumer credit
needs and are less likely than others to have general-purpose credit cards. Some
of these consumers have had a delinquency, a default or, in some instances, a
bankruptcy in their credit histories, but have, in the Company's view,
demonstrated recovery, while other consumers in this target market are
establishing or expanding their credit.
Consumer credit product revenues consist of (i) interest income on
outstanding revolving credit card receivables, (ii) credit card fees, including
annual membership, cash advance, over-limit, past-due and other credit card
fees, and (iii) interchange fees, which are the portion of the merchant fee
assessed by Visa and passed on to the Company on the purchase volume on the
Company's credit card receivables. Non-interest income includes securitization
income, servicing income and fee-based product revenues. The expenses relating
to consumer credit products are typically the costs of funding the Company's
receivables, credit losses and operating expenses, including employee
compensation, account solicitation and marketing expenses, data processing and
servicing expenses.
The consolidated balance sheet as of September 30, 1998 and the related
statements of operations, shareholders' equity, and cash flows for the nine
months ended September 30, 1998 and 1997 included in the Company's Consolidated
Financial Statements have been prepared by the Company's management and are
unaudited. These interim financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the interim results. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from the interim financial
statements. The interim financial statements should be read in conjunction with
the Company's December 31, 1997 audited financial statements. The results of the
nine months ended September 30, 1998 may not be indicative of operating results
for the full year.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes forward-looking statements. The Company has based these
forward-looking statements on its current plans, expectations and beliefs about
future events. Words like "anticipates," "believes," "estimates," "expects,"
"plans," "intends" and other similar expressions as they relate to the Company
or its management are meant to identify forward-looking statements. In light of
the risks, uncertainties and assumptions discussed under the caption "Risk
Factors" in this Prospectus and other factors
21
<PAGE>
discussed in this section, there is a risk that the Company's actual experience
will differ from the expectations and beliefs reflected in the forward-looking
statements in this section. Moreover, with the passage of time the Company's
plans, expectations and beliefs will change. However, the Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
IMPACT OF CREDIT CARD SECURITIZATIONS
Since August 1997, the Company has actively engaged in asset-backed
securitization transactions and has adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("Statement No. 125"), effective January 1,
1997. Under Statement No. 125, the Company records gains or losses on the sale
(referred to as "securitization") of credit card receivables based on the
estimated fair value of assets obtained and liabilities incurred in the sale. To
date, the Company has sold substantially all of its credit card receivables
through the Master Trust or through wholly-owned special purpose entities to
third-party asset-backed commercial paper conduits administered by major banking
institutions. Gains represent the increases in the present value of estimated
cash flows the Company expects to receive over the estimated outstanding period
of the receivables and are reflected on the Company's Balance Sheet under
"Retained Interests in Credit Card Receivables Securitized" and "Amounts
Receivable from Securitization." These cash flows represent an "interest only"
("I/O") strip, consisting of the finance charges and past due fees in excess of
the sum of the return paid to the investors, servicing fees, credit losses and
required amortization payments.
Certain estimates inherent in the determination of the fair value of the I/O
strip, including credit losses and payment rates, could materially change in the
near term. These estimates affect the reported amounts of assets and liabilities
as well as the reported amount of revenues and expenses during the reporting
period. Significant assumptions used in the gain determination include estimates
of interest rates, default rates, payment rates, new purchases, servicing costs,
and discount rates. The discount rates are based on management's estimates of
returns that would be required by investors in an I/O strip with similar terms
and credit quality. The estimated interest rates used are based on the stated
annual percentage rates in the credit card agreements, adjusted for other
variables. Estimates of default rates, payment rates, new purchases, and
servicing costs are based on the portfolio's historical results, adjusted for
expected changes. Future gains reported in accordance with Statement No. 125
will be dependent on the timing and amount of future securitizations.
Significant securitization gains, like those recognized during the nine-months
ended September 30, 1998, are expected at the time of initial securitization.
The Company's estimates of future cash flows will change based on the Company's
assessment of the actual performance of new and existing securitizations.
A securitization generally involves, at the time of sale, the transfer by
the Company, or by a wholly-owned subsidiary of the Company created for the
securitization, of the credit card receivables generated by a pool of credit
card accounts to an entity or entities created for the securitization, generally
a trust or other special purpose entity (collectively referred to herein as the
"Special Purpose Entities" or "SPEs"). The SPEs typically issue certificates or
participation interests representing undivided interests in the receivables that
have been transferred to the SPEs. The credit quality of the receivables is
typically supported by credit enhancement which, among other things, includes
the subordination of the Company's retained interests in the receivables pool.
The securitization results in the removal of the receivables, other than the
Company's retained interests, from the Company's Balance Sheet for financial
reporting purposes. In general, the Company's current securitization structures
provide for the daily securitization of all new credit card receivables arising
under the securitized accounts. In each of its securitization programs, the
Company retains the risk of compliance with federal and state laws and
regulations regarding the securitized accounts and any fraudulent activity with
regard to such accounts.
22
<PAGE>
The receivables transferred to the SPEs include those outstanding in the
designated credit card accounts at the time of the initial transfer to the SPEs
and subsequent amounts arising under such accounts until the termination of the
securitization facility. The Company also transfers to the SPEs the cash
collected by it in payment of principal, interest and fees received on
securitized receivables. The Company receives proceeds from the sale of
certificates or participation interests in the SPEs to third-party commercial
paper conduits. These third-party commercial paper conduits are referred to
throughout this document as "investors." The Company received $12.7 million in
proceeds from securitizations during 1997 and $273.4 million for the nine-month
period ended September 30, 1998. These proceeds include amounts received at the
initial securitization and amounts received for new receivables arising in
accounts designated for the benefit of the SPEs. The Company did not securitize
receivables during 1996.
The amount of the receivables transferred to the SPEs exceeds the principal
amount of the certificates or participation interests issued to investors. The
Company retains an interest in the SPEs equal to the amount of retained
certificates held by the Company plus the amount of the receivables in excess of
the principal balance of the certificates or participation interests sold to
investors. The Company records these retained interests at fair value on its
Balance Sheet as "Retained Interests in Credit Card Receivables Securitized" or
"Amounts Receivable from Securitization." The Company's retained interests
fluctuate as clients make principal payments or incur new charges on the
securitized accounts. The Company had retained interests of $16.9 million at
September 30, 1997, $15.6 million at December 31, 1997 and $57.8 million at
September 30, 1998.
The Company services the credit card receivables that have been securitized
and receives servicing fees ranging up to 6.0% per year of the securitized
principal receivables. The Company provides all of the services typically
performed for its clients either directly or by contracting with third party
service providers. The securitization of the Company's receivables does not
affect the Company's relationship with its clients.
Investors are entitled to receive periodic interest payments at a floating
rate. In general, the Company's floating rate issuances are based on a spread
over the rate equivalent or the rate at which promissory notes are issued in the
commercial paper market (hereinafter, the "commercial paper rate"). Finance
charges and past due fees collected in excess of servicing fees and periodic
interest payments are available to absorb the investors' share of credit losses.
Investors bear the risk of default on the underlying receivables to the extent
that credit losses exceed finance charges and past due fees (net of servicing
fees and periodic interest payments) and the Company's retained interests in the
receivables pool. Investors in the Company's securitization programs are
generally entitled to receive principal payments either through monthly payments
during an amortization period or in one lump sum from the proceeds of issuances
of additional certificates or participation interests in the receivables pool.
Prior to the commencement of an amortization period, all principal payments
received on the SPEs' receivables are reinvested in new receivables generated in
accounts designated for the benefit of the applicable SPE. During an
amortization period, the investors receive their share of principal payments
until they are paid in full.
As an additional credit enhancement on one of the Company's securitization
programs, the Company pays the excess cash collected to the investors as an
accelerated amortization payment. This excess cash includes both principal and
finance charge collections on the SPE's receivables in excess of the periodic
interest payments to investors, servicing fees and new purchases of principal
receivables. Once the investors are repaid, any remaining receivables and funds
held in the SPE are payable to the Company.
23
<PAGE>
MANAGED LOAN PORTFOLIO
As of August 1997, the Company began securitizing substantially all of its
credit card receivables. The securitization results in the removal of the
receivables from the Company's Balance Sheet for financial reporting purposes.
The Company manages, reviews and analyzes its financial performance on a
"managed loan" portfolio basis as if the receivables securitized were still on
the Company's Balance Sheet.
The following table indicates the Company's net interest margin on a managed
loan basis as if the receivables were not securitized and removed from the
Company's Balance Sheet. The table also indicates the ending and average managed
loans and the number of managed accounts. Interest income for the Company on a
managed loan basis includes all net interest and late fee income on all
outstanding loans less all costs associated with securitizations, including the
interest expense paid to the investors.
During the quarter ended June 30, 1998, the Company purchased a portfolio of
credit card receivables with an outstanding receivables balance at the time of
purchase in excess of $400 million. The presented managed loan data excludes
certain of these receivables and the related accounts which at the time of
purchase were closed accounts in a certain delinquency status. Management
believes that these accounts were either in the process of being charged off by
the seller due to a contractual 180 day delinquency or were likely to be charged
off in the near term. As a result, management believes that the Company would
have very little opportunity to influence the delinquency or default rates of
these accounts prior to charge-off. As such, the accounts, the receivables and
any activity in the accounts since the date of purchase have been excluded from
any managed loan data presented. At the time of purchase, there were
approximately 25,000 such accounts representing 18% of the accounts purchased
and $97.1 million of the over $400 million outstanding receivables purchased.
The portfolio acquired during the quarter ended June 30, 1998 was purchased
at a substantial discount. A portion of the discount at the time of purchase
related to the credit quality of the remaining loans in the portfolio and
reflects the difference between the purchased face amount and the future cash
collections management expects to receive with respect to the purchased face
amount. The substantial discount received by the Company on the purchased
portfolio exceeds the discount the Company has ascribed to the credit quality of
the purchased receivables. As such, the excess discount is reported as
additional interest income over the life of the portfolio for managed loan
reporting and is being amortized into interest income using the interest method.
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997 1998 1998 1998
----------- ------------- ------------- ----------- --------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Period-end total managed loans...... $ 13,192 $ 17,325 $ 27,899 $ 44,089 $ 397,500 $ 406,297
Period-end total managed accounts... 17 19 45 51 202 249
Total average managed loan
portfolio......................... $ 7,798 $ 15,762 $ 20,983 $ 37,886 $ 337,161 $ 402,751
Net interest margin on managed
loans, annualized................. 19.9% 22.0% 17.7% 13.9% 22.7% 19.3%
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Net income for the nine months ended September 30, 1998 was $20.0 million,
an increase of $20.8 million over a net loss of $796,000 for the same period in
1997. The increase in net income was the result of increases in both net
securitization gains of $27.9 million and other operating income of $12.7
million. Such net securitization gains were the result of the Company
securitizing substantially all of its credit card receivables beginning in
August 1997. The increases in income were partially offset by
24
<PAGE>
increases in other operating expenses of $7.4 million and income tax expense of
$12.5 million. These increases were largely attributable to the growth in
managed loans from $17.3 million at September 30, 1997 to $406.3 million at
September 30, 1998. The increase in managed loans was the result of a portfolio
purchase completed in the second quarter of 1998, as well as direct mail and
telemarketing campaigns.
Other operating income increased $12.7 million from $709,000 for the nine
months ended September 30, 1997 to $13.4 million for the nine months ended
September 30, 1998, primarily due to a $9.2 million increase in servicing income
and a $2.2 million increase in the Company's other credit card fees. The Company
receives servicing fees ranging up to 6.0% per year of the securitized principal
receivables and other credit card fees, including credit card fees such as
annual membership, over-limit and cash advance fees.
Other operating expenses increased to $9.4 million for the nine months ended
September 1998, from $2.0 million for the same period in 1997. This increase
primarily reflects the increase in the cost of operations associated with the
growth in the Company's business, including $3.9 million of additional marketing
and solicitation expenses incurred during the 1998 period.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO PERIOD FROM AUGUST 14, 1996
(INCEPTION) TO DECEMBER 31, 1996
The Company began soliciting clients in February 1997. Managed loans grew to
$27.9 million as of December 31, 1997, compared with no managed loans as of
December 31, 1996.
Net securitization income and other operating income increased from $0 for
the period from August 14, 1996 (inception) to December 31, 1996, to $2.0
million for the year ended December 31, 1997. Other operating expense increased
to $3.6 million for the year ended December 31, 1997 from $148,000 for the
period from August 14, 1996 (inception) to December 31, 1996. This increase
primarily reflects the increase in the cost of operations associated with the
growth in the Company's business, including $1.1 million of marketing and
solicitation costs and $1.0 million of credit card servicing costs during the
year ended December 31, 1997.
NET INTEREST INCOME
Net interest income consists of net interest earned on the Company's
retained interests in securitized credit card receivables. It also includes
interest and late fees earned on the Company's owned credit card receivables
(prior to securitizations), less interest expense on borrowings to fund such
receivables. Prior to August 1997, the Company's interest income was earned on
all outstanding credit card receivables. In August 1997, the Company began
securitizing substantially all of its credit card receivables. The
securitization results in the removal of the receivables from the Company's
Balance Sheet for financial reporting purposes. A retained interests is recorded
at fair value on the Company's Balance Sheet. The Company receives cash flows
relating to this retained interests equal to the finance charges and past due
fees in excess of the sum of the return paid to investors, estimated contractual
servicing fees, credit losses and required amortization payments. This cash flow
received on the Company's retained interests is recorded as interest income. The
Company began issuing credit cards in 1997 and, therefore, did not recognize any
interest income for the period from August 14, 1996 (inception) to December 31,
1996. Interest income totaled $2.7 million for the year ended December 31, 1997
and decreased from $1.7 million for the nine months ended September 30, 1997 to
$1.2 million for the same period in 1998. Because the Company began securitizing
substantially all of its credit card receivables beginning in August 1997,
interest income does not proportionately change with changes in managed loans.
See "--Impact of Credit Card Securitizations."
Interest expense for the nine months ended September 30, 1998 increased to
$536,000 from $361,000 for the nine months ended September 30, 1997. In April
1998, the Company entered into a promissory note with a related party in the
face amount of $13.0 million. In July 1998, the note and all
25
<PAGE>
accrued interest were paid in full. Interest expense for the year ended December
31, 1997 totaled $361,000 and related to short-term borrowings that were paid in
full in August 1997. Interest expense for the period from August 14, 1996
(inception) to December 31, 1996 was $0.
NET SECURITIZATION INCOME
Net securitization income represents increases in the present value of
estimated cash flows the Company expects to receive over the estimated life of
the receivables securitized. The cash flows represent finance charges and
past-due fees in excess of the sum of the return paid to the investors,
servicing fees, credit losses and required amortization payments. Securitization
income is recognized at the time of the initial securitization and is recognized
throughout the securitization period on the credit card receivables arising
under the accounts after the initial sale. Net securitization income for the
nine months ended September 30, 1998 increased to $27.8 million from expense of
$97,000 for the nine months ended September 30, 1997. The Company capitalizes
certain amounts paid to third parties related to its credit card receivable
securitizations. Such amounts include legal fees and fees incurred for services
provided for establishing securitization facilities that have ongoing benefit to
the Company, such as the Master Trust which the Company expects to utilize for
future securitizations. Since the Company did not begin securitizing receivables
until August 1997, the amortization expense related to these capitalized costs
exceeded the securitization income earned during the period ended September 30,
1997, resulting in net expense for that period. Net securitization income for
the year ended December 31, 1997 totaled $628,000 and was $0 for the period from
August 14, 1996 (inception) to December 31, 1996.
The increase in the Company's net securitization income is due to the
increase in the volume of credit card receivables securitized. The Company did
not securitize any credit card receivables until August 1997. The Company
securitized credit card receivables with total outstanding principal receivable
balances of $30.8 million during the year ended December 31, 1997 and
securitized $462.3 million for the nine-month period ended September 30, 1998.
These reported amounts include both the outstanding principal balances of credit
card accounts at the time the accounts were securitized and the outstanding
receivables arising under the accounts after the initial sale. The significant
increase in the total receivables securitized during the nine months ended
September 30, 1998 is due in part to the outstanding credit card receivables
securitized by the Company relating to a portfolio purchased by the Company
during the nine months ended September 30, 1998.
OTHER OPERATING INCOME
Other operating income consists of the following for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM ENDED SEPTEMBER 30,
AUGUST 14, 1996
(INCEPTION) TO YEAR ENDED --------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
--------------------- ------------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Servicing income...................................... $ -- $ -- $ -- $ 9,178
Other credit card fees................................ -- 911 546 2,765
Interchange fees...................................... -- 279 152 1,087
Ancillary products.................................... -- 37 11 387
Other................................................. -- 156 -- --
----- ------ --------- ---------
Total other operating income...................... $ -- $ 1,383 $ 709 $ 13,417
----- ------ --------- ---------
----- ------ --------- ---------
</TABLE>
26
<PAGE>
The Company began soliciting clients in February 1997, and as a result, the
Company had no operating income from August 14, 1996 (inception) to December 31,
1996 and only $709,000 for the nine months ended September 30, 1997. The
significant increase in other operating income to $13.4 million for the first
nine months of 1998 relates to the growth in the Company's managed loan
portfolio over that same nine-month period. The Company's managed loans grew
from $27.9 million at December 31, 1997 to $406.3 million at September 30, 1998.
The Company services the credit card receivables that have been securitized and
recognized servicing income ranging up to 6.0% of the average principal
receivables outstanding during the period. Other credit card fees include credit
card fees such as annual membership, over-limit and cash advance fees.
Interchange fees are the portion of the merchant fee assessed by Visa and passed
on to the Company on the purchase volume on the Company's credit card
receivables. Ancillary product revenues are associated with the fee-based
products and services that the Company markets to its clients.
OTHER OPERATING EXPENSE
Other operating expense consists of the following for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
AUGUST 14, 1996 SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED --------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
--------------------- ------------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and benefits................................. $ -- $ 429 $ 260 $ 731
Credit card servicing................................. -- 1,008 651 1,669
Marketing and solicitation............................ 27 1,081 340 4,289
Professional fees..................................... 20 252 211 604
Data processing....................................... -- 156 88 959
Net occupancy......................................... -- 35 19 111
Ancillary product expense............................. -- -- -- 213
Other................................................. 101 650 422 802
----- ------ --------- ---------
Total other operating expense..................... $ 148 $ 3,611 $ 1,991 $ 9,378
----- ------ --------- ---------
----- ------ --------- ---------
</TABLE>
Other operating expense for the nine months ended September 30, 1998
increased to $9.4 million from $2.0 million for the nine months ended September
30, 1997 due primarily to increases in marketing and solicitation, credit card
servicing and data processing expenses. Other operating expense for the year
ended December 31, 1997 increased to $3.6 million from $148,000 for the period
from August 14, 1996 (inception) to December 31, 1996. This increase primarily
reflects increased credit card servicing and marketing and solicitation
expenses. In each case, the increases in operating expenses were associated with
the growth in the Company's credit card receivables. Ancillary product expenses
relate to the Company's debt waiver products and include expenses associated
with claim reserves and program administrative expenses. Other expenses include
depreciation and other general and administrative costs.
INCOME TAXES
As further described in Note 1 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus, the Company was a limited
partnership until it merged into a corporation on August 29, 1997. For the
period from August 14, 1996 (inception) through August 28, 1997, the entity was
a limited partnership, and, as a result it did not record an income tax
provision. Because the Company did not have income related to its activities for
the year ended December 31, 1997, it did not record an income tax provision for
that year. The Company recognized a deferred tax asset for the year ended
December 31, 1997 due to certain tax loss carryforwards, but recorded a
valuation allowance related to the deferred asset, resulting in a net deferred
tax asset of $0.
27
<PAGE>
The Company's provision for income taxes since merging into a corporation
includes both federal and state income taxes. Tax expense for the nine months
ended September 30, 1998 was $12.5 million. The Company's effective tax rate was
38.4% for the nine months ended September 30, 1998.
ASSET QUALITY
The Company's delinquency and net loan charge-off rates at any point in time
reflect, among other factors, the credit risk of receivables, the average age of
the Company's credit card accounts, the timing of portfolio purchases, the
success of the Company's collection and recovery efforts and general economic
conditions. The average age of the Company's credit card account portfolio
affects the stability of delinquency and loss rates of the portfolio.
The Company's strategy for managing delinquency and loan losses consists of
active account management throughout the client relationship. This strategy
includes credit line management and risk-based pricing so that the Company
maintains an acceptable profit margin based on the risk of the credit card
accounts.
DELINQUENCIES. Delinquencies have the potential to impact earnings in the
form of net loan losses which impact the value of the Company's retained
interests in securitizations. Delinquencies are also costly in terms of the
personnel and resources dedicated to resolving them. A credit card account is
contractually delinquent if the minimum payment is not received by the specified
date on the client's statement. It is the Company's policy to continue to accrue
interest and fee income on all credit card accounts, except in limited
circumstances, until the account and all related loans, interest and other fees
are charged off. See "--Net Charge-Offs."
The following table presents the delinquency trends of the Company's credit
card receivables portfolio on a managed loan portfolio basis:
<TABLE>
<CAPTION>
AT THE QUARTER ENDED
-----------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1998
------------------------ ------------------------ ------------------------ -----------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT
----------- ----- ----------- ----- ----------- ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL MANAGED LOAN PORTFOLIO (1):
Loans Delinquent:
30 to 59 days................... $ 81 0.6% $ 500 2.9% $ 678 2.4% $ 928
60 to 89 days................... -- 0.0 330 1.9 446 1.6 531
90 or more...................... -- 0.0 314 1.8 1,021 3.7 1,135
-- -- --
----- ----------- ----------- -----------
Total 30 or more.............. $ 81 0.6% $ 1,144 6.6% $ 2,145 7.7% $ 2,594
-- -- --
-- -- --
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Total 60 or more.............. $ -- 0.0% $ 644 3.7% $ 1,467 5.3% $ 1,666
-- -- --
-- -- --
----- ----------- ----------- -----------
----- ----------- ----------- -----------
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
---------------------- ----------------------
% OF % OF % OF
TOTAL AMOUNT TOTAL AMOUNT TOTAL
----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
TOTAL MANAGED LOAN PORTFOLIO (1):
Loans Delinquent:
30 to 59 days................... 2.1% $ 21,294 5.4% $ 27,186 6.7%
60 to 89 days................... 1.2 12,824 3.2 17,119 4.2
90 or more...................... 2.6 4,053 1.0 25,596 6.3
-- --
--------- --------- ---
Total 30 or more.............. 5.9% $ 38,171 9.6% $ 69,901 17.2%
-- --
-- --
--------- --------- ---
--------- --------- ---
Total 60 or more.............. 3.8% $ 16,877 4.2% $ 42,715 10.5%
-- --
-- --
--------- --------- ---
--------- --------- ---
</TABLE>
- ------------------------
(1) During the quarter ended June 30, 1998, the Company purchased a portfolio of
credit card receivables. The presented managed loan delinquency data
excludes certain of these receivables and the related accounts, which at the
time of purchase were closed accounts in a certain delinquency status.
Management believes that these accounts were either in the process of being
charged off by the seller due to a contractual 180 day delinquency or were
likely to be charged off in the near term. Because of the accounts' closed
and delinquent status at the time of purchase, management believes that the
Company would have very little opportunity to influence the delinquency or
default rates of these accounts prior to charge-off. As such, the accounts
and the receivables have been excluded from the managed loan delinquency
data presented. At the time of purchase, there were approximately 25,000
such accounts, representing 18% of the accounts purchased, with $97.1
million of outstanding receivables.
The significant increase in the Company's delinquencies beginning in the
quarter ended June 30, 1998 is due in part to the portfolio purchase that
occurred in that period. The increase throughout the periods presented is also
due to an increase in the average age of the Company's originated portfolio
28
<PAGE>
during these periods. The following table separately reports the Company's loan
delinquency trends for its originated portfolio and for its purchased portfolio:
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1997 1998 1998
------------- ----------------- ----------------- --------------- -----------
<CAPTION>
% OF TOTAL
---------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Originated Portfolio
Loans Delinquent:
30 to 59 days.............................. 0.6% 2.9% 2.4% 2.1% 2.7%
60 to 89 days.............................. -- 1.9 1.6 1.2 1.9
90 or more................................. -- 1.8 3.7 2.6 3.0
-- -- -- --
---
Total 30 or more............................. 0.6% 6.6% 7.7% 5.9% 7.6%
-- -- -- --
-- -- -- --
---
---
Total 60 or more............................. 0.0% 3.7% 5.3% 3.8% 4.9%
-- -- -- --
-- -- -- --
---
---
Purchased Portfolio (1)
Loans Delinquent:
30 to 59 days.............................. -- -- -- -- 5.9%
60 to 89................................... -- -- -- -- 3.5
90 or more................................. -- -- -- -- 0.6
-- -- -- --
---
Total 30 or more............................. -- -- -- -- 10.0%
-- -- -- --
-- -- -- --
---
---
Total 60 or more............................. -- -- -- -- 4.1%
-- -- -- --
-- -- -- --
---
---
<CAPTION>
<S> <C>
SEPTEMBER 30,
1998
-----------------
<S> <C>
Originated Portfolio
Loans Delinquent:
30 to 59 days.............................. 3.1%
60 to 89 days.............................. 2.2
90 or more................................. 4.2
---
Total 30 or more............................. 9.5%
---
---
Total 60 or more............................. 6.4%
---
---
Purchased Portfolio (1)
Loans Delinquent:
30 to 59 days.............................. 7.8%
60 to 89................................... 4.8
90 or more................................. 7.0
---
Total 30 or more............................. 19.6%
---
---
Total 60 or more............................. 11.8%
---
---
</TABLE>
- ------------------------------
(1) At dates prior to the quarter ended June 30, 1998, the Company did not have
a purchased portfolio.
The Company began originating accounts in February 1997. As the average age
of the Company's originated portfolio increases, it is likely that delinquency
rates will increase.
During the quarter ended June 30, 1998, the Company purchased a portfolio.
The purchase price was at a substantial discount from the face amount of the
credit card receivables outstanding. The discount totaled $211 million at the
time of purchase. A portion of the discount related to $97.1 million in
receivables identified by the Company as being at or near charge-off at the time
of purchase, and these receivables are excluded from all managed loan data. The
$97.1 million of receivables were primarily in loan delinquency categories of 60
or more days past due. As of June 30, 1998, this left very few accounts
remaining in certain delinquency categories presented in the preceding table.
During the quarter ended September 30, 1998, accounts rolled into the
delinquency categories that were previously low due to the account exclusion
noted above. The Company also estimated that an additional $70 million of the
discount at the time of purchase related to the credit quality of the remaining
loans in the portfolio and reflects the difference between the purchased face
amount and the future cash collections management expected to receive with
respect to the purchased face amount. Until these accounts charge off, it is
management's expectation that the purchased portfolio will continue to have
delinquency rates substantially higher than its originated portfolio.
NET CHARGE-OFFS. Net charge-offs include the principal amount of losses
from clients unwilling or unable to pay their loan balance, as well as bankrupt
and deceased clients, less current period recoveries. Net charge-offs exclude
accrued finance charges and fees, which are charged against the related income
at the time of charge-off. Losses from fraudulent activity in accounts are also
excluded from net charge-offs and are included separately in other operating
expenses. The Company generally charges off loans during the period in which the
loan becomes contractually 180 days past due. However, bankrupt accounts and the
accounts of deceased clients without a surviving, contractually liable
individual or an estate large enough to pay the debt in full are charged off
immediately upon notification of the client's bankruptcy or death.
29
<PAGE>
As previously noted, the Company excluded from managed loan data closed
accounts in a certain delinquency status and their related receivables. As of
June 30, 1998, this left very few accounts remaining in certain of the
delinquency categories presented in the preceding table. In future quarters,
purchased accounts will move into the delinquency categories presented in the
previous table, which initially contained fewer accounts due to the exclusion.
Since charge-offs are correlated with late stage delinquency categories, the
Company expects the net charge-offs experienced on its receivables portfolio to
increase in future quarters. The Company plans to continue to focus its
resources on refining its credit underwriting standards for new accounts and to
increase its focus on collection and post charge-off recovery efforts to
minimize losses. The following table presents the Company's net charge-offs for
the periods indicated on a managed loan portfolio basis:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997 1998 1998 1998
----------- ------------- ------------- ----------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TOTAL MANAGED LOAN PORTFOLIO :
Average loans outstanding........... $ 7,798 $ 15,762 $ 20,983 $ 37,886 $ 337,161 $ 402,751
Net charge-offs..................... 1 70 334 928 3,600 11,833
Pro forma net charge-offs........... 1 70 334 928 1,179 3,584
Net charge-offs as a percentage of
average loans outstanding
(1)(2)............................ 0.1% 1.8% 6.4% 9.8% 4.3% 11.8%
Pro forma charge-off
percentage(1)(2).................. 0.1 1.8 6.4 9.8 1.7 4.2
</TABLE>
- ------------------------
(1) Annualized.
(2) During the quarter ended June 30, 1998, the Company purchased a portfolio.
The purchase price was at a substantial discount from the face amount of the
credit card receivables outstanding. The discount totaled $211 million at
the time of purchase. A portion of the discount relates to the $97.1 million
in receivables identified by the Company as being at or near charge-off at
the time of purchase, and such receivables are excluded from all managed
loan data. Approximately $70 million of the discount at the time of purchase
related to the credit quality of the remaining loans in the portfolio and
reflects the difference between the purchased face amount and the future
cash collections management expects to receive with respect to the purchased
face amount. For purposes of reporting pro forma charge-off ratios on
managed loans, this discount related to credit quality has been utilized to
offset a portion of actual net charge-offs.
CREDIT LOSSES. For securitized receivables, anticipated losses are
reflected in the calculations of net securitization income. Provisions for loan
losses are made in accordance with Statement of Financial Accounting Standards
No. 5 ("Statement No. 5"), which requires provisions in amounts necessary to
maintain the allowance at a level estimated to be sufficient to absorb probable
future losses of principal and earned interest, net of recoveries (including
recovery of collateral, if applicable). In evaluating credit losses, the Company
takes into consideration several factors, including (i) historical charge-off
and recovery activity by receivables portfolio, (ii) recent and expected
delinquency and collection trends by receivables portfolio, (iii) the impact of
current economic conditions and recent economic trends on the clients' ability
to repay and (iv) the risk characteristics of the portfolios. The Company uses
historical loss information from third parties has been used to refine estimated
delinquency patterns by credit risk pool. This external data consists of the
results from a test conducted by a third party contracted by the Company which
analyzed a group of consumers management believed to be very similar to the
Company's target market and additional credit risk data obtained from two other
external portfolios.
Substantially all of the Company's credit card receivables have been
securitized. As the Company has securitized its receivables it has removed them
from its Balance Sheet and has also relieved any allowance for loan losses on
its Balance Sheet.
30
<PAGE>
INTEREST RATE SENSITIVITY AND MARKET RISK
Interest rate sensitivity is comprised of basis risk and gap risk. Basis
risk is caused by the difference in the interest rate indices used to price
assets and liabilities. Gap risk is caused by the difference in repricing
intervals between assets and liabilities. Market risk is the risk of loss from
adverse changes in market prices and rates. The Company's principal market risk
is related to changes in interest rates. This affects the Company directly in
its lending and borrowing activities, as well as indirectly as interest rates
may impact the payment performance of the Company's clients.
The Company attempts to minimize the impact of market interest rate
fluctuations on net interest income and net income by regularly evaluating the
risk inherent in its asset and liability structure, including its off-balance
sheet assets and liabilities such as securitized receivables. This risk arises
from continuous changes in the Company's asset and liability mix, changes in
market interest rates, including changes affected by fluctuations in the yield
curve, payment trends on the Company's interest-bearing assets and payment
requirements on the Company's interest-bearing liabilities, and the general
timing of all other cash flows. To manage the Company's direct risk to market
interest rates, management actively monitors market interest rates and the
interest sensitive components of the Company's managed balance sheet. Management
seeks to minimize the impact of changes in interest rates on the fair value of
assets, net income and cash flow primarily by matching asset and liability
repricings. There can be no assurance that management will be successful in its
attempt to manage such risks.
The Company attempts to minimize gap risk by utilizing variable interest
rates in pricing its securitization transactions in an effort to match the
variable rate pricing of the underlying receivables sold to the SPEs. At
September 30, 1998, all of the Company's credit card receivables and other
interest-bearing assets had variable rate pricing, with loans carrying annual
percentage rates at a spread over the prime rate, subject to certain interest
rate floors. At September 30, 1998, the Company had $229.8 million in variable
rate, interest-bearing liabilities, both on-balance sheet and through
securitizations. Since both managed interest-bearing assets and liabilities
reprice every 30 days, the Company believes that the impact of a change in
interest rates would not be material to the financial performance of the
Company.
The Company incurs basis risk because it funds managed assets at a spread
over the commercial paper rate while the rates on the underlying assets are
indexed to the prime rate. This basis risk results from the potential
variability in the spread between the prime rate and the commercial paper rate
over time. The Company has not currently hedged or altered this basis risk due
to the cost of hedging such risk versus the benefits from elimination of this
risk.
The Company believes it is not exposed to any material foreign currency
exchange rate risk or commodity price risk.
LIQUIDITY, FUNDING AND CAPITAL RESOURCES
The Company's goal is to maintain an adequate level of liquidity through
active management of assets and liabilities. Because the characteristics of the
Company's assets and liabilities change, liquidity management is a dynamic
process affected by the pricing and maturity of the Company's assets and
liabilities.
A significant source of liquidity for the Company has been the
securitization of credit card receivables. During the year ended December 31,
1997, and for the first nine months of 1998, the Company received net proceeds
of $12.7 million and $273.4 million, respectively, from sales of its credit card
receivables through securitizations. The Company used cash generated from these
transactions to reduce short-term borrowings and to fund further credit card
receivables growth. In addition, in April 1998, the Company entered into a
promissory note with a related party in the face amount of $13.0 million. In
July 1998, the note and all accrued interest were paid in full. In August 1998,
the
31
<PAGE>
Company issued shares of Common Stock to an unrelated investor for cash proceeds
of $10.0 million. In November 1998, the Company purchased a portfolio of credit
card receivables. The portfolio included approximately 58,000 accounts and in
excess of $130.0 million in receivables. The Company financed this purchase
primarily through a securitization with a new securitization facility.
The maturity terms of the Company's securitizations vary. Once repayment
begins, payments from clients on credit card receivables are accumulated for the
SPEs' investors and are no longer reinvested in new credit card receivables. At
that time, the Company's funding requirements for such new credit card
receivables will increase accordingly. The occurrence of certain events may also
cause the securitization transactions to amortize earlier than scheduled. Such
events include, in the case of the Company's Master Trust, a decline in the
securitized receivables portfolio's annual yield (the sum of finance charges and
past due fees, less servicing fees and net credit losses) below a base rate
(generally equal to the weighted average rate of interest on the certificates).
In the case of the Company's other securitization programs, such events include
an increase in the charge-off rates or a decline in the payment rates in excess
of certain agreed upon thresholds. These events would accelerate the need to
utilize alternative funding sources. Under each of the Company's securitization
structures, the applicable amortization period, if any, has not yet commenced.
The Company believes that securitizations will continue to be a reliable source
of funding but can give no assurance that securitizations will provide
sufficient funding. As of , the Company had total
securitization facilities of $ and had utilized $ of such facilities.
YEAR 2000
The Year 2000 Problem is a result of computer programs using two digit years
instead of four digits. As a result, these computer programs do not properly
recognize dates in any year that begins with "20" instead of "19" and may
malfunction when presented with such dates. The Year 2000 Problem may effect not
only the Company's software systems, but also critical software used by
suppliers of goods and services and financial institutions with which the
Company does business.
Although most of the Company's existing information systems are less than
two years old and were originally designed for year 2000 compliance, the Company
has created a year 2000 project team to identify, address and monitor internal
systems and vendor issues related to the Year 2000 Problem. The Company has
tested all internally developed information and operational systems, including
hardware, software, and systems interfaces, for year 2000 compliance. Where
necessary, the Company has converted such systems to a format that the Company
believes will assure system and data integrity in the year 2000 and thereafter.
Although the Company expects to have all of its internal system modifications
complete by the end of 1998, unforeseen problems could arise in the year 2000
giving rise to delays and malfunctions which may impact the Company's results of
operations. In addition, the Company is discussing with outside third party
providers of services, systems and networks whether these outside vendors have
satisfactorily addressed their year 2000 systems issues. The Company's most
critical outside vendors have provided their year 2000 project plans. These
vendors have warranted the accuracy and reliability of systems, reports, and
data related to the performance of the services provided by them and their
affiliates in relation to the year 2000 issue. Due to its critical nature, the
Company will participate in the year 2000 testing of its credit card processor,
TSYS, during the first two quarters of 1999. Although the Company is taking
these and other precautionary measures to assure that it is not vulnerable to
the failure by its third party vendors to make necessary system modifications,
there can be no assurance that the Company's third party vendors will
successfully address all of their year 2000 issues. The Company has contingency
plans that include, in the event of vendor or software non-compliance,
identification and replacement of critical products or services as appropriate.
The Company believes that it has adequate resources to achieve year 2000
compliance for any of its systems which are found to be non-compliant. The
Company's costs associated with the year 2000 issue relate primarily to the
management of vendor project plans and participation in testing. If the
32
<PAGE>
Company determines that its non-information technology systems and office
equipment will not be year 2000-compliant, then the Company will incur the
replacement cost of those systems. The Company is currently preparing cost
estimates for those systems. However, management does not believe that these
costs will have a material impact on the Company's results of operations or
financial condition. The majority of the products used by the Company are either
year 2000-compliant at present or can be replaced with a year 2000-compliant
product or vendor at costs not materially different from current costs. The
Company believes that there is, however, a significant risk that the legacy
systems of TSYS include unremediated Year 2000 Problems. This vendor has an
extensive plan to develop and test its systems for compliance. However, any
failure by TSYS to fully remediate its Year 2000 Problem could have a material
adverse effect on the Company. As such, the Company plans to be proactive in the
monitoring of TSYS' year 2000 project plans.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company implemented FASB Statement of Financial
Accounting Standards No. 130 ("Statement No. 130"), which established new rules
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Application of Statement No.
130 has not impacted amounts previously reported for net income or affected the
comparability of previously issued financial statements, as the Company
currently has no financial statement items included in the definition of
comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14.
"Financial Reporting for Segments of a Business Enterprise." Statement No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement No. 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company will adopt the new standard beginning with its annual
financial statements for the year ended December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed For or Obtained For Internal Use" ("SOP 98-1"). SOP
98-1 is effective for the Company beginning on January 1, 1999. SOP 98-1 will
require the capitalization of certain costs incurred after the date of adoption
in connection with developing or obtaining software for internal use. Adoption
of SOP 98-1 is not expected to have a material impact on the results of
operations or financial position of the Company.
In April 1998, the AICPA issued Statement of Position 98-5 "Reporting the
Costs of Start Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start up costs and organization costs and is effective
for fiscal years beginning after December 15, 1998. Adoption of SOP 98-5 is not
expected to have a material impact on the results of operations or financial
position of the Company.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which is required to
be adopted in years beginning after June 15, 1999. Adoption of Statement No. 133
is not expected to have a material impact on the results of operations or
financial position of the Company.
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BUSINESS
THE COMPANY
CompuCredit is an information-based, technology-driven credit card company.
The Company originates and purchases credit card receivables and is a direct
marketer of fee-based products and services to its credit card clients. The
Company's current credit product is the Aspire Visa credit card, which the
Company offers to its clients on an unsecured basis. There are currently four
types of Aspire Visa branded cards: Classic, Gold, Platinum and Aspire Diamond.
In addition, the Company markets products and services to its clients for which
it earns fees. These products include life insurance, card registration,
telecommunication products and services, memberships in preferred buying clubs,
travel services and debt waiver programs in the event of disability or
unemployment of the client. The Company uses proprietary analytical techniques
and information provided by credit bureaus to target consumers who management
believes are under-served by more traditional providers of credit-related
products. Consumers in this under-served market typically rely more heavily on
finance companies and retail store credit cards to meet their consumer credit
needs and are less likely than others to have general-purpose credit cards. Some
of these consumers have had a delinquency, a default or a bankruptcy in their
credit histories, but have, in the Company's view, demonstrated recovery. Other
consumers in this target market are establishing or expanding their credit.
The Company was formed in August 1996 and has grown significantly since it
began soliciting clients in February 1997. For the nine months ended September
30, 1998, the Company had net income of $20.0 million as compared to a net loss
of $725,000 for fiscal 1997. As of September 30, 1998, the Company had 249,000
accounts with an aggregate managed portfolio of $406.3 million of credit card
receivables. The Company intends to continue the growth of its portfolio through
offers of credit cards to pre-selected consumers and purchases of credit card
receivables and may utilize either or both of these means to varying degrees,
depending upon its assessment of the most cost-efficient means of account
growth.
THE CREDIT CARD INDUSTRY
At the end of March 1998, American consumers held an aggregate of $1.2
trillion of debt, exclusive of home mortgages. The Board of Governors of the
Federal Reserve System estimates that the size of the revolving credit market in
the United States was in excess of $530 billion as of March 1998. The Company
believes that the purchasing convenience associated with unsecured credit cards
has driven increased usage of credit cards and has made them the preferred
consumer credit vehicle.
Historically, traditional lenders (primarily traditional banking
organizations) have enjoyed significant advantages in consumer lending compared
to non-bank providers of consumer loans. However, a broadening access to
capital, coupled with technological advances, has diminished the advantage of
banks relative to non-banks. Attractive financing arrangements are now available
through the issuance of credit card asset-backed securities. Access to the
securitization market has enabled non-banks (such as the Company) to
competitively fund receivables growth.
During the 1990's, large banks with highly focused credit card
organizations, as well as "monoline" banking organizations specializing in
credit card lending, have dominated the U.S. credit card market. The Company
believes that the market's recent history suggests that future industry growth
and success will continue to be experienced primarily by highly focused,
technology-driven organizations that are adept at information-based marketing.
Credit card issuers make credit cards available to their clients in a
variety of ways. Many issuers offer cards as a convenience to existing
clients--a strategy to create greater affinity and client loyalty. This is
generally the case with credit cards offered by department stores as well as
smaller banks and credit unions. To apply for such a card the consumer typically
completes an application that is reviewed
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by the issuer for approval. In contrast, for the larger issuers who control the
vast majority of the market, the most cost-effective means to achieve the growth
rates they seek is the mass mailing of credit card offers. Often this process is
accomplished by obtaining a list of names from one of the national credit
bureaus. The Company believes that the individuals on those lists will have met
certain credit guidelines established by these credit card issuers, typically
based on widely-used credit underwriting practices in the industry.
The Company believes that the key challenges for credit card issuers in the
near future will be (i) the management of credit quality, (ii) the management of
client attrition and retention and (iii) new account acquisition strategies. The
Company believes that as credit card issuers continue to use standard risk
assessment and target marketing tools, niches of under-served clients who will
actually perform better than their generic credit score indicates will continue
to develop. This will create opportunity for specialty issuers with the
information systems and expertise to market consumer credit products to these
client segments profitably.
THE COMPANY'S DATABASE SYSTEM
The Company has developed a proprietary database management system which
supports all of the decision-making functions, including target marketing,
solicitation, application processing, account management and collections
activities. The database system is a comprehensive information warehouse that
maintains critical information regarding a client throughout the client's
relationship with the Company. The system's purpose is to gather, store and
analyze the data necessary to facilitate the Company's target marketing and risk
management decisions.
35
<PAGE>
[The omitted graphical material includes five rectangular boxes arranged
vertically with a downward arrow from each. The boxes are labeled (in order):
Target Marketing, Solicitation, Application Processing, Account Management, and
Collections and Delinquency Management.]
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<PAGE>
The Company's database system captures combinations of client information
gathered in the target marketing and solicitation phases of the client
relationship and additional data gathered throughout the remainder of the
relationship, including client behavior patterns. By combining this information,
the Company has established an analytical database linking static historical
data with actual client performance. The following is a partial listing of the
data elements maintained by the Company's database system with respect to each
phase of the client relationship:
[The omitted graphical material includes four boxes, each one referring to a
particular phase of the client relationship. The boxes include a partial listing
of data elements. The first box is titled Target Marketing and lists Credit
Bureau Data, Demographic Data, Previous Solicitation History, Target Marketing
Scores and Risk Scores. The second box is titled Solicitation and Application
Processing and lists Credit Bureau Data, Demographic Data, Original Pricing
Credit Line Offer and Potential Pricing/ Credit Line Offers. The third box is
titled Account Management and lists Payment History, Balance, Credit Line,
Revenue, Behavior Scores and Transaction Data. The last box is titled
Collections and Delinquency Management and lists Payment History, Previous
Collections Efforts, Balance, Credit Line and Credit Bureau Data.]
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<PAGE>
The Company's database system enables management to rapidly evaluate and
respond to changes in the risk profile of a client throughout the relationship.
The intranet interface--the internal computer network which allows management
access to the database--provides the Company with timely and easy access to the
data.
[The omitted graphical representation illustrates the Company's use of its
database management system to process data gathered throughout the client
relationship and to provide CompuCredit management with critical information.
The figure consists of three rows of boxes. The first row includes five squares
labeled Target Marketing Data, Solicitation and Application Processing,
Fee-Based Product Marketing Data, Account Management Data and Collections Data,
with arrows from each box to and from the second row which contains one
rectangular box labeled Database Management System. The Database Management
System rectangular box has an arrow to and from the third row which has a
rectangular box labeled CompuCredit Management. An arrow pointing left to right
labeled Intranet Interface points to the arrow between the box titled Database
Management System and the box CompuCredit Management.]
The use of a single database system for all phases of the client
relationship enables the Company to continuously refine and optimize target
marketing and portfolio management decisions on the basis of continuous
feedback. Management believes that this capability has been critical in
identifying under-served segments which the Company anticipates will be
profitable and which have been overlooked by traditional providers of
credit-related products.
TARGET MARKETING SYSTEM
Since 1996, the Company has worked with a national credit bureau to develop
proprietary risk evaluation systems using credit bureau data. Initially, the
Company developed the systems using randomly selected historical data sets of
payment history on all types of consumer loans. Since March 1997, these
proprietary risk evaluation systems include the specific behavior of
CompuCredit's clients. The Company's systems enable the Company to segment
clients into narrower ranges within each FICO score range. The Company believes
that this sub-segmentation enables the Company to avoid unacceptable credit risk
and to price its products more effectively.
Within each FICO score range, the Company evaluates every potential client
using numerous credit and marketing segmentation methods derived from a variety
of data sources. The Company places potential clients into
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unique product offering segments based upon combinations of factors reflecting
the Company's assessment of credit risk, bankruptcy risk, supply of revolving
credit, demand for revolving credit and payment capacity. These product offering
segments are chosen to meet the following primary target marketing strategies:
- Marketing to those under-served client segments who have acceptable credit
and bankruptcy risk and who have the highest revenue potential within
those segments;
- Providing a variety of general-purpose credit cards to satisfy the
different financial needs of various segments of the under-served market;
and
- Providing a variety of fee-based ancillary products and services to
leverage the Company's relationship with the under-served client.
The Company focuses its marketing programs on those client segments which
have high revenue potential when compared to other segments and demonstrate
acceptable credit and bankruptcy risk. The Company seeks to accomplish this by
establishing, for each client segment, the appropriate risk-based pricing level
that will maintain an acceptable response rate to the Company's direct mail and
telemarketing campaigns. During 1997 and the nine months ended September 30,
1998, the Company solicited more than 7.9 million potential clients and
experienced a response rate that the Company believes is significantly higher
than the overall rate experienced by the credit card industry. The Company
believes the key to these efforts is the use of its unique systems to evaluate
credit risk more effectively than the use of FICO scores alone.
Based on research it has conducted with a national credit bureau, the
Company has determined that there are approximately 82 million consumers in the
United States who it believes are under-served by consumer credit grantors.
These are consumers who the Company believes are not being solicited with offers
of credit cards on a pre-selected basis as often as other consumers. These
under-served consumers are often served only by finance companies and retail
store credit card issuers, both of which offer far less consumer utility than a
bankcard. Using its proprietary scoring models, the Company believes that, at
any given time, approximately 20 to 25 million of these 82 million under-served
consumers present levels of credit risk acceptable for the Company's product.
Since 1996, the Company has conducted periodic research that indicates that,
while the size of this universe of 20 to 25 million potential clients has been
relatively constant, the composition of this group has changed to a significant
degree over time as individuals' credit characteristics change relative to the
Company's criteria (i.e., different consumers are included in the pool of
potential clients at any given time). The Company believes that these consumers
have a need for convenient credit, are avoided by most issuers, will respond
positively to an offer and will repay satisfactorily. The Company believes that
by using its sophisticated database system, it can apply advanced mathematical
techniques to the under-served market to identify profitable client segments and
the appropriate pricing strategies for each of these segments.
CompuCredit's client solicitation strategy is to test several differently
priced products against unique pools of potential clients with similar risk
characteristics. The results of direct mail and telemarketing campaigns and
follow-up mailings are continuously monitored and analyzed using the Company's
proprietary database system.
CompuCredit offers its Classic, Gold, Platinum and Diamond cards in a
variety of product offerings varying by the amount of the credit line, the
interest rate and the annual fee:
<TABLE>
<CAPTION>
CHARACTERISTIC RANGE OF OFFERINGS
- ----------------------------------------------- ---------------------------------------------
<S> <C>
Initial Credit Line............................ $500 to $10,000
APR............................................ Prime + 7.40% to Prime + 21.75%
Annual Fee..................................... $0 to $100
</TABLE>
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<PAGE>
Product offerings for a particular client are determined by examining a
number of factors in the client's credit file, including the Company's
assessment of credit risk, bankruptcy risk, supply of revolving credit, demand
for revolving credit, payment criteria and revenue potential, among other
factors.
TARGET MARKETING IN PORTFOLIO ACQUISITIONS
The Company anticipates growing its receivables portfolio through the
aggressive use of its target marketing system to originate clients through
direct mail and telemarketing campaigns. The Company expects that it will also
pursue growth through the opportunistic purchase of existing credit card
portfolios. The Company utilizes the same analytical systems employed in its
direct mail and telemarketing campaigns to seek to purchase portfolios that are
primarily comprised of under-served clients. The Company's strategy for its
purchased portfolios is to use its numerous credit and marketing segmentation
methods to select those accounts to which an Aspire credit card will be issued
and to use its proprietary account management systems to enhance the performance
of the portfolio and to market fee-based ancillary products and services to the
new clients. As with the account origination process, each client is evaluated
using numerous credit and marketing segmentation methods derived from a variety
of data sources. Clients are placed into unique product offering segments based
upon combinations of factors reflecting their credit risk, bankruptcy risk,
supply of revolving credit, demand for revolving credit and payment capacity.
Currently, the Company has completed two portfolio acquisitions and expects that
it will regularly evaluate other potential portfolio acquisitions.
The Company believes its unique target marketing system provides the same
competitive advantage when evaluating portfolios as when originating clients
through direct mail or telemarketing campaigns. The Company believes that its
ability to evaluate credit risk within FICO score ranges enables the Company to
more accurately determine the portfolio's overall credit risk than many other
companies that may bid on portfolio purchases and many portfolio sellers. The
Company believes that this risk evaluation expertise enables the Company to
avoid portfolio purchases in which the final purchase premium (or discount) does
not accurately reflect the credit risk of the portfolio. Conversely, in cases
involving portfolios in which the perceived credit risk, as reflected by the
FICO scores, is significantly higher than the Company's forecast of credit risk,
the Company may bid more aggressively for these portfolios.
The Company believes that its target marketing system, which combines its
proprietary risk evaluation system with sophisticated techniques for estimating
supply of revolving credit, demand for revolving credit and bankruptcy risk,
provides it with a competitive advantage in evaluating the potential
profitability of target clients, whether originated by the Company or purchased.
The Company continuously seeks to refine its target marketing system through the
development of new analytical segmentation tools and the evaluation of the
system's effectiveness on previous marketing campaigns and portfolio
acquisitions.
SOLICITATION
The Company uses its target marketing strategies to identify potential
clients and to assess the type of product offering to be made to each potential
client. The Company then uses either direct mail or telemarketing campaigns to
solicit each client. The Company began soliciting clients in February 1997. In
each direct mail campaign conducted to date, the Company has experimented with
several combinations of rates, fees and credit limits directed at specific
client segments in order to evaluate response rates and further refine its
pricing strategies within each client segment and in the aggregate. Since its
inception, the Company has solicited new accounts from approximately 7.9 million
potential clients using direct mail and telemarketing. The Company has also
resolicited a limited number of those recipients of direct mail who did not
respond to an initial solicitation in order to utilize refined pricing
strategies developed following the evaluation of the results of earlier
mailings. To date, all of the Company's offers have been pre-approved or
pre-selected offers for an unsecured Visa credit card and have not included (and
the Company does not intend to offer) any teaser-rate pricing. Third party print
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<PAGE>
production facilities produce the Company's direct mail campaigns, and the
Company contracts with third party telemarketing providers for its telemarketing
campaigns. Responses to both direct mail and telemarketing campaigns are then
forwarded to the Company for application processing. The response data received
is also integrated into the Company's database system for future analysis and
response modeling.
APPLICATION PROCESSING
The Company contracts with third party providers for the data entry of
credit card applications resulting from its solicitations. Application coupons
mailed in by clients are keyed by the data entry provider into a
machine-readable format. The Company also uses telemarketing vendors to input
application data for clients who respond to solicitations via the telephone.
Entered application data is electronically transmitted in batches to the Company
for processing by its application processing system.
The Company has developed flexible, proprietary methods of evaluating
applications using an application processing system that automates the
evaluation of client application data. The system utilizes pre-defined criteria
to review applicant-provided information and to compare the information to the
applicant's original solicitation data, as well as to data from an online credit
file that is automatically requested for each applicant. The system performs a
series of comparisons of identification information (e.g., name, address, social
security number) from the three data sources to verify that client-supplied
information is complete and accurate. Potentially fraudulent applications are
declined or held for further review.
The applicant's online credit file that is obtained after the receipt of his
or her response is further evaluated by the system to ensure that the applicant
still meets the creditworthiness criteria applied during the original prescreen
process. The same credit criteria, proprietary custom models and credit bureau
data items used during the initial prescreen selection process are recalculated
for each applicant. Applicants still meeting the Company's creditworthiness
criteria are designated as "approvals" and assigned a final credit offer.
Statistics related to response rates and final offers and terms are captured
daily for all processed applications and are transferred to the Company's
proprietary database for ongoing tracking and analysis.
FEE-BASED PRODUCTS AND SERVICES
The Company offers fee-based products and services to its clients, including
life insurance, card registration, telecommunication products and services,
memberships in preferred buying clubs, travel services and debt waiver programs
in the event of disability or unemployment of the client. These fee-based
products and services are offered at various times during the client
relationship based on tailored marketing lists derived from the Company's
database. The Company currently markets all non-credit products and services
pursuant to joint marketing agreements with third parties and is continually
evaluating additional products it offers to its clients either directly or
through continued joint marketing efforts with third party providers of such
products and services. Profitability for fee-based products and services is
affected by the response rates to product solicitations, the volume and
frequency of the marketing programs, the commission rates received from the
product providers, the claim rates and claims servicing costs for certain
products and the operating expenses associated with the programs. Several of the
Company's fee-based product relationships began in 1998, and these products and
services are expected to increase in the future as the Company continues to
increase its credit card client base and introduce new products. Response rates
experienced to date indicate strong demand for these products and services among
the Company's client base.
ACCOUNT AND PORTFOLIO MANAGEMENT
ONGOING ACCOUNT MANAGEMENT. The Company's management strategy is to
aggressively manage account activity using behavioral scoring, credit file data
and its proprietary risk evaluation systems.
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<PAGE>
These strategies include the active management of transaction authorizations,
account renewals, over-limit accounts and credit line modifications. CompuCredit
uses an adaptive control system to translate its strategies into the account
management processes. The system enables the Company to develop and test
multiple strategies simultaneously, which allows the Company to continually
refine its account management activities. The Company has incorporated its
proprietary risk score into the control system, in addition to standard behavior
scores used widely in the industry, in order to better segment, evaluate and
properly manage the accounts. The Company believes that by combining external
credit file data along with historical and current client activity, it is able
to better predict the true risk associated with current and delinquent accounts.
The Company monitors authorizations for all accounts. Client credit
availability is limited for transaction types which the Company believes are
higher risks such as certain foreign transactions and cash advances. The Company
manages credit lines to reward under-served clients who are performing well and
to mitigate losses from delinquent client segments. Accounts exhibiting
favorable credit characteristics are periodically reviewed for credit line
increases, and strategies are in place to aggressively reduce credit lines for
clients demonstrating indicators of increased credit or bankruptcy risk. Data
relating to account performance is captured and loaded into the Company's
proprietary database for ongoing analysis. The Company proactively adjusts
account management strategies as necessary, based on the results of such
analyses. Additionally, the Company uses industry-standard fraud detection
software to manage the portfolio. The Company routes accounts to manual work
queues, and suspends charging privileges if the transaction-based fraud models
indicate a high probability of fraudulent card use.
CLIENT ADVISORY SERVICES. The Company has implemented an advisory program
to assist its clients in understanding the prudent use of general-purpose credit
cards. The Company uses its proprietary systems to identify clients who are not
delinquent but are exhibiting credit behavior likely to result in delinquency in
the future. The Company assigns these accounts to its credit advisors who
actively review all account activity and, if necessary, contact the client via
letter or telephone. Actions taken by the Company may include client-friendly
advice concerning the prudent use of credit, temporary or permanent reduction in
credit line availability, review of the client's full credit report, debts and
income, and establishing repayment terms to assist the client in avoiding
becoming over-extended.
Management believes that this client advisory strategy is not widely
practiced in the credit card industry. The Company believes that its advisory
program enhances its relationship with its clients by providing valuable and
meaningful assistance while simultaneously contributing to prudent risk
management strategies to reduce bad debt losses.
OUTSOURCING. Certain account management functions--including card
embossing/mailing, fraud detection/investigation, cycle billing/payment
processing and transaction processing/authorization--are outsourced to CB&T and
TSYS. In January 1997, CompuCredit entered into an Affinity Card Agreement with
CB&T, a subsidiary of Synovus Financial Corporation, that provides for the
issuance of Aspire credit cards and the performance of the outsourced functions
noted above. The Company has filed an application to organize a state-chartered
"credit card" bank under the laws of the State of Georgia which, if organized,
will become the issuer of the Aspire credit card following the completion of its
formation. The Company believes the ability to issue its own credit cards will
provide additional flexibility and enable it to reduce its dependency on
third-party service providers. However, the Company intends to continue to
outsource certain functions to CB&T and its affiliate, TSYS, and has recently
renewed its agreement with CB&T which provides for the servicing of the Aspire
accounts in substantially the same manner in which such services are currently
being performed.
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COLLECTIONS AND DELINQUENCY MANAGEMENT
Management believes that its prior experience in successfully operating
professional collection agencies, coupled with its proprietary systems,
represents a significant competitive advantage in minimizing delinquencies, bad
debt losses and operating expenses associated with the collection process. The
Company uses its systems to develop custom collection models that rank-order
accounts based on collectability and level of risk. The Company analyzes the
output from these models to identify the collection activity most likely to
result in curing the delinquency cost-effectively rather than treating all
accounts the same based on the mere passage of time, as the Company believes
most creditors do.
As in all aspects of its risk management strategies, the Company routinely
tests alternative strategies and compares the results with existing collection
strategies. Results are measured based on delinquency rates, expected losses and
costs to collect. Existing strategies are then adjusted as suggested by these
results. Management believes that maintaining the ongoing discipline of testing,
measuring and adjusting collection strategies will result in minimized bad debt
losses and operating expenses. The Company believes this approach differs
significantly from the approach taken by the vast majority of credit grantors
that implement collection strategies based on commonly accepted peer group
practices.
The Company opened a new 12,000 square foot collection facility in Atlanta,
Georgia in June 1998 which is operational from 8:00 a.m. until 9:00 p.m. Monday
through Saturday. The Company has a full-time staff with an average experience
of over ten years in collections. Management has instituted collector incentive
compensation plans similar to those it successfully employed in its prior
experience operating professional collection agencies. In addition to its
full-time staff, the Company outsources certain collection activities. The
Company continuously monitors the performance of its third party providers
against that of the Company's staff to determine which is more effective.
SECURITIZATIONS
The Company finances the growth of its credit card receivables primarily
through asset-backed securitizations. As the Company generates or acquires
credit card receivables, it securitizes the receivables through the Master Trust
or through wholly-owned special purpose entities to third party asset-backed
commercial paper conduits. In general, the Company's current securitization
structures provide for the daily securitization of all new credit card
receivables arising under the securitized accounts. The receivables that are
sold through securitization are removed from the Company's Balance Sheet for
financial reporting purposes. Following a sale, the Company receives cash flows
which represent the finance charges and past due fees in excess of the sum of
the return paid to investors, servicing fees, credit losses and required
amortization payments. During the year ended December 31, 1997 and for the first
nine months of 1998, the Company received net proceeds of approximately $12.7
million and $273.4 million, respectively, from the sales of its credit card
receivables through securitizations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Impact of Credit Card
Securitizations" and "--Liquidity, Funding and Capital Resources."
CONSUMER AND DEBTOR PROTECTION LAWS AND REGULATIONS
The Company's business is regulated under several federal and state consumer
protection and other laws, and the rules and regulations promulgated thereunder,
including the federal Truth-In-Lending Act, the federal Equal Credit Opportunity
Act, the federal Fair Credit Reporting Act, the federal Fair Debt Collection
Practices Act and the federal Telemarketing and Consumer Fraud and Abuse
Prevention Act. These statutes, among other things, impose certain disclosure
requirements when a consumer credit loan is advertised, when the account is
opened and when monthly billing statements are sent. In addition, these statutes
limit the liability of credit cardholders for unauthorized use, prohibit certain
discriminatory practices in extending credit and impose certain limitations on
the types of charges that may be assessed and the use of consumer credit
reports.
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Changes in any such laws or regulations, or in the interpretation or
application thereof, could have a material adverse effect on the Company.
Various proposals which could affect the Company's business have been introduced
in Congress in recent years, including, among others, proposals relating to
imposing a statutory cap on credit card interest rates, substantially revising
the laws governing consumer bankruptcy, limiting the use of social security
numbers, permitting affiliations between banks and commercial, insurance or
securities firms, and other regulatory restructuring proposals. There have also
been proposals in state legislatures in recent years to restrict telemarketing
activities, impose statutory caps on consumer interest rates, limit the use of
social security numbers and expand consumer protection laws. It is impossible to
determine whether any of these proposals will become law and, if so, what impact
they will have on the Company.
Although the Company believes that it and, to the extent applicable, CB&T
are currently in compliance with applicable statutes and regulations, there can
be no assurance that the Company or CB&T will be able to maintain such
compliance. The failure to comply with such statutes or regulations could have a
material adverse effect on the Company's results of operations or financial
condition. In addition, due to the consumer-oriented nature of the credit card
industry, there is a risk that the Company or other industry participants may be
named as defendants in litigation involving alleged violations of federal and
state laws and regulations, including consumer protection laws, and consumer law
torts, including fraud. Although the Company currently is not involved in any
material litigation, a significant judgment against the Company or within the
industry in connection with any such litigation could have a material adverse
effect on the Company's results of operations or financial condition.
The National Bank Act of 1864, as amended (the "National Bank Act"),
authorizes national banks to charge clients interest at the rates allowed by the
laws of the state in which the bank is located, regardless of any inconsistent
law of the state in which the bank's clients are located. A similar right is
granted to state institutions such as CB&T in the Depository Institutions
Deregulation and Monetary Control Act of 1980. In 1996, the United States
Supreme Court held that late payment fees are "interest" and therefore can be
"exported" under the National Bank Act, deferring to the Comptroller of the
Currency's interpretation that interest includes late payment fees, insufficient
funds fees, over-limit fees and certain other fees and charges associated with
credit card accounts. This decision does not directly apply to state
institutions such as CB&T. Although several courts have upheld the ability of
state institutions to export certain types of fees, a number of lawsuits have
been filed alleging that the laws of certain states prohibit the imposition of
late fees. If the courts do not follow existing precedents, CB&T's ability to
impose certain fees could be adversely affected, which could have a material
adverse effect on the Company's results of operations or financial condition.
The Company does not currently own a bank. However, the Company has filed an
application to organize a state-chartered "credit card bank" under the laws of
the State of Georgia. Once organized, the Company expects this bank to become
the issuer of the Company's Aspire credit card. If the Company completes that
process, this bank will be subject to the various state and federal regulations
generally applicable to such institutions.
COMPETITION
The Company faces intense and increasing competition from other consumer
lenders. In particular, the Company's credit card business competes with
national, regional and local bank card issuers, and with other general-purpose
credit card issuers, including American Express, Discover and issuers of Visa
and MasterCard. The Company also competes, to a lesser extent, with retail
credit card issuers, such as department stores and oil companies, and other
providers of unsecured credit. Large credit card issuers may compete with the
Company for clients by offering lower interest rates and fees. In addition, new
issuers have entered the market in recent years. Many of these competitors are
substantially larger than the Company and have greater financial resources.
Clients choose credit card issuers largely on the basis of price (mostly
interest rates and fees), credit limit and other product features. For
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this reason, client loyalty is often limited. The Company may lose entire
accounts, or may lose account balances, to competing credit card issuers.
The Company's competitors are continually introducing new tactics to attract
clients and increase their market share. The most heavily-used techniques are
advertising, target marketing, balance transfers, price competition, incentive
programs and co-branding (for example, using the name of a sports team or a
professional association on their credit cards). In response to competition,
certain issuers of credit cards have lowered interest rates and offered
incentives to retain existing clients and attract new ones. These competitive
practices, as well as competition that may develop in the future, could harm the
Company's ability to obtain clients and maintain its profitability.
PROPERTIES
The Company's principal executive offices and operations center are located
in leased premises aggregating approximately 6,000 and 12,000 square feet,
respectively, in Atlanta, Georgia. The Company believes that its facilities are
suitable to its businesses and that it will be able to lease or purchase
additional facilities as its needs require.
EMPLOYEES
As of September 30, 1998, the Company had 78 employees, all of whom are
located in Georgia. No collective bargaining agreement exists for any of the
Company's employees. The Company considers its relations with its employees to
be good.
TRADEMARKS
Aspire is a registered trademark of the Company. CompuCredit, Aspire
Diamond, Diamond Select and Aspire Diamond Select are trademarks of the Company,
and applications to register such trademarks are pending. The Company considers
these trademarks to be readily identifiable with, and valuable to, its business.
This Prospectus also contains trade names and trademarks of other companies that
are the property of their respective owners.
PROPRIETARY RIGHTS AND LICENSES
The Company regards its database management system and its customer
selection and risk evaluation criteria as confidential and proprietary. The
Company initially developed its pre-screen customer selection criteria under a
contract with a national credit bureau; however, the Company owns all
intellectual property rights in the resulting model. The Company's database
management system has been developed by a third party developer under a contract
pursuant to which the Company holds an exclusive, perpetual license to use,
copy, execute, display and reproduce the software constituting the Company's
database management system. The third party developer owns such software,
subject to the Company's license. The third party developer also has granted to
the Company a nonexclusive license to use, copy or display for internal use a
system that automates the evaluation of client application data, which, among
other things, provides the Company with real-time access to credit information
concerning its target market and its customers. Such third party developer
continues to provide substantially all of the computer software design and
implementation services required by the Company in the continuing refinement and
use of its computer software systems. The third party developer has granted to
the Company a right of first refusal during the term of the agreement in the
event the developer wishes to sell or otherwise transfer any of its ownership
rights in the software it licenses to the Company. In addition, the Company has
the right to acquire the entity that owns the database management system
software for a purchase price of $2.4 million at any time beginning September
23, 2000 and ending 12 months after the termination of the agreement with the
third party developer. The initial term of this agreement, which is subject to
extension or early termination under certain circumstances, expires on September
23, 2000.
LEGAL PROCEEDINGS
Management believes the Company is not a party to any legal proceeding
reasonably likely to have a material adverse effect on the Company's financial
position or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of the Company (including persons who
will become directors upon the consummation of the Offering), as well as certain
key employees, and their ages as of December 15, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David G. Hanna....................................... 34 President and Chairman of the Board
Richard W. Gilbert................................... 44 Chief Operating Officer and Director
Brett M. Samsky...................................... 33 Chief Financial Officer
Ashley L. Johnson.................................... 30 Controller
Richard R. House, Jr................................. 35 Chief Credit Officer
Rohit H. Kirpalani................................... 37 General Counsel
Andrew A. Yates...................................... 35 Director of Risk Management
Christopher J. Rief.................................. 31 Director of Operations
Frank J. Hanna, III.................................. 36 Director
Richard E. Huddleston................................ 54 Director
Gail Coutcher Hughes................................. 49 Director
James P. Kelly, III.................................. 42 Director
Mack F. Mattingly.................................... 67 Director
</TABLE>
DAVID G. HANNA, President and Chairman of the Board. Mr. Hanna has been the
President of the Company since its inception in 1996 and the sole director since
the Company's merger into a corporation in August 1997. Mr. Hanna will become
Chairman of the Board upon consummation of the Offering. Mr. Hanna has been in
the credit industry for over ten years. Since 1992, Mr. Hanna has served as
President and a director of HBR Capital, Ltd. ("HBR Capital"), an investment
management company. In 1989, prior to forming CompuCredit, Mr. Hanna co-founded
and served as President of Account Portfolios, a purchaser and manager of
portfolios of non-performing loans and accounts receivable. Until Account
Portfolios was sold in 1995, it utilized proprietary scoring models to analyze
portfolio acquisitions as well as the portfolios that Account Portfolios had
purchased on an ongoing basis. From 1988 to 1992, he was President of the
Government Division of Nationwide Credit where he managed and directed division
operations, planning, strategy and sales, including collection performance,
adherence to contractual requirements and government marketing. He served as
Commercial Loan Officer at Citizens & Southern National Bank prior to joining
Nationwide Credit. Mr. Hanna has a BBA in Finance from the University of
Georgia. Mr. Hanna is the brother of Frank J. Hanna, III, who will become a
director upon consummation of the Offering.
RICHARD W. GILBERT, Chief Operating Officer and Director. Mr. Gilbert has
been the Chief Operating Officer of CompuCredit since its inception in 1996 and
will become a director upon consummation of the Offering. Mr. Gilbert has over
21 years' experience in the consumer credit industry. From 1990 until 1995, he
was employed by Equifax initially as Chief Operating Officer of its collection
division and subsequently as General Manager of Strategic Client Services. From
1995 until 1997, Mr. Gilbert was employed by HBR Capital, an investment
management company, as Chief Operating Officer of The American Education Fund,
L.P. From 1979 until Nationwide Credit was sold in 1990, Mr. Gilbert served in
various positions, including as Vice President of Operations, Vice President of
Development and Vice President of Marketing and as President of Financial Health
Services, a division of Nationwide Credit. Mr. Gilbert earned his J.D. degree,
CUM LAUDE, from John Marshall Law School in 1978 and completed his undergraduate
work at Berry College. He is a member of the Georgia Bar Association.
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<PAGE>
BRETT M. SAMSKY, Chief Financial Officer. Mr. Samsky has been the Chief
Financial Officer of CompuCredit since its inception in 1996. Mr. Samsky has
over five years' experience in the credit industry. From November 1992 to the
present, Mr. Samsky has served as Chief Financial Officer of HBR Capital, an
investment management company. Mr. Samsky was Chief Financial Officer of Account
Portfolios, a purchaser and manager of portfolios of non-performing loans and
accounts receivable, from 1992 until its sale in 1995. Prior to joining Account
Portfolios, Mr. Samsky served as a senior accountant at Deloitte & Touche during
1986 and from 1988 to 1990. Mr. Samsky graduated MAGNA CUM LAUDE with high
honors, earning a BBA and MAcc in Accounting from the University of Georgia. Mr.
Samsky also attended the University of Georgia Law School from 1990 to 1992 and
is a licensed Certified Public Accountant in the State of Georgia.
ASHLEY L. JOHNSON, Controller. Ms. Johnson has been the Controller of
CompuCredit since its inception in 1996 and has over five years of experience in
the credit industry. From May 1993 to the present, Ms. Johnson has served as
Controller of HBR Capital, an investment management company. From 1993 until its
sale in 1995, Ms. Johnson was the Controller for Account Portfolios, a purchaser
and manager of portfolios of non-performing loans and accounts receivable. Prior
to joining Account Portfolios, Ms. Johnson was a senior accountant at Deloitte &
Touche from 1989 to 1993. Ms. Johnson graduated MAGNA CUM LAUDE from Clemson
University with a BS in Accounting and is a licensed Certified Public Accountant
in the State of Georgia.
RICHARD R. HOUSE, JR., Chief Credit Officer. Mr. House joined the Company in
April 1997. Mr. House has over 12 years' experience in the consumer credit
industry. From 1993 until 1997, Mr. House managed and directed Equifax's
Decision Solutions division, Equifax's quantitative analysis and modeling group.
Prior to joining Equifax in 1991, he was employed by the JC Penney Company,
where he held various positions in credit operations and credit policy. Mr.
House earned a BA in Economics from the Georgia Institute of Technology and an
MA in Economics from Southern Methodist University.
ROHIT H. KIRPALANI, General Counsel. Mr. Kirpalani joined the Company in
September 1998. From 1995 to 1998, Mr. Kirpalani was an associate with Orrick,
Herrington & Sutcliffe LLP. Prior to joining Orrick, Herrington & Sutcliffe LLP,
he was an associate with Milbank, Tweed, Hadley & McCloy. Mr. Kirpalani earned
his J.D. degree, CUM LAUDE, from Georgetown University and graduated from
Rutgers University with a BS in economics.
ANDREW A. YATES, Director of Risk Management. Mr. Yates joined the Company
in April 1997. Mr. Yates has over 10 years of consumer credit experience. From
1995 to 1997, Mr. Yates served as a Senior Consultant for Equifax's Decision
Solutions division, Equifax's quantitative analysis and modeling group. Prior to
joining Equifax, Mr. Yates worked for JC Penney Company as a credit risk manager
from 1987 to 1994. Mr. Yates received a BS in Finance from the University of
Florida.
CHRISTOPHER J. RIEF, Director of Operations. Mr. Rief joined the Company in
May 1998. Mr. Rief has over eight years' experience in the credit industry. From
1995 to 1998, Mr. Rief was the Director of Client Service for First Data
Corporation's BankCard Program Services division. Prior to joining First Data
Corporation, he worked in the BankCard Center of Southtrust Bank of Alabama from
1990 to 1995. Mr. Rief graduated from Huntingdon College with a BA in
Management.
FRANK J. HANNA, III, Director. Mr. Hanna will become a director upon
consummation of the Offering. Since 1992, Mr. Hanna has served as Chief
Executive Officer of HBR Capital, an investment management company. In 1989, Mr.
Hanna co-founded and served as Chief Executive Officer of Account Portfolios, a
purchaser and manager of portfolios of non-performing loans and accounts
receivable. From 1988 to 1990, Mr. Hanna was Group Vice President, Finance and
Administration for Nationwide Credit. Prior to joining Nationwide Credit, Mr.
Hanna practiced corporate law in Atlanta. Mr. Hanna earned his J.D. degree, CUM
LAUDE, and a BBA in Finance as a first honor graduate from
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the University of Georgia. Mr. Hanna is the brother of David G. Hanna, the
President and Chairman of the Board of CompuCredit.
RICHARD E. HUDDLESTON, Director. Mr. Huddleston will become a director upon
consummation of the Offering. Since March 1998, Mr. Huddleston has served as
Vice President of Sales for Financial Services for APAC Teleservices, Inc. From
October 1997 to March 1998, he worked as an independent consultant. From
December 1989 to April 1997, Mr. Huddleston served as Executive Vice President
and director of Prudential Bank and Trust and as Vice President and director of
Prudential Savings Bank and remained with such companies until October 1997. Mr.
Huddleston graduated from the University of Virginia McIntire School of Commerce
and Retail Banking in 1978.
GAIL COUTCHER HUGHES, Director. Ms. Coutcher Hughes will become a director
upon consummation of the Offering. Ms. Coutcher Hughes co-founded in February
1996 and serves as President of the Hughes Group, Ltd., an executive search
firm. From 1980 to January 1996, Ms. Coutcher Hughes was employed by Source
Finance, a national placement firm specializing in the placement of financial
and accounting professionals, where she served as Managing Partner of its
Atlanta office. Ms. Coutcher Hughes graduated from the University of Georgia in
1971 with a BBA in Accounting and is a licensed Certified Public Accountant in
the State of Georgia.
JAMES P. KELLY, III, Director. Mr. Kelly will become a director upon
consummation of the Offering. Since 1990, Mr. Kelly has been the owner of James
P. Kelly, III, P.C., a tax, corporate and education law firm. In 1991, Mr. Kelly
founded the Georgia Community Foundation, Inc. and currently serves as its
Executive Director and General Counsel. Mr. Kelly has a J.D. from the University
of Georgia, an MA of Taxation from Georgia State University and a BBA degree in
Management from the University of Georgia.
MACK F. MATTINGLY, Director. Senator Mattingly will become a director upon
consummation of the Offering. Senator Mattingly is currently a self-employed
entrepreneur, speaker and author. From 1992 until March 1993, he served as
United States Ambassador to the Republic of Seychelles. From 1987 to 1990,
Senator Mattingly served as the Assistant Secretary General for Defense Support
at NATO Headquarters in Belgium. In 1981, he was elected to the United States
Senate from the State of Georgia, where he served until 1987.
BOARD COMMITTEES
AUDIT COMMITTEE. As soon as practicable after the closing of the Offering
(the "Closing Date"), the Board of Directors will establish an audit committee
(the "Audit Committee"). A majority of the members of the Audit Committee will
be non-employee directors. The Audit Committee, among other things, will make
recommendations to the Board of Directors concerning the engagement of
independent public accountants, monitor and review the quality and activities of
the Company's internal audit function and those of its independent auditors, and
monitor the adequacy of the Company's operating and internal controls as
reported by management and the independent or internal auditors. The members of
the Audit Committee will be Frank J. Hanna, III, Gail Coutcher Hughes and James
P. Kelly, III.
COMPENSATION COMMITTEE. As soon as practicable after the Closing Date, the
Board of Directors will establish a compensation committee (the "Compensation
Committee"). The Compensation Committee, among other things, will review
salaries, benefits and other compensation of directors, officers and other
employees of the Company and make recommendations to the Board of Directors
concerning such matters. The members of the Compensation Committee will be David
G. Hanna, Richard E. Huddleston and Mack F. Mattingly.
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<PAGE>
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company or
holders of 5% or more of the Common Stock will receive options to purchase 5,000
shares of Common Stock upon initially joining the Board of Directors. The
Company intends to pay such directors a fee of $2,500 for each board or
committee meeting attended. Such directors will also be eligible to participate
in the Amended and Restated 1998 Stock Option Plan. All directors will be
reimbursed for expenses incurred to attend the meetings of the Board of
Directors or committees thereof.
The Company does not currently intend to provide employee directors with any
additional compensation (including grants of stock options) for their service on
the Board of Directors, except for reasonable out-of-pocket expenses incurred in
connection with their attendance at board meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual
compensation earned by the Company's President and the Company's other executive
officers whose annual salary and bonus during the 1997 fiscal year exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
--------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ----------------------------------------------------------------------- ----------- --------- --------- ---------------
David G. Hanna, President.............................................. 1997 $50,000(2) $ -- $ --
Richard W. Gilbert, Chief Operating Officer............................ 1997 175,000(2) -- --
Richard R. House, Jr., Chief Credit Officer............................ 1997 108,615(3) -- --
</TABLE>
- ------------------------
(1) The Company believes that the annual compensation of the Company's
President, Chief Operating Officer, Chief Credit Officer, Chief Financial
Officer and Controller is below market as compared to the Company's
competitors. These executive officers also have not received any bonuses or
stock options and will not be granted stock options in connection with the
Offering. The Company believes that this approach to compensation, combined
with such executive officers' existing stock ownership, provides an
incentive for these executive officers to focus on the appreciation of the
value of the Common Stock. See "Principal Shareholders."
(2) All of the compensation disclosed for Mr. Hanna was paid by HBR Capital and
was reimbursed by the Company as part of a fee paid to HBR Capital for
management and accounting services provided to the Company in 1997. Of the
amount disclosed for Mr. Gilbert, $51,041 was paid by HBR Capital and
reimbursed by the Company pursuant to the same arrangement, and the balance
was paid by the Company.
(3) Reflects compensation for the period from April 21, 1997, when Mr. House
joined the Company, through December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a Compensation Committee. David G. Hanna
was responsible for determining the compensation of executive officers during
fiscal year 1997. None of the executive officers of the Company has served on
the Board of Directors or the compensation committee of any entity that had
officers who served on the Company's Board of Directors.
1998 STOCK OPTION PLAN
Pursuant to the CompuCredit Corporation Amended and Restated 1998 Stock
Option Plan (the "1998 Stock Option Plan") the Company is authorized to grant
options to purchase up to 1,200,000 shares of the Common Stock. Under the 1998
Stock Option Plan, the Company has the authority to grant nonqualified stock
options ("NQSOs"), which will not qualify as incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
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The Company will receive no consideration for stock options granted under the
1998 Stock Option Plan.
MAJOR PROVISIONS OF THE 1998 STOCK OPTION PLAN. The following summary of
the 1998 Stock Option Plan outlined below is qualified in its entirety by
reference to the full text of the 1998 Stock Option Plan, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
major provisions of the 1998 Stock Option Plan are as follows:
PURPOSE. The purpose of the 1998 Stock Option Plan is to maximize the
long-term success of the Company, to ensure a balanced emphasis on both current
and long-term performance, to enhance participants' identification with
shareholders' interests and to facilitate the attraction and retention of key
individuals with outstanding abilities.
ADMINISTRATION. Through the date of this Prospectus, the 1998 Stock
Option Plan has been administered by the Board of Directors. Upon the
consummation of the Offering, the Company anticipates that its Board of
Directors will designate the Compensation Committee to administer the 1998 Stock
Option Plan. References in this discussion of the 1998 Stock Option Plan to the
Compensation Committee shall be deemed to include the Board of Directors, until
it designates the Compensation Committee to administer the Plan, and the
Compensation Committee or any other committee or person whom the Board of
Directors designates to administer the 1998 Stock Option Plan.
ELIGIBILITY. The persons who are eligible to receive awards pursuant to
the 1998 Stock Option Plan are members of the Board of Directors, employees,
consultants and advisors of the Company and its affiliates who have made or have
the capability of making a substantial contribution to the success of the
Company, as the Compensation Committee selects from time to time. The Company
estimates that at the present time all of its employees are eligible to
participate in the 1998 Stock Option Plan. In addition, each of the four
directors of the Company after the Offering who are not employees or officers of
the Company or holders of 5% or more of the Common Stock will be eligible to
participate in the 1998 Stock Option Plan.
OPTION PRICE. The Compensation Committee determines the exercise price
per share of the options, which may be less than, equal to or greater than the
Fair Market Value (as defined in the 1998 Stock Option Plan) of a share of
Common Stock on the date the option is granted.
TIME AND MANNER OF EXERCISE. Options may be exercised in whole at any
time, or in part from time to time with respect to whole shares only, within the
period permitted for exercise and shall be exercised by written notice to the
Company. Payment for shares of Common Stock purchased upon exercise of an option
shall be made in cash or in such other form as the Compensation Committee may
specify in the applicable option agreement. In addition to the payment of the
option price, the participant shall pay to the Company in cash or in Common
Stock the amount the Company is required to withhold or pay under federal or
state law with respect to the exercise of the option or, in the alternative, the
number of shares delivered by the Company under exercise of the option shall be
appropriately reduced to reimburse the Company for such payment.
AMENDMENT OR TERMINATION OF THE 1998 STOCK OPTION PLAN. The Board of
Directors may terminate and in any respect amend or modify the 1998 Stock Option
Plan. Except as otherwise provided in the 1998 Stock Option Plan, no amendment,
modification or termination of the 1998 Stock Option Plan shall in any manner
adversely affect the rights of any participant under the 1998 Stock Option Plan
without the consent of such participant.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1998 STOCK OPTION PLAN. An
optionee generally recognizes no taxable income as the result of the grant of
any NQSO, assuming that the option does not have a readily ascertainable fair
market value at the time it is granted (which is usually the case
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<PAGE>
with plans of this type). Upon exercise of an NQSO, an optionee will normally
recognize ordinary compensation income for federal tax purposes equal to the
excess, if any, of the then fair market value of the shares over the exercise
price. Optionees who are employees will be subject to withholding with respect
to income recognized upon exercise of an NQSO.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the exercising optionee, so long as
the optionee's total compensation is deemed reasonable in amount.
Upon a sale of shares acquired pursuant to the exercise of an NQSO, any
difference between the sales price and the fair market value of the shares on
the date of exercise will be treated as capital gain or loss and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than 12 months.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of the date of this Prospectus
and the percentage ownership of the Common Stock of the Company that will be
represented by the indicated shares beneficially held upon consummation of the
Offering. The information is provided with respect to (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (ii) each director of the Company and each person who will
become a director upon consummation of the Offering, (iii) each executive
officer, and (iv) all of the directors (including persons who will become
directors upon consummation of the Offering) and executive officers of the
Company as a group (10 persons). Except as otherwise indicated by footnote, the
named person has sole voting and investment power with respect to all of the
shares of Common Stock shown as beneficially owned. An asterisk indicates
beneficial ownership of less than 1% of the Common Stock outstanding.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES (1)(2) PERCENT OF CLASS
- ------------------------------------------------------------------------ --------------------------- -------------------
<S> <C> <C>
Bravo Trust One (3)(4)..................................................
Bravo Trust Two (3)(5)..................................................
Frank J. Hanna, III (3)(6)..............................................
David G. Hanna (3)(7)...................................................
Richard W. Gilbert (3)..................................................
Brett M. Samsky.........................................................
Ashley L. Johnson.......................................................
Richard R. House, Jr....................................................
Richard E. Huddleston................................................... -- *
Gail Coutcher Hughes.................................................... -- *
James P. Kelly, III..................................................... -- *
Mack F. Mattingly....................................................... -- *
Directors and executive officers as a group (10 persons)................
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. Shares of Common Stock subject to options, warrants or other
rights to purchase which are currently exercisable or are exercisable within
60 days after the completion of the Offering are deemed outstanding for
purposes of computing the percentage ownership of the persons holding such
options, warrants or other rights, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person. Unless
otherwise indicated, each person possesses sole voting and investment power
with respect to the shares identified as beneficially owned.
(2) Gives effect to (i) the exchange of all of the outstanding shares of the
Company's Preferred Stock, including accrued dividends thereon, for
shares of Common Stock concurrently with the consummation of the Offering
and (ii) the 15.2-for-1 stock split to be effected concurrently with the
consummation of the Offering.
(3) The address of the indicated holders is c/o CompuCredit Corporation, Two
Ravinia Drive, Suite 1750, Atlanta, Georgia 30346.
(4) Frank J. Hanna, III serves as sole trustee of the trust, whose beneficiaries
are members of Frank J. Hanna, III's immediate family.
(5) David G. Hanna serves as sole trustee of the trust, whose beneficiaries are
members of David G. Hanna's immediate family.
(6) Includes shares of Common Stock issued to Bravo Trust One. Includes
shares of Common Stock issued to CompuCredit Management Corp., of
which Frank J. Hanna, III is a 50% owner.
(7) Includes shares of Common Stock issued to Bravo Trust Two. Includes
shares of Common Stock issued to CompuCredit Management Corp., of
which David G. Hanna is a 50% owner.
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<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into a Stockholders Agreement with its shareholders
(the "Stockholders Agreement"). Pursuant to the Stockholders Agreement, (i) if
one or more of the shareholders accepts a BONA FIDE offer from a third party to
purchase more than 50% of the outstanding Common Stock, each of the other
shareholders may elect to sell their shares to the purchaser on the same terms
and conditions, and (ii) if shareholders owning more than 50% of the Common
Stock propose to transfer all of their shares to a third party, then such
transferring shareholders may require the other shareholders to sell all of the
shares owned by them to the proposed transferee on the same terms and
conditions. Atlantic Equity Corporation ("AEC"), an affiliate of NationsBanc
Montgomery Securities LLC, a member of the underwriting group, has certain
registration rights under the Stockholders Agreement. See "Description of
Capital Stock--Registration Rights." The Stockholders Agreement also provides
certain preemptive rights to AEC and restrictions on the transfer of shares,
each of which will terminate upon the consummation of the Offering. In addition,
the Stockholders Agreement provides that Frank J. Hanna, III and David G. Hanna,
or any of their affiliates, may not be issued additional shares of Common Stock
without the prior written consent of the holders of 90% of the Common Stock.
However, the Company anticipates that the Stockholders Agreement will be amended
immediately prior to the consummation of the Offering to eliminate this
provision.
Contemporaneously with the closing of the Offering, shares of Preferred
Stock of the Company held by (i) Brett M. Samsky (which shares had an aggregate
liquidation preference (including accrued dividends thereon) of $746,859 as of
September 30, 1998), (ii) a trust of which David G. Hanna is the sole trustee
(which shares had an aggregate liquidation preference (including accrued
dividends thereon) of $10,483,593 as of September 30, 1998), (iii) a trust of
which Frank J. Hanna, III is the sole trustee (which shares had an aggregate
liquidation preference (including accrued dividends thereon) of $10,483,593 as
of September 30, 1998), and (iv) CompuCredit Management Corp., 50% of the
outstanding stock of which is held by each of David G. Hanna and Frank J. Hanna,
III (which shares of the Company's Preferred Stock had an aggregate liquidation
preference (including accrued dividends) of $252,394 as of September 30, 1998)
will be exchanged with the Company pursuant to a plan of recapitalization for
that number of shares of Common Stock which in each case is determined when the
sum of the aggregate liquidation preference of the shares held by each such
person or trust and the amount of accrued dividends thereon is divided by the
Offering Price.
Pursuant to a promissory note dated as of April 17, 1998, the Company
borrowed $13.0 million from a limited partnership of which (i) the sole limited
partner is a trust of which the children of David G. Hanna and Frank J. Hanna,
III are included among the beneficiaries and (ii) the general partner is a
corporation, all of the outstanding capital stock of which is owned by Frank J.
Hanna, Jr., who is David G. Hanna's and Frank J. Hanna, III's father. In July
1998, the promissory note was paid in full. An aggregate of $536,200 of interest
was paid on this promissory note.
During 1997, the Company paid to HBR Capital an aggregate of $300,000 for
management and accounting services provided to the Company by employees of HBR
Capital. This arrangement was terminated on January 1, 1998. David G. Hanna and
Frank J. Hanna, III each own 50% of the capital stock of HBR Capital, and Frank
J. Hanna, III, David G. Hanna, Brett M. Samsky and Ashley L. Johnson are
employees of HBR Capital.
From time to time during 1997, a trust of which David G. Hanna is the sole
trustee and whose beneficiaries are members of David G. Hanna's immediate family
loaned the Company an aggregate of $7,450,000 pursuant to a series of promissory
notes, all of which notes were repaid, along with an aggregate of $180,476 of
interest, during 1997. Also from time to time during 1997, a trust of which
Frank J. Hanna, III is the sole trustee and whose beneficiaries are members of
Frank J. Hanna, III's immediate family loaned the Company an aggregate of
$7,450,000 pursuant to a series of promissory notes, all of which notes were
repaid, along with an aggregate of $180,476 of interest, during 1997.
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In connection with an Affinity Card Agreement dated January 6, 1997, by and
between the Company and CB&T, a trust of which Frank J. Hanna, III is the sole
trustee and whose beneficiaries are members of Frank J. Hanna, III's immediate
family entered into a Guarantor Agreement, dated December 20, 1996, with the
Company and a Pledge Agreement, dated January 8, 1997, with SunTrust Bank
whereby the trust granted to SunTrust Bank a security interest in and to certain
securities held by the trust and having a par value of $5.0 million, as
collateral for a standby letter of credit issued by SunTrust Bank in favor of
CB&T (the "Letter of Credit"). The Company paid $10,000 to the trust as initial
consideration for the Guarantor Agreement and agreed to pay an additional fee of
5% of any amount required to be paid out by SunTrust Bank pursuant to the Letter
of Credit. Another trust of which David G. Hanna is the sole trustee and whose
beneficiaries are members of David G. Hanna's immediate family has entered into
substantially similar arrangements with the Company and SunTrust Bank.
In 1996, Richard R. House, Jr. and Richard W. Gilbert loaned Visionary
Systems, Inc. ("VSI"), the third party developer of the Company's database
management system, an aggregate of $25,000 each in connection with VSI's
commencement of operations. This loan is convertible into shares of capital
stock of VSI which, upon conversion, would constitute two-thirds of the issued
and outstanding capital stock of VSI. Each of Messrs. House and Gilbert has
agreed that, for so long as he continues to be employed by CompuCredit or any of
its subsidiaries and the current agreement between the Company and VSI or any
other agreement between the Company or any of its subsidiaries and VSI or any of
its affiliates remains in effect, such conversion right will not be exercisable.
Each of Messrs. Gilbert and House has further agreed that, for so long as he
continues to be employed by the Company or any of its subsidiaries, he will not,
as a consequence of his creditor relationship with VSI or the conversion right,
derive any economic benefit from any business relationship or arrangement
between CompuCredit or any of its subsidiaries and VSI or any of its affiliates
(including for such purposes the existing agreement between CompuCredit and
VSI), provided that any benefit that may arise out of any ownership by Mr.
Gilbert or Mr. House of any securities of CompuCredit and any other benefit that
Mr. Gilbert or Mr. House may receive from CompuCredit in connection with their
employment by CompuCredit or any of its subsidiaries will not be deemed to be
prohibited by such provision.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, no par value per
share, and 10,000,000 shares of Preferred Stock, no par value per share.
The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to the Company's Amended Articles and Amended
and Restated Bylaws filed as exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
As of the date of this Prospectus, there were 32,384,862 shares of Common
Stock outstanding (after giving effect to a 15.2-for-1 stock split to be
effected concurrently with the consummation of the Offering, but without giving
effect to the Offering) held by eleven shareholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
shares of Common Stock offered hereby and the exchange of all of the outstanding
shares of the Company's Preferred Stock for Common Stock, there will be
shares of Common Stock outstanding upon the consummation of the Offering. Upon
consummation of the Offering, there will be outstanding stock options to
purchase shares of Common Stock.
53
<PAGE>
Except as described below under "Description of Capital Stock--Anti-Takeover
Effects of Provisions of Amended and Restated Articles of Incorporation,"
holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Shareholders elect directors by a plurality of the votes of the shares
present in person or by proxy at the shareholders meeting at which a quorum is
present and entitled to vote in such election. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of any outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities of the Company, subject to
the prior rights of any outstanding Preferred Stock. Holders of the Common Stock
have no preemptive, subscription, redemption or conversion rights (except such
preemptive rights as will terminate upon the consummation of the Offering), nor
are they entitled to the benefit of any sinking fund. The outstanding shares of
Common Stock are, and the shares offered by the Company in the Offering will be,
when issued and paid for, validly issued, fully paid and nonassessable. The
rights, powers, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future.
PREFERRED STOCK
As of the date of this Prospectus, there are an aggregate of 200,000 shares
of Preferred Stock outstanding. The outstanding Preferred Stock, including
accrued dividends thereon, will be exchanged for an aggregate of shares of
Common Stock in connection with the consummation of the Offering, and, upon the
consummation of the Offering, there will be no shares of Preferred Stock
outstanding.
Following the consummation of the Offering, the Board of Directors can,
subject to any limitations prescribed by law and without further shareholder
approval, issue from time to time up to an aggregate of 10,000,000 shares of
Preferred Stock, in one or more series. Each such series of Preferred Stock
shall have such number of shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.
Subject to the consummation of the Offering, the shareholders of the Company
have granted to the Board of Directors the authority to issue the Preferred
Stock and to determine its rights and preferences in order to eliminate delays
associated with a shareholder vote on specific issuances. The rights of the
holders of Common Stock will be subject to the rights of the holders of any
Preferred Stock issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could adversely affect the voting power or other
rights of the holders of Common Stock and could make it more difficult for a
third party to acquire, or discourage a third party from attempting to acquire,
a majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION
Upon consummation of the Offering, the Amended Articles will authorize
"blank check" Preferred Stock. Although the Company has no current plans to
issue any shares of Preferred Stock, the Board of Directors can set the voting,
redemption, conversion and other rights relating to such Preferred Stock. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any Preferred Stock that may be issued in
the future. The issuance of Preferred Stock could adversely affect the voting
power of holders of Common Stock and the likelihood that such
54
<PAGE>
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. See "--Preferred Stock."
GEORGIA ANTI-TAKEOVER STATUTES
The Georgia Business Corporation Code restricts certain business
combinations with "interested shareholders" and contains fair price requirements
applicable to certain mergers with "interested shareholders" that are summarized
below. The restrictions imposed by these statutes will not apply to a
corporation unless it elects to be governed by these statutes. The Company has
not elected to be covered by such restrictions but may do so in the future.
The Georgia business combination statute (the "Business Combination
Statute") regulates business combinations such as mergers, consolidations, share
exchanges and asset purchases where the acquired business has at least 100
shareholders residing in Georgia and has its principal office in Georgia. For
purposes of the Business Combination Statute, an "interested shareholder"
generally is any person who directly or indirectly, alone or in concert with
others, beneficially owns or controls 10% or more of the voting power of the
outstanding voting shares of the corporation. The Business Combination Statute
prohibits business combinations with an unapproved "interested shareholder" for
a period of five years after the date on which such person became an "interested
shareholder." The Business Combination Statues applies unless either (i) the
corporation's board of directors approved the transaction resulting in such
acquiror becoming an "interested shareholder" or the business combination prior
to the date on which the acquiror became an "interested shareholder," or (ii)
the acquiror became the owner of at least 90% of the outstanding voting stock of
the corporation (excluding shares held by directors, officers and affiliates of
the corporation and shares held by certain other persons) in the same
transaction in which the acquiror became an "interested shareholder. " The
Business Combination Statute is broad in its scope and is designed to inhibit
unfriendly acquisitions.
The Georgia fair price statute (the "Fair Price Statute") prohibits certain
business combinations between a Georgia business corporation and an "interested
shareholder." The Fair Price Statute prohibits certain business combinations
unless (i) certain "fair price" criteria are satisfied, (ii) the business
combination is unanimously approved by the continuing directors, (iii) the
business combination is recommended by at least two-thirds of the continuing
directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, other than voting shares beneficially owned by the "interested
shareholder," or (iv) the "interested shareholder" has been such for at least
three years and has not increased this ownership position in such three-year
period by more than 1% in any twelve-month period. The Fair Price Statute is
designed to inhibit unfriendly acquisitions that do not satisfy the specified
"fair price" requirements.
REGISTRATION RIGHTS
Under the Stockholders Agreement, AEC, which holds 940,196 shares of Common
Stock, has piggyback registration rights with respect to such shares and any
additional shares of Common Stock that it may acquire. If the Company proposes
to register any of its securities under the Securities Act (other than any
registration on Form S-8 or another form not available for registering the
Common Stock for sale to the public), AEC will have the right to require that
any shares of Common Stock held by it be included in such registration, subject
to certain limitations set forth in the Stockholders Agreement. Under the
Stockholders Agreement, the Company is required to bear the fees, costs and
expenses of each registration of AEC's shares, and AEC is required to bear all
underwriting discounts and selling commissions applicable to the sale of its
Common Stock.
Pursuant to a Stock Purchase Agreement dated August 21, 1998 (the "Stock
Purchase Agreement") between an unrelated private investor holding 1,044,666
shares of Common Stock and the Company, the investor has demand and piggyback
registration rights with respect to such shares. If, at
55
<PAGE>
any time at least 12 months after the consummation of the Offering, the Company
proposes to register any of its securities under the Securities Act (other than
any registration on Form S-8 or another form not available for registering the
Common Stock for sale to the public), the investor will have the right to
require that any shares of Common Stock held by it be included in such
registration, subject to certain limitations set forth in the Stock Purchase
Agreement. In addition, at any time beginning at least 12 months after
consummation of the Offering and ending on August 21, 2000, if the Company is
qualified to use Form S-3, the investor will have to right to request one
registration on Form S-3 of all or a part of its shares, subject to certain
limitations set forth in the Stock Purchase Agreement. Under the Stock Purchase
Agreement, the Company must bear the fees, costs and expenses of each
registration of such investor's shares, and the investor is required to bear all
underwriting discounts and selling commissions applicable to the sale of its
Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company's Amended Articles will
authorize the issuance of up to 60,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock, and there will be outstanding shares of
Common Stock (assuming no exercise of the Underwriters' over-allotment option)
and no outstanding shares of Preferred Stock. The shares of Common Stock to be
sold in the Offering ( shares if the Underwriters' over-allotment option is
exercised in full) will be available for resale in the public market without
restriction or further registration under the Securities Act, except for shares
purchased by affiliates of the Company (in general, any person who has a control
relationship with the Company), which shares will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act. The remaining
shares of Common Stock held by existing shareholders are "restricted"
shares within the meaning of Rule 144 under the Securities Act ("Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and may not be sold except in compliance with the registration requirements
of the Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell, within any three-month period, a number of shares
which does not exceed the greater of (i) 1% of the then-outstanding shares of
Common Stock (approximately shares immediately after the Offering,
assuming no exercise of the Underwriters' over-allotment option) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 may also be subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares within the definition of
"restricted securities" under Rule 144 for at least two years, is entitled to
sell such shares under Rule 144(k) without regard to the volume limitation,
manner of sale provisions, public information requirements or notice
requirements. Upon completion of the Offering, there will be shares which may be
sold pursuant to Rule 144(k).
Upon completion of the Offering, the holders of a total of 1,984,862 shares
of Common Stock will be entitled to certain registration rights with respect to
such shares. See "Description of Capital Stock--Registration Rights."
56
<PAGE>
Promptly following the consummation of the Offering, the Company intends to
file one or more registration statements on Form S-8 under the Securities Act to
register all of the shares of Common Stock subject to then outstanding options
or future grants under the Company's 1998 Stock Option Plan. These registration
statements are expected to become effective upon filing, and shares covered by
these registration statements will, subject to Rule 144 volume limitations
applicable to affiliates, be eligible for public sale after the lock-up
agreements with the Underwriters have expired and any vesting requirements have
been met.
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made of the effect that the sale or availability for
sale of shares of Common Stock will have on the market price of the Common
Stock. Nevertheless, sales of substantial amounts of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
The Company and all of its existing shareholders have agreed that, for a
period of 365 days from the date of this Prospectus, they will not, without the
prior written consent of PaineWebber Incorporated, acting on behalf of the
Representatives, offer to sell, sell, contract to sell, grant any option to
sell, or otherwise dispose of, or require the Company to file with the
Commission a registration statement under the Securities Act to register, any
shares of Common Stock of the Company or securities convertible into or
exchangeable for any shares of Common Stock of the Company or warrants or other
rights to acquire shares of Common Stock of the Company (other than with respect
to employees of the Company pursuant to employee stock option plans or in
connection with other employee incentive compensation arrangements).
57
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
PaineWebber Incorporated, Bear, Stearns & Co. Inc. and NationsBanc Montgomery
Securities LLC (the "Representatives"), have severally agreed to purchase, and
the Company has agreed to sell, subject to the terms and conditions set forth in
an underwriting agreement (the "Underwriting Agreement"), the respective number
of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -------------------------
<S> <C>
PaineWebber Incorporated.......................................................................
Bear, Stearns & Co. Inc........................................................................
NationsBanc Montgomery Securities LLC..........................................................
-
Total......................................................................................
-
-
</TABLE>
In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock being sold pursuant to the Underwriting Agreement (other
than those covered by the over-allotment option described below) if any shares
of Common Stock are purchased. The Underwriting Agreement provides that the
obligations of the Underwriters to purchase such shares of Common Stock are
subject to certain conditions precedent. The Underwriting Agreement also
provides that in the event of a default by any Underwriter, the purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted the Underwriters an option exercisable for 30 days
after the date hereof to purchase up to additional shares of Common Stock
to cover over-allotments, if any, at the Offering Price less the underwriting
discount and commissions. If the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the number of shares of Common Stock to be purchased by it shown in the
foregoing table bears to the shares of Common Stock initially offered hereby.
The Underwriters may purchase such shares of Common Stock only to cover over-
allotments made in connection with the Offering.
The Company has agreed to indemnify the several Underwriters against certain
civil liabilities, including liabilities under the federal securities laws, or
to contribute to payments which the Underwriters may be required to make in
respect thereof.
The Company and all of its existing shareholders have agreed that, for a
period of 365 days from the date of this Prospectus, they will not, without the
prior written consent of PaineWebber Incorporated, on behalf of the
Representatives, offer to sell, sell, contract to sell, grant any option to
sell, or otherwise dispose of, or require the Company to file with the
Commission a registration statement under the Securities Act to register, any
shares of Common Stock of the Company or securities convertible into or
exchangeable for any shares of Common Stock of the Company or warrants or other
rights to acquire shares of Common Stock of the Company (other than with respect
to employees of the Company pursuant to employee stock option plans or in
connection with other employee incentive compensation arrangements).
Prior to the Offering, there has been no public market for the Common Stock.
Accordingly, the public Offering Price has been determined by negotiations
between the Company and the Representatives. Among the factors which were
considered in determining the Offering Price were the Company's future
prospects, the experience of its management, the economic condition of the
financial services industry in general, the general condition of the equity
securities market, the demand for similar securities of companies considered
comparable to the Company and other relevant factors.
58
<PAGE>
The Offering Price set forth on the cover page of this Prospectus should not
be considered an indication of the actual value of the Common Stock. The
Offering Price is subject to change as a result of market conditions and other
factors, and no assurance can be given that the Common Stock can be resold at
the Offering Price.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "CCRT."
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
In addition, if the Representatives over-allot (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this Prospectus)
and thereby create a short position in the Common Stock in connection with the
Offering, then the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, the Representatives may
reclaim the amount of the selling concession from the Underwriters and selling
group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might otherwise be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security by purchasers in the
Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
59
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Commission with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and the exhibits and schedules
thereto. A copy of the Registration Statement may be inspected by anyone without
charge at the Commission's principal office in Washington, D.C., at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and through the Commission's web site at http://www.sec.gov.
Copies of all or any part of the Registration Statement, or any materials the
Company has filed with the Commission, may be obtained from the Public Reference
Room of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission. Further information
regarding the operation of the Public Reference Room may be obtained by calling
the Commission at 1-800-SEC-0330.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Troutman Sanders LLP, Atlanta, Georgia, and certain
legal matters will be passed upon for the Underwriters by Orrick, Herrington &
Sutcliffe LLP, Washington, D.C.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements for the year ended December 31, 1997 and the period from
August 14, 1996 (inception) to December 31, 1996, as set forth in their report,
which is included in this Prospectus. The consolidated financial statements are
included herein in reliance on their report, given on their authority as experts
in accounting and auditing.
60
<PAGE>
COMPUCREDIT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997, and September 30, 1998 (Unaudited),.......... F-3
Consolidated Statements of Operations for the Period from August 14, 1996 (inception) to December 31, 1996,
for the Year ended December 31, 1997 and for the Nine Months ended September 30, 1997 and 1998
(Unaudited).............................................................................................. F-4
Consolidated Statements of Shareholders' Equity for the Period from August 14, 1996 (inception) to December
31, 1996, for the Year ended December 31, 1997 and for the Nine Months ended September 30, 1998
(Unaudited).............................................................................................. F-5
Consolidated Statements of Cash Flow for the Period from August 14, 1996 (inception) to December 31, 1996,
for the Year ended December 31, 1997 and for the Nine Months ended September 30, 1997 and 1998
(Unaudited).............................................................................................. F-6
Notes to Consolidated Financial Statements for the Period from August 14, 1996 (inception) to December 31,
1996, for the Year ended December 31, 1997 and for the Nine Months ended September 30, 1997 and 1998
(Unaudited).............................................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CompuCredit Corporation
We have audited the accompanying consolidated balance sheets of CompuCredit
Corporation and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1997 and for the period from August 14, 1996
(inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CompuCredit
Corporation and Subsidiaries at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for the year ended December 31,
1997 and for the period from August 14, 1996 (inception) to December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
July 23, 1998
F-2
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents........................................... $ 52,672 $ 1,677,565 $ 5,993,937
Retained interests in credit card receivables securitized........... -- 14,494,270 26,726,223
Accrued interest and fees........................................... -- 461,337 1,143,997
------------- ------------- -------------
Net credit card receivables......................................... -- 14,955,607 27,870,220
Amounts receivable from securitization.............................. -- 1,059,753 31,053,368
Deferred costs, net................................................. -- 1,276,392 1,131,229
Software, furniture, fixtures and equipment, net.................... -- 676,936 1,486,001
Prepaid expenses.................................................... 127,400 422,524 155,664
Other assets........................................................ 73,026 146,322 480,035
------------- ------------- -------------
Total assets........................................................ $ 253,098 $ 20,215,099 $ 68,170,454
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Amounts payable under securitization................................ $ -- $ 124,399 $ 2,460,460
Accrued expenses.................................................... 100,779 840,891 2,622,234
Deferred revenue.................................................... -- 122,580 1,510,299
Deferred tax liability.............................................. -- -- 12,478,000
------------- ------------- -------------
Total liabilities................................................... 100,779 1,087,870 19,070,993
SHAREHOLDERS' EQUITY
Preferred stock, $100 par value:
Cumulative and nonparticipating; no shares authorized, issued or
outstanding at December 31, 1996; 500,000 shares authorized,
200,000 shares issued and outstanding at December 31, 1997 and
September 30, 1998............................................ -- 20,000,000 20,000,000
Common stock, no par value:
no shares authorized, issued or outstanding at December 31,
1996; 3,000,000 shares authorized; 2,061,855 and 2,130,583
shares issued and outstanding at December 31, 1997 and
September 30, 1998, respectively.............................. -- -- --
Additional paid-in capital........................................ 300,000 -- 9,953,450
Retained earnings (deficit)....................................... (147,681) (872,771) 19,146,011
------------- ------------- -------------
Total shareholders' equity.......................................... 152,319 19,127,229 49,099,461
------------- ------------- -------------
Total liabilities and shareholders' equity.......................... $ 253,098 $ 20,215,099 $ 68,170,454
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE NINE MONTHS
AUGUST 14, 1996 FOR THE ENDED SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED -------------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
------------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Interest income:
Interest........................................ $ -- $ -- $ -- $ 1,033,401
Finance charges, including fees................. -- 2,624,500 1,691,011 --
Other........................................... -- 33,336 16,235 186,757
---------- ----------------- ----------- ------------
Total interest income............................. -- 2,657,836 1,707,246 1,220,158
Interest expense:
Short-term borrowings........................... -- 360,952 360,952 536,200
---------- ----------------- ----------- ------------
Total interest expense............................ -- 360,952 360,952 536,200
Net interest income............................... -- 2,296,884 1,346,294 683,958
Provision for loan losses......................... -- 1,421,553 762,535 --
---------- ----------------- ----------- ------------
Net interest income after provision for loan
losses.......................................... -- 875,331 583,759 683,958
Other operating income:
Securitization income, net...................... -- 627,673 (96,527) 27,773,772
Servicing income................................ -- -- -- 9,178,519
Other credit card fees.......................... -- 911,311 545,307 2,765,081
Interchange fees................................ -- 278,570 152,164 1,086,824
Ancillary products.............................. -- 37,120 10,570 386,673
Other........................................... -- 155,264 -- --
---------- ----------------- ----------- ------------
Total other operating income...................... -- 2,009,938 611,514 41,190,869
Other operating expense:
Salaries and benefits........................... -- 428,549 259,751 730,431
Credit card servicing........................... -- 1,008,028 650,571 1,669,329
Marketing and solicitation...................... 26,797 1,081,173 339,652 4,288,631
Professional fees............................... 19,577 251,669 210,988 604,288
Data processing................................. -- 156,204 88,348 959,190
Net occupancy................................... -- 35,648 18,978 111,071
Ancillary product expense....................... -- -- -- 213,133
Other........................................... 101,307 649,088 422,880 801,972
---------- ----------------- ----------- ------------
Total other operating expense..................... 147,681 3,610,359 1,991,168 9,378,045
Income (loss) before income taxes................. (147,681) (725,090) (795,895) 32,496,782
Income tax expense................................ -- -- -- 12,478,000
---------- ----------------- ----------- ------------
Net income (loss)................................. $ (147,681) $ (725,090) $ (795,895) $ 20,018,782
---------- ----------------- ----------- ------------
---------- ----------------- ----------- ------------
Net income (loss) attributable to common
shareholders.................................... $ -- $ (1,341,090) $ (958,895) $ 18,668,782
Average number of shares outstanding.............. -- 2,061,855 2,061,855 2,072,177
Net income (loss) per common share................ $ -- $ (0.65) $ (0.47) $ 9.01
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD AUGUST 14, 1996 (INCEPTION) TO DECEMBER 31, 1996,
THE YEAR ENDED DECEMBER 31, 1997, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
PREFERRED --------------------- PAID-IN EARNINGS SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------- ---------- --------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996
(inception)...................... $ -- -- $ -- $ -- $ -- $ --
Contributed capital, units A and
C holders...................... -- -- -- 300,000 -- 300,000
Net loss......................... -- -- -- -- (147,681) (147,681)
------------- ---------- --------- -------------- ---------------- -------------
Balance at December 31, 1996....... $ -- -- $ -- $ 300,000 $ (147,681) $ 152,319
Capital contribution............. -- -- -- 19,700,000 -- 19,700,000
Issuance of preferred stock...... 20,000,000 -- -- (20,000,000) -- --
Issuance of common stock......... -- 2,061,855 -- -- -- --
Net loss......................... -- -- -- -- (725,090) (725,090)
------------- ---------- --------- -------------- ---------------- -------------
Balance at December 31, 1997....... $ 20,000,000 2,061,855 $ -- $ -- $ (872,771) $ 19,127,229
Issuance of Common Stock
(unaudited).................... 68,728 -- 9,953,450 -- 9,953,450
Net income (unaudited)........... -- -- -- -- 20,018,782 20,018,782
------------- ---------- --------- -------------- ---------------- -------------
Balance at September 30, 1998
(unaudited)...................... $ 20,000,000 2,130,583 $ -- $ 9,953,450 $ 19,146,011 $ 49,099,461
------------- ---------- --------- -------------- ---------------- -------------
------------- ---------- --------- -------------- ---------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 14, 1996 FOR THE FOR THE NINE MONTHS
(INCEPTION) TO YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
----------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income (loss)................................. $ (147,681) $ (725,090) $ (795,895) $ 20,018,782
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation expense............................ -- 79,228 28,634 287,581
Amortization expense............................ -- 214,999 38,917 558,896
Loan loss provision............................. -- 1,421,553 762,535 --
Gain on securitization.......................... -- (840,452) -- (6,602,902)
Changes in assets and liabilities:
Increase in accrued interest and fees......... -- (461,337) (385,426) (682,660)
Increase in deferred costs.................... -- (1,475,301) (1,033,112) (355,560)
(Increase) decrease in prepaid expenses....... (127,400) (443,252) 61,117 266,860
Increase in amounts receivable from
securitization.............................. -- (516,513) (253,161) (1,430,644)
Increase in amounts payable under
securitization.............................. -- 124,399 68,750 2,336,061
Increase in accrued expenses.................. 100,779 740,112 550,434 1,781,343
Increase in deferred tax liability............ -- -- -- 12,478,000
Increase in deferred revenue.................. -- 122,580 220,579 1,387,719
Other......................................... (73,026) 58,744 (12,115) (391,886)
----------------- ----------------- ------------- --------------
Net cash provided by (used in) operating
activities...................................... (247,328) (1,700,330) (748,743) 29,651,590
INVESTING ACTIVITIES
Net loans originated or purchased................. -- (28,269,029) (17,396,267) (307,610,780)
Recoveries of loans previously charged off........ -- 417 147 39,650
Proceeds from securitization of loans............. -- 12,650,000 -- 273,379,108
Purchases of property and equipment............... -- (186,262) (259,863) (403,801)
Software development costs........................ -- (569,903) (95,143) (692,845)
----------------- ----------------- ------------- --------------
Net cash used in investing activities............. -- (16,374,777) (17,751,126) (35,288,668)
FINANCING ACTIVITIES
Proceeds from capital contributions............... 300,000 19,700,000 19,700,000 9,953,450
Proceeds from short-term borrowings............... -- 19,700,000 19,700,000 13,000,000
Payment of short-term borrowings.................. -- (19,700,000) (19,700,000) (13,000,000)
----------------- ----------------- ------------- --------------
Net cash provided by financing activities......... 300,000 19,700,000 19,700,000 9,953,450
Net increase in cash.............................. 52,672 1,624,893 1,200,131 4,316,372
Cash and equivalents at beginning of period....... -- 52,672 52,672 1,677,565
----------------- ----------------- ------------- --------------
Cash and equivalents at end of period............. $ 52,672 $ 1,677,565 $ 1,252,803 $ 5,993,937
----------------- ----------------- ------------- --------------
----------------- ----------------- ------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest............................ $ -- $ 360,952 $ 360,952 $ 536,200
Cash paid for income taxes........................ -- -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CompuCredit
Corporation and its subsidiaries (collectively, "the Company"). The principal
subsidiaries are CompuCredit Funding Corp. and CompuCredit Acquisition
Corporation which were formed for the purpose of effecting the securitization of
credit card receivables. All significant intercompany balances and transactions
have been eliminated for financial reporting purposes. The Company was formed
for the purpose of offering unsecured credit and fee based products and services
to a specialized segment of the consumer credit market. The Company has a
contractual arrangement with a third party financial institution pursuant to
which the financial institution issues general purpose Visa credit cards under
the Company's "Aspire" trademark, and the Company purchases the receivables
relating to such accounts. The Company also purchased a portfolio of credit
cards from a third party in 1998. The Company has contracted with third party
financial institutions to issue credit cards and to perform certain services for
the credit card receivables portfolio as well as the securitized receivables.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles that require management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements as well as the reported amount of revenues
and expenses during the reporting period. Actual results could differ from these
estimates. Certain estimates such as credit losses, prepayment and discount
rates have a significant impact on the gains recorded on securitizations.
The consolidated balance sheet as of September 30, 1998 and the related
statements of operations, shareholders' equity, and cash flows for the nine
months ended September 30, 1998 and 1997 ("interim financial statements") have
been prepared by the Company's management and are unaudited. The interim
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the interim results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements. The
interim financial statements should be read in conjunction with the December 31,
1997 audited financial statements appearing herein. The results of the nine
months ended September 30, 1998 may not be indicative of operating results for
the full year.
Certain amounts in prior period financial statements have been reclassified
to conform to the current period presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of the consolidated financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market investments, and
overnight deposits. The Company considers all other highly liquid cash
investments with low interest rate risk to be cash equivalents. Cash equivalents
are valued at cost, which approximates market.
F-7
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIZED CREDIT CARD RECEIVABLES
Interest and fee income on credit card loans is recognized as earned. Credit
card receivables are typically charged off in the next billing cycle after
becoming 180 days past due, although earlier charge-offs may occur specifically
related to accounts of bankrupt or deceased clients. Bankrupt and deceased
clients' accounts are generally charged off within 30 days of verification. The
accrued interest portion of a charged off loan balance is reversed from current
period interest income with the remaining principal balance charged against the
allowance for loan losses.
DEFERRED COSTS
The Company capitalizes certain costs paid to third parties related to its
credit card receivable securitizations. Such costs include legal fees and fees
incurred for services provided for establishing securitization facilities that
have ongoing benefit to the Company, such as the master trust utilized for
future securitizations. These capitalized securitization costs are amortized
over a period of three years. The accumulated amortization of these costs was
$699,631 and $198,909 at September 30, 1998 and December 31, 1997, respectively.
ALLOWANCE FOR LOAN LOSSES
In 1997 prior to securitizations, an allowance for loan losses was
maintained at an amount estimated to be sufficient to absorb inherent losses,
net of recoveries, in the existing on-balance sheet loan portfolio. The
provision for loan losses is the periodic cost of maintaining an adequate
allowance. In evaluating the adequacy of the allowance for loan losses,
management takes into consideration several of the following factors: historical
charge-off and recovery activity (noting any particular trend changes over
recent periods); trends in delinquencies; trends in loan volume and size of
credit risks; the degree of risk inherent in the composition of the loan
portfolio; current and anticipated economic conditions; credit evaluations and
underwriting policies. The allowance for loan losses has been relieved, as
substantially all credit card receivables have been securitized.
FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation. Depreciation and amortization expenses are computed using the
straight-line method over the estimated useful lives of the assets.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain costs related to internal development and
implementation of software used in operating activities of the Company. Software
development costs are stated at capitalized cost less accumulated amortization.
Depreciation and amortization expenses are computed using the straight-line
method over the estimated useful lives of the assets.
F-8
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AMOUNTS PAYABLE UNDER SECURITIZATION
Amounts collected by the Company in payment of principal, interest, and fees
on receivables securitized are remitted to the special purpose entities on a
monthly basis. Amounts collected for a month are not remitted until the
following month, resulting in a payable from the Company to the special purpose
entities.
ASSET SECURITIZATION
The Company securitizes and sells a substantial portion of its company
issued credit card loans through the CompuCredit Credit Card Master Trust (the
"Trust"). Credit card loans are transferred to the Trust, which issues
certificates representing undivided ownership interest in the Trust. The Company
retains interests in the Trust ("Retained Interests in Credit Card Receivables
Securitized" on the consolidated balance sheets) in an amount equal to the
amount of the retained certificates of each series held by the Company plus the
amount of the loans in excess of the principal balance of the certificates.
Retained Interests in Credit Card Receivables Securitized are classified as
trading securities and are subsequently accounted for and reported at market
value in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("Statement
No. 115").
Although the Company continues to service the underlying credit card
accounts and maintains the client relationships, these transactions are treated
as sales and the securitized loans are not reflected on the consolidated balance
sheet. The Company has receivables from and payables to the Trust as a result of
securitizations, including amounts deposited in accounts held by the trustee for
the benefit of the Trust's certificate holders.
The Company also securitized its purchased portfolio of credit card loans by
transferring them to a third party commercial paper conduit. Transfer of credit
card loans between the Company and the commercial paper conduit are treated as
sales, and the securitized credit card loans are not reflected on the Company's
balance sheet. The Company retains interests in the securitized receivables
equal to the amount of loans in excess of the principal balances of the
certificates. These amounts are classified in Amounts Receivable from
Securitization, are considered to be trading securities, and are subsequently
accounted for and reported at market value in accordance with Statement No. 115.
The Company continues to service the underlying credit card accounts that have
been securitized. The Company has receivables from and payables to the
commercial paper conduit as a result of securitizations, including amounts
deposited in accounts for the benefit of the commercial paper conduit's
investors.
The Company has adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("Statement No. 125"), effective for all transactions. Under
Statement No. 125, gains are recognized at the time of initial sale and each
subsequent sale of loan receivables from securitization at the time of sale.
These gains represent the present value of the estimated excess cash flows the
Company expects to retain over the estimated outstanding period of the
receivables. This excess cash flow represents finance charges and late fees in
excess of the sum of the return paid to the certificate holders, estimated
servicing fees and
F-9
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimated loan losses. Certain estimates in the determination of the gain are
influenced by factors outside the Company's control, and, as a result, such
estimates could materially change in the near term. Significant assumptions used
in the gain determination include estimates of discount rates, interest rates,
default rates, payment rates, new purchases and servicing costs. The discount
rates are based on management's estimates of returns that would be required by
investors in an interest-only strip with similar terms and credit quality. The
estimated interest rates used are based on the stated annual percentage rates in
the credit card agreements, adjusted for other variables. Estimates of default
rates, payment rates, new purchases and servicing costs are based on the
portfolio's historical results, adjusted for expected changes, and the rates of
credit card portfolios with similar characteristics.
In accordance with the provisions of Statement No. 125, the Company has
recorded an interest-only strip receivable, which is included in Amounts
Receivable from Securitization. The interest-only strip receivable was initially
recorded at allocated book value, and is subsequently accounted for and reported
at market value in accordance with Statement No. 115. Also included in Amounts
Receivable from Securitization are payments on credit card receivables and other
receivables due to the Company from the Trust.
CREDIT CARD FEES
Credit card fees include annual, overlimit, returned check, and cash advance
transaction fees. These fees are assessed according to agreements with clients.
Annual fees and direct loan origination costs are deferred and amortized on a
straight-line basis over the one-year period to which the fees or costs pertain.
The Company, under its securitization agreements, continues to earn servicing
income, interchange fees, ancillary products income, and other credit card fees.
SOLICITATION EXPENSES
Credit card account and other product solicitation costs, including
printing, credit bureaus, list processing costs, telemarketing and postage, are
generally expensed as the solicitation occurs.
INCOME TAXES
The Company accounts for income taxes based on the liability method required
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement No. 109").
Under the liability method, deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company implemented FASB Statement of Financial
Accounting Standards No. 130 ("Statement No. 130"), which established new rules
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Application of Statement No.
130 has not impacted amounts previously reported for net income or
F-10
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
affected the comparability of previously issued financial statements, as the
Company currently has no financial statement items included in the definition of
comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." Statement No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement No. 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company will adopt the new standard beginning with its annual
financial statements for the year ended December 31, 1998.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed For or Obtained For Internal Use" ("SOP
98-1"). SOP 98-1 is effective for the Company beginning on January 1, 1999. SOP
98-1 will require the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software for internal use.
Adoption of SOP 98-1 is not expected to have a material impact on the results of
operations or financial position of the Company.
In April 1998, the AICPA issued Statement of Position 98-5 "Reporting the
Costs of Start Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start up costs and organization costs and is effective
for fiscal years beginning after December 15, 1998. Adoption of SOP 98-5 is not
expected to have a material impact on the results of operations or financial
position of the Company.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which is required to
be adopted in years beginning after June 15, 1999. Adoption of Statement No. 133
is not expected to have a material impact on the results of operations or
financial position of the Company.
3. CORPORATE REORGANIZATION AND SHAREHOLDERS' EQUITY
CompuCredit, L.P. (the "Partnership") was formed on August 14, 1996 as a
limited partnership under the Georgia Revised Uniform Limited Partnership Act of
the laws of the State of Georgia. The partners were classified as Series A
holders, Series B holders, and the Series C holder. Series A holders were
limited partners, holding 87% of the Partnership units, and contributing 99% of
the contributed capital. Series B holders were limited partners, holding 12% of
the Partnership units, making no capital contributions, and having interest
solely in the net profits of the Partnership. The Series C holder was the
General Partner, holding 1% of the Partnership units, and contributing 1% of the
contributed capital.
On August 29, 1997, the Partnership was merged into CompuCredit Corporation
under the laws of the State of Georgia. The $20,000,000 of contributed capital
of the Partnership was converted into 200,000 shares of $100 par value nonvoting
nonparticipating preferred stock of the Corporation. Cumulative dividends
accumulate on the outstanding preferred stock at an annual rate of 9%. There
F-11
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
3. CORPORATE REORGANIZATION AND SHAREHOLDERS' EQUITY (CONTINUED)
were $1,966,000 and $616,000 of unpaid dividends in arrears related to the
preferred stock at September 30, 1998 and December 31, 1997, respectively. The
Corporation also issued 2,061,855 shares of common stock, no par value
(3,000,000 shares authorized), of which 936,568 are currently issued to the
holders of the nonvoting preferred stock of the Corporation. CompuCredit
Corporation continued the operations of CompuCredit, L.P.
On August 21, 1998, the Company issued 68,728 shares of common stock to an
unrelated investor for net cash proceeds of $9,953,450.
4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was established during 1997 as the Company
began to establish its credit card receivables portfolio. The allowance was
relieved as the Company securitized the credit card receivables.
5. SECURITIZATIONS
The Company received proceeds from securitizations of $273,379,000 and
$12,650,000 during the period ended September 30, 1998 and the year ended
December 31, 1997, respectively. As of September 30, 1998 and December 31, 1997,
the Company had retained interests in these loans securitized of $26,726,000,
and $14,494,000, respectively. Of the proceeds received in 1998, approximately
$222,000,000 related to the securitization of a portfolio the Company purchased
during the period ending September 30, 1998.
6. SOFTWARE, FURNITURE, FIXTURES, AND EQUIPMENT
Software, Furniture, Fixtures and Equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Software................................................................... $ 569,903 $ 1,262,745
Furniture and fixtures..................................................... 32,471 67,356
Data processing and telephone equipment.................................... 153,790 522,709
-------- ------------------
Total cost................................................................. 756,164 1,852,810
Less accumulated depreciation.............................................. (79,228) (366,809)
-------- ------------------
Software, furniture, fixtures, and equipment, net.......................... $ 676,936 $ 1,486,001
-------- ------------------
-------- ------------------
</TABLE>
7. LEASES
The Company leases premises and equipment under cancelable and noncancelable
leases, some of which contain renewal options under various terms. Total rental
expense was $107,186 and $35,311 for the period ended September 30, 1998 and the
year ended December 31, 1997, respectively. As of
F-12
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. LEASES (CONTINUED)
September 30, 1998, the future minimum rental commitments for all noncancelable
leases with initial or remaining terms of more than one year are as follows:
<TABLE>
<S> <C>
October 1, 1998 to September 30, 1999........................................... $ 198,435
October 1, 1999 to September 30, 2000........................................... 206,385
October 1, 2000 to September 30, 2001........................................... 214,647
October 1, 2001 to September 30, 2002........................................... 223,181
October 1, 2002 to September 30, 2003........................................... 232,066
After September 30, 2003........................................................ 168,687
---------
$1,243,401
---------
---------
</TABLE>
8. BORROWINGS
On January 8, 1997, the Company entered into an irrevocable standby letter
of credit agreement for $10,000,000 with a bank. The letter of credit agreement
expires on January 8, 1999. The agreement contains provisions allowing the
subservicer of the receivables to draw under the letter of credit as needed. As
of September 30, 1998 and December 31, 1997, the letter of credit agreement was
unused.
9. COMMITMENTS AND CONTINGENCIES
The Company enters into financial instruments with off balance sheet risk in
the normal course of business through the origination of unsecured credit card
receivables. These financial instruments consist of commitments to extend
credit. These instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheets. The principal amount
of these instruments reflects the maximum exposure the Company has in the
instruments. The Company has not experienced and does not anticipate that all of
its clients will exercise their entire available line of credit at any given
point in time. The Company has the right to reduce or cancel these available
lines of credit at any time.
10. INCOME TAXES
As described in Note 1, CompuCredit, L.P. converted from a partnership to a
corporation on August 29, 1997. For the period August 14, 1996 (inception)
through August 28, 1997, the entity was a limited partnership, and as such, no
income tax provision was recorded. No income tax expense was recorded related to
the activities of the corporation for the period August 29, 1997 through
December 31, 1997, as the Company had no taxable income. A valuation allowance
of $82,000 was recorded in 1997, related to the Company's deferred tax asset.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, which represent the
difference between the amounts reported for financial reporting purposes and
amounts used for income tax purposes. Statement No. 109 requires that the
deferred tax effects of a change in tax status be included in income from
continuing operations at the date the change in tax status occurs. On August 29,
1997 when CompuCredit, L.P. converted to a C-corporation status for legal and
tax purposes and became subject to income taxes, deferred tax assets
F-13
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
10. INCOME TAXES (CONTINUED)
and liabilities were recognized for existing temporary differences. At that
date, a tax benefit of $82,000 was recorded related to the recognition of
existing deferred tax assets. Such benefit was fully offset by a $82,000
valuation allowance.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1997 and September 30, 1998 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization............................................ $ 15,000 $ 79,000
Loan loss provision...................................................... 368,000 --
Net operating loss carryforwards......................................... 795,000 --
Other, net............................................................... -- 12,000
----------------- ------------------
Total deferred tax asset................................................... 1,178,000 91,000
Deferred tax liabilities:
Software development costs............................................... (164,000) (427,000)
Deferred costs........................................................... (585,000) (390,000)
Gain on securitization................................................... (347,000) (11,752,000)
----------------- ------------------
Total deferred tax liability............................................... (1,096,000) (12,569,000)
Valuation allowance........................................................ (82,000) --
----------------- ------------------
Net deferred tax (liability) asset......................................... $ -- $ (12,478,000)
----------------- ------------------
----------------- ------------------
</TABLE>
Income tax expense differed from amounts computed by applying the statutory
U.S. Federal income tax rate to pretax income from operations as a result of the
following:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, 1998
-------------------
<S> <C>
Taxes at statutory rate...................................................................... $ 11,374,000
Increase in income taxes resulting from:
State income tax expense, net of federal income tax benefit................................ 867,000
Other, net................................................................................. 237,000
-------------------
Total income tax expense..................................................................... $ 12,478,000
-------------------
-------------------
</TABLE>
F-14
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
10. INCOME TAXES (CONTINUED)
The current and deferred portions of federal and state income tax expense
for the nine months ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, 1998
-------------------
<S> <C>
Federal income tax expense:
Current tax expense........................................................................ $ --
Deferred tax expense....................................................................... 11,165,000
-------------------
Total federal income tax expense............................................................. 11,165,000
State income tax expense:
Current tax expense........................................................................ --
Deferred tax expense....................................................................... 1,313,000
-------------------
Total state income tax expense............................................................... 1,313,000
-------------------
Total income tax expense..................................................................... $ 12,478,000
-------------------
-------------------
</TABLE>
11. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share:
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, 1997 1998
----------------- -------------
<S> <C> <C>
Numerator:
Net income (loss)............................................................ $ (725,090) $20,018,782
Preferred stock dividends.................................................... (616,000) (1,350,000)
----------------- -------------
Numerator for basic earnings per share--income (loss) attributable to common
shareholders................................................................. (1,341,090) 18,668,782
Denominator:
Denominator for basic earnings per share--weighted average shares
outstanding.................................................................. 2,061,855 2,072,177
Basic earnings (loss) per share................................................ $ (0.65) $ 9.01
----------------- -------------
----------------- -------------
</TABLE>
There are no differences between diluted and basic earnings per share.
12. RELATED PARTY TRANSACTIONS
In the first nine months of 1998, the Company entered into a note with a
related party in the face amount of $13,000,000. Under the terms of the
promissory note, interest accrues at a rate of 2.0% per month and is payable
monthly in arrears. In July 1998, the promissory note and all accrued interest
was paid in full.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF THE DATES OF THE FRONT OF THIS DOCUMENT.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................................... 1
Risk Factors........................................... 7
The Company............................................ 16
Use of Proceeds........................................ 16
Dividend Policy........................................ 16
Dilution............................................... 17
Capitalization......................................... 18
Selected Consolidated Financial Data................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 21
Business............................................... 34
Management............................................. 45
Principal Shareholders................................. 51
Certain Transactions................................... 52
Description of Capital Stock........................... 53
Shares Eligible for Future Sale........................ 56
Underwriting........................................... 58
Available Information.................................. 60
Legal Matters.......................................... 60
Experts................................................ 60
</TABLE>
-------------------
THROUGH AND INCLUDING (THE 25TH
DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN
THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
COMPUCREDIT CORPORATION
COMMON STOCK
[LOGO]
-----------------
PROSPECTUS
-----------------
PAINEWEBBER INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
-----------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee to Securities and Exchange Commission............. $ 44,480
National Association of Securities Dealers, Inc. filing fee........ +
NASDAQ National Market Listing fee................................. +
Transfer Agent's and Registrar's fees.............................. +
Printing and engraving costs....................................... +
Accounting fees and expenses....................................... +
Legal fees and expenses............................................ +
Miscellaneous expenses............................................. +
---------
Total.............................................................. $
</TABLE>
- ------------------------
+ to be completed by amendment.
The foregoing items, except for the registration fee to the Securities and
Exchange Commission, are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Business Corporation Code (the "GBCC") permits a corporation to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of duty of care or other duty
as a director, provided that no provisions shall eliminate or limit the
liability of a director: (i) for any appropriation, in violation of his duties,
of any business opportunity of the corporation; (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for unlawful
corporate distributions; or (iv) for any transaction from which the director
received an improper personal benefit. This provision pertains only to breaches
of duty by directors in their capacity as directors (and not in any other
corporate capacity, such as officers) and limits liability only for breaches of
fiduciary duties under the GBCC (and not for violation of other laws, such as
the federal securities laws). The Amended and Restated Articles of Incorporation
exonerate the Company's directors from monetary liability to the extent
permitted by this statutory provision.
The Company's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws also provide that the Company shall indemnify any director, and
may indemnify any officer, who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including any action
by or in the right of the Company), by reason of the fact that such person is or
was a director or officer of the Company, or is or was serving at the request of
the Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceeding, if such person had no
reasonable cause to believe such person's conduct was unlawful), to the maximum
extent permitted by, and in the manner provided by, the GBCC. In addition, the
Amended and Restated Bylaws provide that the Company will advance to its
directors, and may advance to its officers, reasonable expenses of any such
proceeding; provided that, such person furnishes the Company with (i) a written
affirmation
II-1
<PAGE>
of such person's good faith belief that such person has met the applicable
standard of conduct and (ii) a written undertaking to repay any advances if it
is ultimately determined that such person is not entitled to indemnification.
Notwithstanding any provision of the Company's Amended and Restated Articles
of Incorporation and Amended and Restated Bylaws to the contrary, the GBCC
provides that the Company shall not indemnify a director or officer for any
liability incurred in a proceeding in which the director or officer is adjudged
liable to the Company or is subjected to injunctive relief in favor of the
Company: (i) for any appropriation, in violation of his duties, of any business
opportunity of the Company; (ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law; (iii) for unlawful corporate
distributions; and (iv) for any transaction from which the director or officer
received an improper personal benefit.
The Underwriting Agreement filed as Exhibit 1.1 hereto also contains certain
provisions pursuant to which certain officers, directors and controlling persons
of the Company may be entitled to be indemnified by the underwriters named
therein.
The Company intends to purchase insurance with respect to, among other
things, liabilities that may accrue under the statutory provisions referred to
above.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 29, 1997, the Registrant issued to the partners of CompuCredit,
L.P., a Georgia limited partnership, in connection with the merger of
CompuCredit, L.P. with and into the Registrant, an aggregate of 2,000,000 shares
of Common Stock and 200,000 shares of Preferred Stock in exchange for an
aggregate of 86 Series A Units, 14 Series B Units and 1 Series C Unit of
CompuCredit, L.P. This transaction was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), based on
the facts set forth below.
On August 29, 1997, the Registrant issued to Atlantic Equity Corporation, in
connection with the execution of a certain Certificate Purchase Agreement
relating to a securitization of credit card receivables by the Company, an
aggregate of 61,855 shares of Common Stock in consideration of the benefits
accruing to the Registrant under such Certificate Purchase Agreement. This
transaction was exempt from registration under Section 4(2) of the Securities
Act, based on the facts set forth below.
On August 21, 1998, the Registrant issued to Greystone Capital Partners I,
L.P., in a private placement exempt from registration under Section 4(2) of the
Securities Act based on the facts set forth below, an aggregate of 68,728 shares
of Common Stock for an aggregate purchase price of $10,000,000.
All of the shares of Common Stock were acquired by the investors described
above for investment purposes and with no present intention toward the resale or
distribution thereof. The offers and sales were made without public
solicitation, and the stock certificates bear restrictive legends. No
underwriter was involved in the transactions, and no commissions were paid.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1+ Form of Amended and Restated Articles of Incorporation of Registrant to be filed
prior to the effectiveness of this Registration Statement.
3.2+ Form of Amended and Restated Bylaws of Registrant.
4.1* Form of certificate representing shares of the Registrant's Common Stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
5.1* Legal opinion of Troutman Sanders LLP regarding legality of securities being
registered.
10.1+ Stockholders Agreement, dated as of August 29, 1997, by and among the Registrant,
CompuCredit Management Corp., Frank J. Hanna, III, as Trustee of Bravo Trust One,
David G. Hanna, as Trustee of Bravo Trust Two, Brett M. Samsky, Richard W.
Gilbert, Richard R. House, Jr., Ashley L. Johnson and Atlantic Equity
Corporation.
10.2 Amended and Restated 1998 Stock Option Plan.
10.3.1* Employment Agreement of David G. Hanna.
10.3.2* Employment Agreement of Brett M. Samsky.
10.3.3* Employment Agreement of Richard W. Gilbert.
10.3.4* Employment Agreement of Ashley L. Johnson.
10.3.5* Employment Agreement of Richard R. House, Jr.
10.4.1+ Master Trust Pooling and Servicing Agreement, dated as of August 29, 1997, among
CompuCredit Funding Corp., as Transferor, CompuCredit Corporation, as Servicer,
and Bankers Trust Company, as Trustee.
10.4.2+ Amendment No. 1, dated as of April 17, 1998, to the Pooling and Servicing
Agreement, dated as of August 29, 1997, among CompuCredit Funding Corp., as
Transferor, CompuCredit Corporation as Servicer, and Bankers Trust Company, as
Trustee.
10.4.3**+ Series 1997-One Supplement, dated as of August 29, 1997, to the Pooling and
Servicing Agreement, among CompuCredit Funding Corp., as Transferor, CompuCredit
Corporation, as Servicer, and Bankers Trust Company, as Trustee.
10.4.4+ Amendment No. 2, dated as of April 17, 1998, to the Series 1997-One Supplement,
dated as of August 29, 1997, among CompuCredit Funding Corp., as Transferor,
CompuCredit Corporation, as Servicer, and Bankers Trust Company, as Trustee.
10.5**+ Transfer and Administration Agreement, dated as of April 17, 1998, among Kitty
Hawk Funding Corporation, as Buyer, Atlantic Equity Corporation, as Buyer,
CompuCredit Acquisition Funding Corp., as Transferor, CompuCredit Corporation, as
Servicer and Guarantor, and NationsBank, N.A. as Agent and Bank Investor.
10.6+ Agreement, dated as of September 23, 1997, by and among CompuCredit Corporation,
Visionary Systems, Inc. and VSX Corporation.
10.7.1**+ Affinity Card Agreement, dated as of January 6, 1997, between Columbus Bank and
Trust Company and CompuCredit, L.P.
10.7.2+ Amendment to Affinity Card Agreement, dated as of March 26, 1998, between
Columbus Bank and Trust Company and CompuCredit Corporation, as successor to
CompuCredit, L.P.
10.7.3 Amendment to Affinity Card Agreement, dated as of August 1, 1998, by and among
Columbus Bank and Trust Company and CompuCredit Corporation, as successor to
CompuCredit, L.P., and CompuCredit Acquisition Corp.
10.7.4** Facilities Management Services Agreement, dated as of August 1, 1998, between
Columbus Bank and Trust Company and CompuCredit Corporation, as successor to
CompuCredit, L.P.
10.7.5 Amendment to Affinity Card Agreement and Facilities Management Agreement, dated
as of November 11, 1998, by and among Columbus Bank and Trust Company,
CompuCredit Corporation, as successor to CompuCredit, L.P., and CompuCredit
Acquisition Corp.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.8** Transfer and Administration Agreement, dated as of November 30, 1998, among
Sheffield Receivables Corporation, as Buyer, CompuCredit Acquisition Funding
Corp. II, as Transferor, CompuCredit Corporation, as Servicer and Guarantor, and
Barclays Bank PLC, as Agent.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Troutman Sanders LLP (included in Exhibit 5.1).
24.1 Power of Attorney (set forth on the signature page of this Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Confidential treatment requested as to certain omitted portions of this
exhibit, which portions have been filed separately with the Securities and
Exchange Commission.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-62327) filed with the Commission on August 27, 1998.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction to the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering hereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, State of Georgia on the 30th day of December, 1998.
COMPUCREDIT CORPORATION
By: /s/ DAVID G. HANNA
-----------------------------------------
David G. Hanna
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
David G. Hanna and Brett M. Samsky, or either of them, the true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully for all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, as amended, this Registration Statement has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DAVID G. HANNA President and Director
- ------------------------------ (Principal Executive December 30, 1998
David G. Hanna Officer)
/s/ BRETT M. SAMSKY Chief Financial Officer
- ------------------------------ (Principal Financial December 30, 1998
Brett M. Samsky Officer)
/s/ ASHLEY L. JOHNSON Controller (Principal
- ------------------------------ Accounting Officer) December 30, 1998
Ashley L. Johnson
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1+ Form of Amended and Restated Articles of Incorporation of Registrant to be filed
prior to the effectiveness of this Registration Statement.
3.2+ Form of Amended and Restated Bylaws of Registrant.
4.1* Form of certificate representing shares of the Registrant's Common Stock.
5.1* Legal opinion of Troutman Sanders LLP regarding legality of securities being
registered.
10.1+ Stockholders Agreement, dated as of August 29, 1997, by and among the
Registrant, CompuCredit Management Corp., Frank J. Hanna, III, as Trustee of
Bravo Trust One, David G. Hanna, as Trustee of Bravo Trust Two, Brett M. Samsky,
Richard W. Gilbert, Richard R. House, Jr., Ashley L. Johnson and Atlantic Equity
Corporation.
10.2 Amended and Restated 1998 Stock Option Plan.
10.3.1* Employment Agreement of David G. Hanna.
10.3.2* Employment Agreement of Brett M. Samsky.
10.3.3* Employment Agreement of Richard W. Gilbert.
10.3.4* Employment Agreement of Ashley L. Johnson.
10.3.5* Employment Agreement of Richard R. House, Jr.
10.4.1+ Master Trust Pooling and Servicing Agreement, dated as of August 29, 1997, among
CompuCredit Funding Corp., as Transferor, CompuCredit Corporation, as Servicer,
and Bankers Trust Company, as Trustee.
10.4.2+ Amendment No. 1, dated as of April 17, 1998, to the Pooling and Servicing
Agreement, dated as of August 29, 1997, among CompuCredit Funding Corp., as
Transferor, CompuCredit Corporation as Servicer, and Bankers Trust Company, as
Trustee.
10.4.3**+ Series 1997-One Supplement, dated as of August 29, 1997, to the Pooling and
Servicing Agreement, among CompuCredit Funding Corp., as Transferor, CompuCredit
Corporation, as Servicer, and Bankers Trust Company, as Trustee.
10.4.4+ Amendment No. 2, dated as of April 17, 1998, to the Series 1997-One Supplement,
dated as of August 29, 1997, among CompuCredit Funding Corp., as Transferor,
CompuCredit Corporation, as Servicer, and Bankers Trust Company, as Trustee.
10.5**+ Transfer and Administration Agreement, dated as of April 17, 1998, among Kitty
Hawk Funding Corporation, as Buyer, Atlantic Equity Corporation, as Buyer,
CompuCredit Acquisition Funding Corp., as Transferor, CompuCredit Corporation,
as Servicer and Guarantor, and NationsBank, N.A. as Agent and Bank Investor.
10.6+ Agreement, dated as of September 23, 1997, by and among CompuCredit Corporation,
Visionary Systems, Inc. and VSX Corporation.
10.7.1**+ Affinity Card Agreement, dated as of January 6, 1997, between Columbus Bank and
Trust Company and CompuCredit, L.P.
10.7.2+ Amendment to Affinity Card Agreement, dated as of March 26, 1998, between
Columbus Bank and Trust Company and CompuCredit Corporation, as successor to
CompuCredit, L.P.
10.7.3 Amendment to Affinity Card Agreement, dated as of August 1, 1998, by and among
Columbus Bank and Trust Company and CompuCredit Corporation, as successor to
CompuCredit, L.P., and CompuCredit Acquisition Corp.
10.7.4** Facilities Management Services Agreement, dated as of August 1, 1998, between
Columbus Bank and Trust Company and CompuCredit Corporation, as successor to
CompuCredit, L.P.
10.7.5 Amendment to Affinity Card Agreement and Facilities Management Agreement, dated
as of November 11, 1998, by and among Columbus Bank and Trust Company,
CompuCredit Corporation, as successor to CompuCredit, L.P., and CompuCredit
Acquisition Corp.
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S>
10.8** Transfer and Administration Agreement, dated as of November 30, 1998, among
Sheffield Receivables Corporation, as Buyer, CompuCredit Acquisition Funding
Corp. II, as Transferor, CompuCredit Corporation, as Servicer and Guarantor, and
Barclays Bank PLC, as Agent.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Troutman Sanders LLP (included in Exhibit 5.1).
24.1 Power of Attorney (set forth on the signature page of this Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Confidential treatment requested as to certain omitted portions of this
exhibit, which portions have been filed separately with the Securities and
Exchange Commission.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-62327), filed with the Commission on August 27, 1998.
II-8
<PAGE>
Exhibit 10.2
CompuCredit Corporation
AMENDED AND RESTATED
STOCK OPTION PLAN
ARTICLE I
Purpose, Scope and Administration of the Plan
1.1 Purpose. The purpose of this Stock Option Plan is to maximize the
long-term success of CompuCredit Corporation (the "Company"), and its
affiliates, to ensure a balanced emphasis on both current and long-term
performance and to enhance participants' identification with growth in
shareholder value by providing financial incentives to selected members of its
and its affiliates' boards of directors, employees, consultants and advisers who
are in positions to make significant contributions toward that success. It is
intended that the Company will, through the grant of nonqualified stock options
to purchase its common stock, attract and retain (and allow its affiliates to
attract and retain) highly qualified and competent employees and directors and
motivate such employees and directors to exert their best efforts on behalf of
the Company and its affiliates.
1.2 Definitions. Unless the context clearly indicates otherwise, for
purposes of this Plan:
(a) "Board of Directors" means the Board of Directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board of
Directors, which shall be composed of two or more members appointed from time to
time by the Board of Directors from among its members. If the Board of Directors
does not appoint a Compensation Committee, all references in this Plan to the
"Committee" shall be deemed to be references to the Board of Directors where the
context so permits or requires.
(d) "Common Stock" means the Common Stock of the Company, no par
value per share, or such other class of shares or other securities to which the
provisions of the Plan may be applicable by reason of the operation of Section
3.1 hereof.
(e) "Company" means the Company and any affiliates of the Company,
including affiliates of the Company which become such after adoption of this
Plan.
(f) "Fair Market Value" of a share of Common Stock on a specified
date means:
<PAGE>
(i) if the Common Stock is then traded on a national
securities exchange, the closing price on such date of a share
of the Common Stock as traded on the largest securities
exchange on which it is then traded; or
(ii) if the Common Stock is not then traded on a
national securities exchange, the mean between the closing
composite inter-dealer "bid" and "ask" prices for Common
Stock, as quoted on the NASDAQ National Market System (A) on
such date, or (B) if no "bid" and "ask" prices are quoted on
such date, then on the next preceding date on which such
prices were quoted; or
(iii) if the Common Stock is not then traded on a
national securities exchange or quoted on the NASDAQ National
Market System, the value determined in good faith by the
Committee.
(g) "Grant Date," as used with respect to a particular Option,
means the date as of which the Option is granted by the Committee pursuant to
the Plan.
(h) "Grantee" means the person to whom an Option is granted by the
Committee pursuant to the Plan.
(i) "Nonqualified Stock Option" means any option granted under this
Plan, other than an Incentive Stock Option.
(j) "Option" means an Option granted by the Committee pursuant to
Article II to purchase shares of Common Stock, each of which shall be designated
at the time of grant as a Nonqualified Stock Option, as provided in Section 2.1
hereof. No Option granted under the Plan is intended to qualify as an Incentive
Stock Option.
(k) "Option Agreement" means the agreement between the Company and
a Grantee under which the Grantee is granted an Option pursuant to the Plan.
Option Agreements need not be identical with other Option Agreements, either in
form or substance, and need only conform to the terms and conditions of this
Plan.
(l) "Option Period" means, with respect to any Option granted
hereunder, the period beginning on the Grant Date and ending at such time not
later than the tenth anniversary of the Grant Date as the Committee in its sole
discretion shall determine and during which the Option may be exercised.
(m) "Plan" means this the Company Stock Option Plan as set forth
herein and as amended from time to time.
2
<PAGE>
1.3 Aggregate Limitation.
(a) The maximum number of shares of Common Stock with respect to
which Options may be granted shall not exceed a total of 78,947.4 shares in the
aggregate, subject to possible adjustment in accordance with Section 3.1.
(b) Any shares of Common Stock to be delivered by the Company upon
the exercise of Options shall, at the discretion of the Board of Directors, be
issued from the Company's authorized but unissued shares of Common Stock or
transferred from any available Common Stock held in treasury.
(c) The Committee may grant new Options hereunder with respect to
any shares for which an Option expires or otherwise terminates prior to being
exercised.
1.4 Administration of the Plan.
(a) The Plan shall be administered by the Committee, which shall
have the authority:
(i) To determine the directors, employees,
consultants and advisers of the Company to whom, and the times
at which, Options shall be granted, and the number of shares
of Common Stock to be subject to each such Option, taking into
consideration the nature of the services rendered by the
particular Grantee, the Grantee's potential contribution to
the long-term success of the Company and such other factors as
the Committee in its discretion may deem relevant;
(ii) To interpret and construe the provisions of the
Plan and to establish rules and regulations relating to it;
(iii) To prescribe the terms and conditions of the
Option Agreements for the grant of Options (which need not be
identical for all Grantees) in accordance and consistent with
the requirements of the Plan; and
(iv) To make all other determinations necessary or
advisable to administer the Plan in a proper and effective
manner.
(b) All decisions and determinations of the Committee in the
administration of the Plan and on other matters concerning the Plan or any
Option shall be final, conclusive and binding on all persons, including (but not
by way of limitation) the Company, the shareholders and directors of the
Company, and any persons having any interest in any Options. The Committee shall
be entitled to rely in reaching its decisions on the advice of counsel (who may
be counsel to the Company).
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<PAGE>
1.5 Eligibility for Awards. The Committee shall in accordance with
Article II designate from time to time the directors, employees, consultants and
advisers of the Company who are to be granted Options.
1.6 Effective Date and Duration of Plan. The Plan shall become
effective on the date of its adoption by the Board of Directors. Unless
previously terminated by the Board of Directors, the Plan (but not any Options
then outstanding) shall terminate on the tenth anniversary of its adoption by
the Board of Directors.
ARTICLE II
Stock Options
2.1 Grant of Options.
(a) The Committee may from time to time, subject to the provisions
of the Plan, grant Options to directors, employees, consultants and advisers of
the Company under appropriate Option Agreements to purchase shares of Common
Stock up to the aggregate number of shares of Common Stock set forth in Section
1.3(a).
(b) The Committee shall designate each Option granted hereunder as
a Nonqualified Stock Option.
2.2 Option Requirements.
(a) An Option shall be evidenced by an Option Agreement specifying
the number and class of shares of Common Stock that may be purchased upon its
exercise and containing such other terms and conditions consistent with the Plan
as the Committee may determine to be applicable to that Option.
(b) No Option shall be granted under the Plan on or after the tenth
anniversary of the date upon which the Plan was adopted by the Board of
Directors.
(c) An Option shall expire by its terms at the expiration of the
Option Period and shall not be exercisable thereafter.
(d) The Committee may provide in the Option Agreement for the
expiration or termination of the Option prior to the expiration of the Option
Period, upon the occurrence of any event specified by the Committee.
(e) The Committee may provide in the Option Agreement for vesting
periods which require the passage of time and/or the occurrence of events in
order for the Option to become exercisable.
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<PAGE>
(f) The option price per share of Common Stock of an Option shall
be such price as shall be determined by the Committee at the time any such
Option is granted, and may be greater than, equal to, or less than the Fair
Market Value of a share of Common Stock at the time such Option is granted.
(g) An Option shall not be transferable other than by will or the
laws of descent and distribution, except that any vested portion of Nonqualified
Stock Options may be transferred if the transfer is approved in advance in
writing by the Committee or Board of Directors in their sole discretion. Unless
transferred with approval as provided in the preceding sentence, during the
Grantee's lifetime an Option shall be exercisable only by the Grantee or, if the
Grantee is disabled and the Option remains exercisable, by his or her duly
appointed guardian or other legal representative. Upon the Grantee's death, but
only to the extent that the Option is otherwise exercisable hereunder, an Option
may be exercised by the Grantee's legal representative or by a person who
receives the right to exercise the Option under the Grantee's will or by the
applicable laws of descent and distribution.
(h) Each Option Agreement shall contain an agreement that, upon
demand by the Committee for such a representation, the Grantee (or any person
acting on the Grantee's behalf) shall deliver to the Committee at the time of
any exercise of an Option a written representation that the Common Stock to be
acquired upon such exercise is to be acquired for investment and not with a view
to the distribution thereof or such other representation as may be required by
the Committee. Upon such demand, delivery of such representation prior to the
delivery of any Common Stock issued upon exercise of an Option and prior to the
expiration of the Option period shall be a condition precedent to the right of
the Grantee or such other person to purchase any shares of Common Stock.
(i) A person electing to exercise an Option shall give written
notice of election to the Company in such form as the Committee may require,
accompanied by payment of the full purchase price of the shares of Common Stock
for which the election is made. Payment of the purchase price shall be made in
cash or in such other form (a note or other evidence of indebtedness or other
form of deferred payment) as the Committee may specify in the applicable Option
Agreement.
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<PAGE>
ARTICLE III
General Provisions
3.1 Adjustment Provisions.
(a) In the event of:
(i) payment of a stock dividend in respect of Common
Stock; or
(ii) any recapitalization, reclassification, split-up
or consolidation of or other change in the Common Stock; or
(iii) any exchange of the outstanding shares of
Common Stock in connection with a merger, consolidation or
other reorganization of or involving the Company or a sale by
the Company of all or a portion of its assets, for a different
number or class of shares of stock or other securities of the
Company or for shares of the stock or other securities of any
other corporation;
then the Committee shall, in such manner as it may determine in its sole
discretion, appropriately adjust the number and class of shares or other
securities which shall be subject to Options and the purchase price per share
which must be paid thereafter upon exercise of any Option. Any such adjustments
made by the Committee shall be final, conclusive and binding upon all persons,
including (but not by way of limitation) the Company, the shareholders and
directors of the Company, and any persons having any interest in any Options
which may be granted under the Plan.
(b) Except as provided above in subparagraph (a) of this paragraph
3.1, issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class shall not affect the Options.
3.2 Additional Conditions. Any shares of Common Stock issued or
transferred under any provision of the Plan may be issued or transferred subject
to such conditions, in addition to those specifically provided in the Plan, as
the Committee or the Company may impose, and the Committee may require as a
condition to exercise of the Option that the Grantee (or any person acting on
the Grantee's behalf) enter into any agreement or execute any acknowledgment
that the Committee shall deem necessary to ensure that the shares of Common
Stock acquired pursuant to the Option will be subject to any shareholders
agreement as may be in effect at the time such Option is exercised.
3.3 No Rights as Shareholder or to Employment. No Grantee or any other
person authorized to purchase Common Stock upon exercise of an Option shall have
any interest in or shareholder rights with respect to any shares of the Common
Stock which are subject to any Option until certificates evidencing the shares
have been issued and delivered to the Grantee or any such
6
<PAGE>
person upon the exercise of the Option. Furthermore, an Option shall not confer
upon any Grantee any rights to employment or any other relationship with the
Company, including without limitation any right to continue in the employ of the
Company, nor affect the right of the Company to terminate the employment or
other relationship of the Grantee with the Company at any time with or without
cause.
3.4 Legal Restrictions. If in the opinion of legal counsel for the
Company the issuance or sale of any shares of Common Stock pursuant to the
exercise of an Option would not be lawful for any reason, including (but not by
way of limitation) the inability or failure of the Company to obtain from any
governmental authority or regulatory body the authority deemed necessary by such
counsel for such issuance or sale, the Company shall not be obligated to issue
or sell any Common Stock pursuant to the exercise of an Option to a Grantee or
any other authorized person unless the Company receives evidence satisfactory to
its legal counsel that the issuance and sale of the shares would not constitute
a violation of any applicable securities laws. The Company shall in no event be
obligated to take any action which may be required in order to permit, or to
remedy or remove any prohibition or limitation on, the issuance or sale of such
shares to any Grantee or other authorized person.
3.5 Rights Unaffected. The existence of the Options shall not affect:
the right or power of the Company and its shareholders to make adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business; any issuance of bonds, debentures, preferred or prior
preference stocks affecting the Common Stock or the rights thereof; the
dissolution or liquidation of the Company, or sale or transfer of any part of
its assets or business; or any other corporate act, whether of a similar
character or otherwise.
3.6 Withholding Taxes. As a condition to exercise of an Option, the
Company may in its sole discretion withhold or require the Grantee to pay or
reimburse the Company for any taxes which the Company determines are required to
be withheld in connection with the grant or any exercise of an Option.
3.7 Choice of Law. The validity, interpretation and administration of
the Plan and of any rules, regulations, determinations or decisions made
thereunder, and the rights of any and all persons having or claiming to have any
interest therein or thereunder, shall be determined exclusively in accordance
with the laws of the State of Georgia. Without limiting the generality of the
foregoing, the period within which any action in connection with the Plan must
be commenced shall be governed by the laws of the State of Georgia, without
regard to the place where the act or omission complained of took place, the
residence of any party to such action or the place where the action may be
brought or maintained.
3.8 Amendment, Suspension and Termination of Plan. The Plan may from
time to time be terminated, suspended or amended by the Board of Directors in
such respects as it may deem advisable.
3.9 Headings. The headings in this Plan are for convenience only and
are not to be used in interpreting the meaning or effect of any provisions
hereof.
7
<PAGE>
Amendment to Affinity Card Agreement
This is an Amendment (this "Amendment"), dated as of August 1, 1998, to
that certain Affinity Card Agreement (the "Affinity Agreement"), dated as of
January 6, 1997, as heretofore amended, by and among Columbus Bank & Trust
Company ("CB&T") and CompuCredit Corporation ("CompuCredit"), a corporation
organized under the laws of the State of Georgia as the successor to CompuCredit
L.P., as heretofore amended, and CompuCredit Acquisition Corporation
("CompuCredit Acquisition").
RECITALS
A. CB&T has given its notice to CompuCredit and CompuCredit Acquisition
of nonrenewal of the Affinity Agreement beyond its Initial Term. CompuCredit and
CompuCredit Acquisition have requested that CB&T afford them the option to
change the expiration date of the Initial Term pursuant to Section 8.1(a) of the
Affinity Agreement from December 31, 1998 to specified subsequent dates, and
CB&T is willing to agree to afford such option to them in consideration of their
payment to CB&T of certain fees as hereinafter set forth. In addition, as of the
date hereof CB&T and CompuCredit are entering into a Facilities Management
Services Agreement ("Facilities Agreement") and as a result the parties to the
Affinity Agreement wish to modify the Affinity Agreement in certain respects, as
hereinafter set forth.
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, CB&T, CompuCredit and CompuCredit
Acquisition agree as follows:
1. a. The expiration date of the Initial Term of the Affinity
Agreement pursuant to Section 8.1(a) thereof, may be changed from December
31, 1998 to May 31, 1999, if CompuCredit gives CB&T written notice of its
election to so change such date by no later than October 30, 1998.
b. If the aforesaid election is made, the expiration date of
the Initial Term of the Affinity Agreement pursuant to Section 8.1(a) thereof,
may be changed from May 31, 1999 to August 31, 1999, if CompuCredit gives CB&T
written notice of its election to so change such date by no later than March 31,
1999.
c. If the aforesaid elections are both made, the expiration
date of the Initial Term of the Affinity Agreement pursuant to Section 8.1(a)
thereof, may be changed from August 31, 1999 to December 31, 1999, if
CompuCredit gives CB&T written notice of its election to so change such date by
no later than June 30, 1999.
d. If the aforesaid elections are all made, the expiration
date of the Initial Term of the Affinity Agreement pursuant to Section 8.1(a)
thereof, may be changed from December
<PAGE>
31, 1999 to December 31, 2000, if CompuCredit gives CB&T written notice of its
election to so change such date by no later than October 31, 1999.
e. If the aforesaid elections are all made, the expiration
date of the Initial Term of the Affinity Agreement pursuant to Section 8.1(a)
thereof, may be changed from December 31, 2000 to December 31, 2001, if
CompuCredit gives CB&T written notice of its election to so change such date by
no later than October 31, 2000.
f. The foregoing provisions of this paragraph 1 relate solely
to modifications of the expiration date of the Initial Term pursuant to Section
8.1(a) of the Affinity Agreement and shall not be construed as deleting or
affecting any rights accorded any of the parties under the Affinity Agreement as
herein amended to terminate the Affinity Agreement before any such expiration
date of the Initial Term.
g. The provisions of Section 8.1(a) of the Affinity Agreement
providing for Renewal Terms are hereby deleted and, accordingly, CB&T's notice
of nonrenewal of the Affinity Agreement beyond December 31, 1998 shall be deemed
to be of no effect.
h. [Intentionally Omitted].
i. All references in the Affinity Agreement to amounts
specified in Exhibit C thereto shall from and after the date hereof mean amounts
specified in Exhibit A to the Facilities Agreement.
j. The provisions of Section 8.1(b)(ii) of the Affinity
Agreement are hereby deleted in their entirety.
k. Section 2.19 of the Affinity Agreement is hereby deleted
and the following is substituted therefor:
"2.19 No Further Fees. The amounts expressly provided for in
this Agreement include all amounts chargeable by CB&T under
this Agreement, and CompuCredit shall not be required to pay,
and CB&T shall not be permitted to invoice CompuCredit for,
any other charges in connection herewith, except for those
additional services agreed to by CompuCredit in writing."
The foregoing shall not be construed as limiting any of CompuCredit's
obligations under the Facilities Agreement.
l. The parties acknowledge and agree that there remains no
obligation or consent on the part of CB&T to transfer or assign any of its
rights and obligations under the Affinity Agreement to any third party
designated by CompuCredit or CompuCredit
2
<PAGE>
Acquisition pursuant to Section 4(c) of the Amendment dated March 26, 1998 to
the Affinity Agreement.
2. In addition to all other amounts of any kind required to be paid to
CB&T pursuant to the Affinity Agreement, the following amounts shall be payable
to CB&T during the applicable periods specified below:
a. If the election referred to in paragraph 1.b above is
made, throughout the period from June 1, 1999 through
August 31, 1999, CompuCredit shall pay CB&T on a
monthly basis, fees calculated at an annual rate of
.17% times the aggregate of all Credit Card
Receivables from time to time outstanding.
b. If the election referred to in paragraph 1.c above is
made, throughout the period from September 1, 1999
through December 31, 1999, CompuCredit shall pay CB&T
on a monthly basis, fees calculated at an annual rate
of .187% times the aggregate of all Credit Card
Receivables from time to time outstanding.
c. If the election referred to in paragraph 1.d above is
made, throughout the period from January 1, 2000
through December 31, 2000, CompuCredit shall pay CB&T
on a monthly basis, fees calculated at an annual rate
of .204% times the aggregate of all Credit Card
Receivables from time to time outstanding.
d. If the election referred to in paragraph 1.e above is
made, throughout the period from January 1, 2001
through December 31, 2001, CompuCredit shall pay CB&T
on a monthly basis, fees calculated at an annual rate
of .221% times the aggregate of all Credit Card
Receivables from time to time outstanding.
Examples illustrating how the fees referred to above in this paragraph 2 shall
be calculated, are shown in Exhibit 1 attached to this Amendment and
incorporated herein by this reference.
3. CB&T shall have no obligation under the Affinity Agreement with
respect to the performance of any services of the kind enumerated in Exhibit A
to the Facilities Agreement (other than those enumerated under the category
"Account Services - Accounting"), it being understood that any such obligations
arise solely pursuant to the Facilities Agreement.
4. Without limitation as to any other provisions of the
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<PAGE>
Affinity Agreement which may operate so as to terminate CB&T's obligations to
maintain any Accounts or to fulfill any other obligations of CB&T pursuant to
the Affinity Agreement, as herein amended, it is expressly agreed that any such
obligations of CB&T under the Affinity Agreement shall in no event continue
beyond the earlier of (i) the expiration of the Initial Term (as such term shall
have been extended by CompuCredit in accordance with the terms of this
Amendment) of the Affinity Agreement, or (ii) the termination for any reason of
the Facilities Agreement.
5. The proviso contained in the first sentence of Section 8.1(e)(i) of
the Affinity Agreement, and the "Exhibit E" to which such proviso refers, are
hereby deleted from the Affinity Agreement.
6. The invalidity or unenforceability of any provision of this
Amendment shall not affect the validity or enforceability of any other
provision.
7. Except as herein amended, the Affinity Agreement, as previously
amended, shall continue in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.
COLUMBUS BANK AND TRUST COMPANY COMPUCREDIT CORPORATION
By: /s/ Richard Marks By: /s/ Brett M. Samsky
---------------------------- ------------------------
COMPUCREDIT ACQUISITION CORPORATION
By: /s/ Brett M. Samsky
--------------------------------
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<PAGE>
Exhibit 1
Example of Calculation of Fee Under Paragraph 2 of Amendment to Affinity Card
Agreement
The following example is based upon the assumption that CompuCredit has elected
to extend the Affinity Agreement according to paragraph 1.b of the Amendment to
Affinity Card Agreement (the "Amendment"). The same principle would apply with
each consecutive extension of the Affinity Agreement by applying the applicable
rate as defined in paragraph 2 of the Amendment. All monthly fee calculations
will be based on the "Average Credit Card Receivable Amount" (as hereinafter
defined) for each monthly period. "Average Credit Card Receivable Amount" shall
mean, for any period, the sum of the aggregate of all Credit Card Receivables
outstanding for each day in such period divided by the number of days in such
period.
Example: assuming the election referred to in paragraph 1.b of the
Amendment is made, throughout the period from June 1, 1999 through
August 31, 1999, CompuCredit shall pay CB&T on a monthly basis, fees
calculated at an annual rate of 0.17% times the Average Credit Card
Receivable Amount for each such month during such period.
Fee Calculation for MM/YY
<TABLE>
<CAPTION>
<S> <C>
Average Credit Card Receivable Amount
for the month ended MM/31/YY $300,000,000
Fee Rate from par. 2 of
Amendment (0.17% divided by 12) 0.000142
--------------
Fee for Month ended MM/31/YY $ 42,500
</TABLE>
At the close of each month CB&T will compute and invoice CompuCredit for the
amount of the monthly fee, and CompuCredit agrees to remit such amount to CB&T
within 7 days of receipt of such invoice.
<PAGE>
Exhibit 10.7.4
FACILITIES MANAGEMENT SERVICES AGREEMENT
This Agreement (the "Agreement") is made and entered into this 1st day
of August, 1998 by and between COLUMBUS BANK AND TRUST COMPANY ("CB&T") of
Columbus, Georgia, and COMPUCREDIT CORPORATION, a Georgia corporation
("CompuCredit") as the successor to CompuCredit, L.P., a Georgia limited
partnership of Atlanta, Georgia.
PREAMBLE
The terms and provisions of this Agreement provide for the utilization
by CompuCredit of CB&T's facilities management service ("Services") for certain
credit card accounts. To provide for the receipt of the Services by CompuCredit
and in consideration of the terms and provisions specified in this Agreement,
the parties hereto agree as follows:
SECTION 1
SERVICES PROVIDED BY CB&T
A. Description of Services. CB&T will provide to CompuCredit the
Services identified and described on Exhibit "A", attached hereto and made a
part hereof by reference at the prices noted therein, and shall provide such
Services in accordance with the policies and procedures set forth in the Aspire
Operations Manual ("Manual"), which is made a part hereof by reference, except
as otherwise provided herein. The Manual shall be signed by CompuCredit and CB&T
and shall provide for written amendments thereto from time to time as agreed to
by the parties. All services shall be provided in accordance with applicable
VISA Operating Regulations and procedures. CB&T will provide the Services in
connection with (i) the Aspire Card; and (ii) such other credit cards or
bankcards as agreed in writing by CompuCredit and CB&T (collectively,
"CompuCredit Cards"). The credit card accounts associated with those CompuCredit
Cards for which the Services are provided under this Agreement are referred to
herein as the "Accounts". References herein to the "creditor" with respect to
any of the Accounts, shall mean any affiliate of CompuCredit, or any other third
party approved by CB&T pursuant to Section 9.B below, who at any time during the
term of this Agreement is the account owner with respect to any of the Accounts.
CompuCredit acknowledges that it has reviewed and understands such policies and
procedures and hereby agrees that CB&T shall apply such policies and procedures
for the services provided under this Agreement. An entity that controls, is
controlled by, or is under common control with, a party hereto is referred to
herein as an "affiliate" of such party. "Program" shall mean the credit card
program conducted with respect to the CompuCredit Cards and the Accounts.
CB&T shall provide to CompuCredit periodic reports (through Total
Systems Services, Inc. ("TSYS") or otherwise), including
<PAGE>
but not limited to, new account application status reports, delinquent account
reports, charge-off documentation and settlement reports, reports of service
performance standards, and such other reports as CompuCredit may reasonably
request from time to time. The frequency and content of such reports shall be
mutually agreed upon by CB&T and CompuCredit, consistent with CB&T's and/or
TSYS' systems capability, as applicable, and CB&T's and/or TSYS' report
production schedule.
During the term of this Agreement CompuCredit may, at its own expense
and upon reasonable prior notice,
(i) have access to and the right to inspect and copy
(hereinafter "Audit") those portions of the books, records
and data records of CB&T relating to services performed
herein by CB&T (or to which CB&T has access as a client of
any subcontractor performing work for or on behalf of
CB&T) to the extent necessary for CompuCredit to verify
compliance by CB&T with its obligations under this
Agreement, and
(ii) receive from CB&T all such information concerning
transactions and services provided by CB&T or on CB&T's
behalf pursuant to this Agreement as CompuCredit may
reasonably request (excluding, at CB&T's option,
information not within the scope of information referred
to in clause (i) above).
In the event that CompuCredit requests that CB&T perform any additional
facilities management services in connection with the CompuCredit Cards, and
CB&T agrees to provide such services, then the details and the cost of such
services shall be agreed to by CompuCredit and CB&T in writing and shall be
attached to this Agreement as an amendment or set forth in a separate document.
B. Service Standards.
(1) The Service Standards applicable to the Services to be
furnished by CB&T hereunder are set forth in Exhibit "B" attached hereto and
made a part hereof by reference.
(2) Service Standards Variance. CB&T shall on the 10th day of
each month during the term of this Agreement provide CompuCredit with a written
report indicating CB&T's performance relative to the Service Standards set forth
in Exhibit B of this Agreement. In the event the report indicates CB&T has not
met the Service Standards, subject to the limitations provided for in Section
1(B)(3) of this Agreement, CB&T shall provide CompuCredit with a credit equal to
the corresponding financial penalty amount for performance failure set forth in
Exhibit C.
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<PAGE>
(3) CompuCredit will, on November 1, 1998 and thereafter on the
first day of each month during the term of this Agreement, provide CB&T with a
written projection of the managed account volume for each month of the
succeeding twelve month period ("Projection"). CB&T will then create monthly
volume projections for each service category for the succeeding twelve months
and return to CompuCredit for review by the tenth day of each month. CompuCredit
will review and approve the volume projections by the fifteenth of each month
and return to CB&T. In the absence of completed volume projections, CompuCredit
and CB&T agree that the Projections generated for the previous month will be in
effect ("carryover Projection"). The Projection provided to CB&T by the
fifteenth of each month as aforesaid (or, alternatively, the carryover
Projection, if applicable), with respect to that month and the three succeeding
months, may not be changed in any subsequent Projection, without CB&T's written
agreement. In the event the actual volume for any service category for any month
is more than 110% of the final Projection for such month then the Service
Standards for such service category imposed upon CB&T pursuant to Section
1(B)(1) shall be adjusted down by one percent for each percent by which the
actual volume exceeds 110% of the Projection; however, in the event the actual
volume for any service category for any month is more than 135% of the final
Projection for such month then the Service Standards for such service category
shall have no effect and shall be deemed to have been waived completely. If the
actual volume for any service category for any month is less than 90% of the
final Projection (as such Projection may have been changed with CB&T's written
agreement) for such month then CompuCredit shall, within ten (10) days notice
from CB&T, pay to CB&T the difference between the actual service category fee
for such month and 90% of the projected volume of service category for the same
month multiplied by the appropriate fee.
(4) Standard of Care: In performing the Services contemplated
under this Agreement, and in the selection and use of facilities, equipment,
machines and personnel required for such performance, the custody and
safekeeping of materials (including plastic bankcard forms) furnished to CB&T
by, or acquired by CB&T on behalf of, CompuCredit (or any creditor with respect
to any of the Accounts) in connection therewith, CB&T shall exercise ordinary
care and diligence subject to the limitations set forth in this Paragraph B.(4).
The parties recognize that there are no universally accepted industry standards
which are commonly accepted as a standard of ordinary care and diligence for the
performance of the Services. Accordingly, CompuCredit agrees that CB&T shall be
deemed to be exercising ordinary care and diligence in the performance of the
services required of CB&T under this Agreement if CB&T follows the procedures
and practices set forth in the Manual, as such
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<PAGE>
Manual may be revised from time to time, and complies with the Service Standards
set forth in Exhibit B.
C. TS2. CB&T will not be obligated to make available TS2 pursuant to
this Agreement. In the event CompuCredit desires to utilize TS2 such services
shall be provided by TSYS directly to CompuCredit under a separate agreement
between TSYS and CompuCredit on such terms as shall be negotiated between TSYS
and CompuCredit. CB&T will cooperate in any such conversion to TS2 as may occur
during the term of this Agreement, and in connection with any such conversion
CB&T and CompuCredit shall negotiate mutually agreeable changes in the terms of
this Agreement to reflect the elimination of processing from the Services
provided hereunder.
SECTION 2
TERM
A. Initial Term. The Initial Term of this Agreement shall commence on
August 1, 1998 and shall continue until December 31, 2001 (the "Initial Term").
B. Renewals. After the Initial Term, this Agreement shall be extended
for renewal terms of one (1) year each ("Renewal Term") unless one party
notifies the other party of its intent to terminate this Agreement at least 180
days prior to the end of the Initial Term or any Renewal Term.
C. Termination.
(1) In the event CompuCredit terminates this Agreement, then,
unless the termination is pursuant to Section 2.B or for breach pursuant to
Paragraph (3) or (4) of this Section 2.C or Exhibit C, CompuCredit shall pay a
termination fee to CB&T equaling six times the total of the Fees (defined in
Section 3 hereof) incurred for Convenience Check Processing, Credit, Application
Entry, Customer Service, Fraud/Investigations, and Collections for the calendar
month preceding termination or six times the monthly minimum servicing fee (as
provided in Exhibit A hereto), whichever is greater.
(2) CB&T may terminate this Agreement in the event CompuCredit
fails to make or adequately and timely provide for the payment of fees and
expenses due hereunder, but only if CB&T gives CompuCredit written notice of
such failure and CompuCredit fails to remedy such failure within fifteen (15)
business days after CompuCredit's receipt of said notice. Upon the expiration of
the fifteen (15) business day period provided for above, CB&T may terminate this
Agreement by giving CompuCredit written notice, which termination shall be
effective seven (7) business days after receipt of such notice by CompuCredit.
If such failure to pay is remedied by CompuCredit within such fifteen
4
<PAGE>
(15) business day period, then this Agreement shall continue as though no such
notice had been given.
The fifteen (15) business day period referred to above shall be
extended an additional five (5) business days if CompuCredit in good faith
disputes any item of fees or expenses but only if CompuCredit, within such
fifteen (15) business day period, (i) furnished to the attention of CB&T's
Senior Manager written notice specifying the fee or expense items so disputed
and the basis for the disputes and (ii) remedied all other fee and expense items
not so disputed. If, with respect to items of fees or expenses disputed in the
manner prescribed in the preceding sentence, CompuCredit fails within such five
(5) business day period to pay the same in full (or in any reduced amount which
CB&T's Senior Manager may agree to in writing during such five business day
period), then the parties hereto agree that claims related to the disputed fees
or expenses shall constitute a Dispute as such term is defined in Section 9.P
below and such Dispute shall be subject to mandatory and binding arbitration as
provided in Section 9.Q below, and that pending the outcome of such Dispute,
termination of this Agreement pursuant to this paragraph (2) shall not occur.
(3) If either party fails to observe, keep or perform any
material term or condition of this Agreement, or the Manual, required to be
observed, kept or performed by that party, the other party, in addition to any
other rights and remedies it may have, shall have the right to terminate this
Agreement without paying a termination fee; provided, however, that the party
seeking to terminate the Agreement gives the other party a written notice of
such failure claimed to be a breach of terms and conditions of this Agreement,
and the party receiving said notice fails to remedy the breach within thirty
(30) days after receipt of said notice. If the breach is not remedied by the
defaulting party within the thirty (30) day period provided for above, the
non-defaulting party may terminate this Agreement by giving the defaulting party
written notice effective immediately. If the breach is remedied by the
defaulting party within such thirty (30) day period, then this Agreement shall
continue as though no such notice had been given.
(4) In the event either party to this Agreement shall cease
conducting business in the ordinary course, become insolvent, make a general
assignment for the benefit of creditors, suffer or permit the appointment of a
receiver for its business or assets, or shall avail itself of, or become subject
to, any proceeding under the federal bankruptcy laws or any statute of any state
relating to insolvency or the protection of the rights of creditors, then at the
option of the other party hereto, the other party may terminate this Agreement
at any time upon notice of the other party.
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(5) Termination of this Agreement shall not terminate
CompuCredit's obligation to pay CB&T for all services performed and expenses
incurred under the Agreement (including pursuant to Section 2.D below), whether
before or after termination, prior to the discontinuance of performance of the
Services by CB&T hereunder.
(6) In the event that CompuCredit does not terminate this
Agreement and CompuCredit sells in excess of the greater of (i) 10% of the
Accounts (not counting any sold Account which prior to being sold was more than
60 days delinquent or was charged off in accordance with the operating
procedures) within any 12-month period; or (ii) 25,000 Accounts (not counting
any sold Account which prior to being sold was more than 60 days delinquent or
was charged off in accordance with the operating procedures) within any 12-month
period, and CB&T ceases to service such accounts, CB&T shall receive a
deconversion fee equaling six (6) times a percentage (described below) of the
total amount of Fees (as defined in Section 3 hereof) incurred for convenience
check processing, credit, application entry, customer service,
fraud/investigations, and collections for the calendar month preceding the first
sale of the Accounts. The applicable percentage for purposes of the foregoing
calculation is the number of Accounts sold during the 12-month period divided by
the total number of Accounts being serviced by CB&T during the calendar month
preceding the sale of the Accounts that would make this subsection applicable.
D. Post-Termination.
(1) Duties After Termination. Upon termination of this Agreement,
in order to preserve the goodwill of Cardholders both parties shall cooperate in
order to ensure a smooth and orderly termination of their relationship and a
transition of Cardholder Accounts. However, except as set forth below in this
Section 2.D.(1), nothing in this Agreement shall be construed as obligating CB&T
to continue to maintain and service the Accounts beyond the date of termination
unless the parties shall have entered into a mutually acceptable written
agreement covering such continuation of maintenance and services.
In the event CB&T gives notice of its intention to terminate this
Agreement, other than pursuant to Section 2.C.(2) above, CB&T shall continue to
maintain and service the Accounts and fulfill all of its obligations hereunder
until the later of (i) the date of termination specified in CB&T's notice of
termination, or (ii) 180 days after the date on which CB&T gave its notice of
termination; provided, however, that in no event shall CB&T have any obligation
to continue to maintain and service the Accounts or fulfill its obligations
hereunder
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following any failure by CompuCredit (other than a failure solely with respect
to fees or expenses that are the subject of a good faith Dispute pursuant to
Section 2.C.(2) above) to fulfill CompuCredit's obligation to pay CB&T for all
services performed and expenses incurred under the Agreement (whether before or
after termination) prior to the discontinuance of performance of the Services by
CB&T hereunder.
(2) Assistance with Conversion. Upon any termination of this
Agreement, CB&T shall provide to CompuCredit, at CompuCredit's expense, all
assistance reasonably necessary to enable CompuCredit to convert the accounts
serviced hereunder to the processing system designated by CompuCredit and shall
cooperate with CompuCredit in its efforts to effect such conversion at the
earliest practicable date.
SECTION 3
FEES
A. Servicing Fees. CompuCredit agrees to pay fees and reimburse expenses
to CB&T (collectively, "Fees") in return for the Services provided by CB&T under
this Agreement in accordance with Exhibit A. CompuCredit agrees to pay all
invoices from CB&T for such Services within thirty (30) days of receipt thereof.
So long as the Affinity Agreement (as defined in Section 9.V
below, and which is referred to in this Agreement as the "Affinity Agreement")
remains in effect, amounts specified in Exhibit A to this Agreement which are,
pursuant to the Affinity Agreement, deducted and retained by CB&T from amounts
CB&T pays to CompuCredit pursuant to the Affinity Agreement, shall, to the
extent so deducted and retained by CB&T, be deemed to have been paid to CB&T for
purposes of this Section 3.A.
B. No Further Fees. The Fees set forth in Exhibit A and other amounts
expressly provided for in this Agreement shall be deemed to include all fees and
expenses related to this Agreement, and CompuCredit shall not be required to pay
any other charges in connection herewith, except for those additional services
agreed to by CompuCredit in writing. The foregoing shall not be construed as
limiting any of CompuCredit's obligations under the Affinity Agreement.
SECTION 4
CONFIDENTIAL INFORMATION
A. Proprietary Information. CB&T and Compucredit each acknowledge that
they may be furnished with, receive, or otherwise have access to information of
or concerning the other party which such other party considers to be
confidential, proprietary, a trade secret or otherwise restricted. As used in
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this Agreement, "Confidential Information" shall mean all information, in any
form, furnished or made available directly or indirectly by one party to the
other before, on or after the date of this Agreement (and including but not
limited to such information furnished in the course of negotiating or performing
any other existing or prior agreements to which CB&T and CompuCredit are
parties), which information is confidential, restricted and/or proprietary.
B. CompuCredit Confidential Information. In the case of CompuCredit,
Confidential Information also shall include, whether or not designated
"Confidential Information", (i) all specifications, designs, documents,
correspondence, software, documentation, data and other materials and work
products provided by either CompuCredit or its affiliates or subcontractors in
connection with this Agreement, (ii) all information concerning the operations,
affairs and business of CompuCredit (including ideas, marketing plans, business
strategies, and information or data that is a trade secret or is competitively
sensitive), the financial affairs of CompuCredit and its affiliates, and the
relations of CompuCredit and its affiliates with their employees and customers
(including CompuCredit's and its affiliates' lists, information, account
information and consumer markets), (iii) software provided to CB&T by or through
CompuCredit or any of its affiliates, and (iv) other information or data
concerning CompuCredit or its affiliates and any of their business or customers
stored on magnetic media or otherwise or communicated orally, and obtained,
received, transmitted, processed, stored, archived, or maintained by CB&T under
this Agreement (collectively, the "CompuCredit Confidential Information").
C. CB&T Confidential Information. In the case of CB&T, Confidential
Information also shall include, whether or not designated "Confidential
Information", (i) all specifications, designs, documents, correspondence,
software, documentation, data and other materials and work products produced by
CB&T or its affiliates or subcontractors in the course of performing the
Services, (ii) all information concerning the operations, affairs and business
of CB&T or its affiliates (including ideas, marketing plans, business
strategies, and data or information that is a trade secret or is competitively
sensitive), the financial affairs of CB&T and its affiliates, and the relations
of CB&T and its affiliates with their employees and customers (including CB&T's
and its affiliates' lists, information, account information and consumer
markets), (iii) software provided to CompuCredit or any creditor of any of the
Accounts, by or through CB&T or any of its affiliates, and (iv) other
information or data concerning CB&T or its affiliates and any of their business
or customers stored on magnetic media or otherwise or communicated orally, and
obtained, received, transmitted, processed, stored,
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archived, or maintained by CompuCredit or any creditor of any of the Accounts
under this Agreement (collectively, the "CB&T Confidential Information").
D. Confidentiality of Agreement. Each of CB&T and CompuCredit agree that
the terms and conditions of this Agreement, including the fees for the Services
provided hereunder, are confidential. Neither CB&T nor CompuCredit shall,
without the express prior written consent of the other party, disclose such
terms and conditions (including fees) to any other person, firm or corporation;
provided, however, this Agreement, including the fees for the Services provided
hereunder, (i) may be disclosed to third parties to the extent such disclosure
is required in order to comply with any applicable law, order, regulation or
ruling, and (ii) may be disclosed by each party to such party's affiliates,
agents, representatives, external or internal auditors or independent
contractors in the course of his or her employment or engagement provided that
such recipient agrees in writing to protect such information on terms
substantially similar to those described in this Section 4 (except that
underwriters' outside attorneys in connection with any underwritten public
securities offering by CompuCredit need not sign such a writing provided they
receive such disclosure from their underwriter clients who have executed such an
agreement in writing).
E. The parties agree that:
(i) Each party's Confidential Information shall remain the
property of that party except as expressly provided otherwise by the other
provisions of this Agreement. CompuCredit and CB&T shall each use at least the
same degree of care, but in any event no less than a reasonable degree of care,
to prevent disclosing to third parties the Confidential Information of the other
party as it employs to avoid unauthorized disclosure, publication or
dissemination of its own information of a similar nature. Any disclosure to such
entity shall be under the terms and conditions as provided herein. Each party
may disclose the other party's Confidential Information to the receiving party's
affiliates, agents, representatives, external or internal auditors or
independent contractors in the course of his or her employment or engagement
provided that such recipient agrees in writing to protect such information on
terms substantially similar to those described in this Section 4. Each party
shall be liable for any breach of the obligations defined herein by its
respective affiliates, employees, officers, directors, agents, representatives,
external or internal auditors or independent contractors.
(ii) As requested by a party during the term of this Agreement
and upon expiration or any termination of this
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Agreement and completion of the other party's obligations under this Agreement,
such other party shall return or destroy, as the requesting party may direct,
all material in any medium that contains, refers to, or relates to the
requesting party's Confidential Information, and retain no copies (except those
necessary to comply with regulatory requirements applicable to the retaining
party).
(iii) Each party shall take reasonable steps to ensure that its
employees comply with these confidentiality provisions.
(iv) In the event of any disclosure or loss of, or inability to
account for, any Confidential Information of the furnishing party, the receiving
party shall notify the furnishing party promptly upon becoming aware thereof.
(v) In the event either party retains a consultant, after the
date of this Agreement, and desires to disclose any Confidential Information of
the other party to such consultant, then the party desiring to make such
disclosure shall first cause such consultant to execute a confidentiality
agreement with the other party named as a third party thereto.
F. Exclusions. CB&T's and CompuCredit's obligations and agreements under
this Section 4 shall not apply to any information supplied that:
(1) was known to either party prior to the disclosure by
the other, or
(2) is or becomes generally available to the public
other than by breach of this Agreement, or
(3) otherwise becomes lawfully available on a
nonconfidential basis from a third party who is not
under an obligation of confidence to either party.
(4) was independently developed by the receiving party
without reference to Confidential Information of the
furnishing party.
(5) In addition, a party shall not be considered to have
breached its obligations by disclosing Confidential
Information of the other party as required to
satisfy any legal requirement of a competent
government body provided that, immediately upon
receiving any such request and to the extent that it
may legally do so, such party advised the other
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party prior to making such disclosure in order that
the other party may interpose an objection to such
disclosure, take action to assure confidential
handling of the Confidential Information, or take
such other action as it deems appropriate to protect
the Confidential Information.
Notwithstanding the foregoing, each CompuCredit list containing
the names, addresses and/or telephone numbers of CompuCredit Card cardholders
shall be deemed Confidential Information owned by CompuCredit; provided,
however, that this provision shall not prohibit any transfer, sale or disclosure
of the name, address or telephone number of, or any solicitation of, any person
of whose existence CB&T has or obtains knowledge otherwise than by reason of
CB&T's participation in this Agreement.
G. CB&T acknowledges CompuCredit's interest in keeping CompuCredit
Confidential Information (including its business practices) confidential.
CompuCredit acknowledges CB&T's and its affiliates' and subcontractors' need to
efficiently respond to requests from any of their other existing or future
customers (hereinafter "Third Party Customers"), some of which may be
CompuCredit's competitors, to implement methods, practices or functionality that
may compete with CompuCredit and which may be similar or identical to methods,
practices or functionality developed by CB&T or its affiliates or subcontractors
for CompuCredit. CompuCredit also acknowledges CB&T's need, in its own card
issuing business, to implement such methods, practices or functionality.
Accordingly, it is agreed that CB&T will keep confidential all CompuCredit
Confidential Information relating to CompuCredit's business practices to the
extent required under this Section 4, provided, however, that unless otherwise
specifically agreed to by CB&T in writing, CB&T and its affiliates and
subcontractors may implement such methods, practices or functionality, including
code, to meet the business needs of any Third Party Customers or CB&T's own
business needs.
H. The terms of this Section 4 shall survive any expiration or
termination of this Agreement.
SECTION 5
USE OF NAMES AND TRADEMARKS
A. CompuCredit hereby authorizes CB&T, during the term of this
Agreement, on a non-exclusive, non-assignable basis, to use CompuCredit's name
and such trademarks of CompuCredit, including, without limitation, the "Aspire"
servicemark, as may be necessary in connection with the Services provided under
this Agreement (the "CompuCredit Credit Card Marks"), in the forms and formats
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approved by CompuCredit, in various communications to cardholders with respect
to the CompuCredit Cards.
B. CB&T hereby authorizes CompuCredit, during the term of this
Agreement, on a non-exclusive, non-assignable basis, to use CB&T's name and such
trademarks of CB&T as may be used in connection with the Services provided under
this Agreement (the "CB&T Credit Card Marks"), in the forms and formats approved
by CB&T, in communications to CompuCredit Card cardholders with respect to the
CompuCredit Card accounts serviced pursuant to this Agreement.
C. Except as otherwise provided herein, neither party shall use the
registered trademarks, service marks, logo, name or any other proprietary
designations of the other party without such other party's prior written
consent. Each party shall submit to the other party for prior approval any
advertising or promotional materials relating to the services provided under
this Agreement in which such trademarks are to be used, and/or for any materials
that will be provided to the cardholders of the CompuCredit Cards pursuant to
this Agreement in which such trademarks are to be used, which approval shall not
unreasonably be withheld or delayed.
SECTION 6
INDEMNIFICATION
A. Except to the extent of any Losses (as herein defined) which arise
from the direct acts or omissions of CB&T or any agent, subcontractor or
affiliate of CB&T, CompuCredit will indemnify and hold harmless CB&T and its
affiliates, and each of their directors, officers, employees, agents and
permitted assigns from and against any and all "Losses" (as herein defined)
arising out of (i) any failure of CompuCredit or any creditor of any of the
Accounts, or of any of CompuCredit's or any such creditor's agents, affiliates
or subcontractors, to comply with any of the terms and conditions of this
Agreement; (ii) any inaccuracy of a representation or warranty made by
CompuCredit herein; (iii) any infringement or alleged infringement on the rights
of any third party by use of any of the CompuCredit Credit Card Marks, or the
use thereof hereunder; (iv) information provided to CB&T or any of its
affiliates by CompuCredit or any creditor of any of the Accounts or by officers,
employees, agents, affiliates or subcontractors of CompuCredit or any such
creditor, or arising out of the use of such information when furnished by CB&T
to CompuCredit or any such creditor, to merchants affiliated with CompuCredit or
any creditor of any of the Accounts, or to other third persons at CompuCredit's
request, or to officers, employees, agents, affiliates or subcontractors of any
of the foregoing, provided such Losses did not arise from the negligent act or
omission of CB&T or any agent, affiliate or
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subcontractor of CB&T, and provided that CB&T or any agent, affiliate or
subcontractor of CB&T did not incorrectly manipulate the data and/or information
presented by or to CB&T or any agent, affiliate or subcontractor of CB&T; (v)
negligent acts or omissions of CompuCredit or any creditor of any of the
Accounts, or either of their officers, employees, agents, affiliates and
subcontractors, in the performance of their duties and obligations under this
Agreement; (vi) CB&T's delivery to or receipt from any credit bureau of any
information for or on behalf of CompuCredit or any creditor of any of the
Accounts and/or in connection with any actions taken by any credit bureau which
results in any alleged, threatened or actual violation of the Fair Credit
Reporting Act, provided such Loss did not arise from CB&T's or any of its
agents', subcontractors' or affiliates' negligence in the delivery to or receipt
of such information from the credit bureau or from CB&T's failure, or the
failure of any of CB&T's agents, affiliates or subcontractors, to comply with
Directions which CompuCredit provided to CB&T pursuant to Section 9.G; (vii) the
failure of CompuCredit or any creditor of any of the Accounts to comply with the
applicable rules and regulations of MasterCard or Visa or the failure of
CompuCredit or any such creditor to otherwise discharge its settlement
obligations with MasterCard or Visa; or (viii) a failure of CompuCredit or any
creditor of any of the Accounts, or of any agents, affiliates or subcontractors
of CompuCredit or any such creditor, to comply, in connection with the Program
hereunder, with any applicable laws or regulations.
B. Except to the extent of any Losses which arise from the direct acts
or omissions of CompuCredit or any creditor of any of the Accounts or any agent,
subcontractor or affiliate of CompuCredit or any such creditor, CB&T will
indemnify and hold harmless CompuCredit and its affiliates, and each of their
officers, directors, employees, agents, and permitted assigns from and against
any Losses (as herein defined) arising out of (i) any failure of CB&T or any of
its agents, affiliates or subcontractors to comply with any of the terms and
conditions of this Agreement; (ii) any inaccuracy of a representation or
warranty made by CB&T herein; (iii) any infringement or alleged infringement on
the rights of any third party by use of the CB&T Credit Card Marks, or the use
thereof hereunder; (iv) information provided to CompuCredit or any creditor of
any of the Accounts by CB&T or by officers, employees, agents, affiliates or
subcontractors of CB&T, provided such Losses did not arise from the negligent
act or omission of CompuCredit or any such creditor, or any agent, affiliate or
subcontractor of
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CompuCredit or of any such creditor, and provided that CompuCredit or any such
creditor, or any agent, affiliate or subcontractor of CompuCredit or any such
creditor, did not incorrectly manipulate the data and/or information presented
by or to CompuCredit or any such creditor, or any agent, affiliate or
subcontractor of CompuCredit or any such creditor, and further provided that
such Losses did not arise from information which, though provided as aforesaid,
was originally received from CompuCredit or any such creditor of any of the
Accounts or from any agent, affiliate or subcontractor of CompuCredit or any
such creditor, or from any merchant, credit bureau, cardholder or any other
source (other than CB&T or CB&T's agents, affiliates or subcontractors); (v) the
failure by TSYS to comply with the rules and regulations of MasterCard or Visa
applicable to TSYS as a third party provider of processing services; (vi) the
failure by CB&T to comply with the applicable rules and regulations of
MasterCard or Visa; (vii) negligent acts or omissions of CB&T, its officers,
employees, agents, affiliates and subcontractors, in the performance of CB&T's
duties and obligations under this Agreement; or (viii) a failure of CB&T, its
agents, affiliates or subcontractors to comply, in respect of its obligations in
connection with the Program hereunder, with any applicable laws or regulations.
C. For the purposes of this Section 6, the term "Losses" shall mean all
out-of-pocket costs, damages, losses, and expenses whatsoever, including,
without limitation; (i) reasonable and actual outside attorneys' fees and
disbursements and court costs incurred by the indemnified party; and (ii) costs
(including reasonable expenses and reasonable value of time spent) attributable
to the necessity that any officer or employee (other than in-house attorneys) of
any Indemnified Party spending more than 25% of his or her normal business
hours, over a period of two (2) months, in connection with any judicial,
administrative, legislative, or other proceeding arising out of the obligations
or services provided hereunder by such party, including, without limitation, any
claim that a party hereto has failed to obtain any permission or license to use
any software utilized in the performance of this Agreement.
D. For the purpose of performing its obligations under this Agreement,
CB&T shall be entitled to rely upon and use any and all information, data and
instructions at any time submitted to CB&T or any of its affiliates by
CompuCredit or any creditor with respect to any of the Accounts, merchants or by
VISA and/or MasterCard and having to do with CompuCredit or the Accounts, and
neither CB&T nor any of its affiliates shall have any responsibility or
liability whatsoever for the accuracy or inaccuracy thereof, for the wording or
text authored or submitted by CompuCredit or any such other persons for the
mailers or periodic statements to be furnished pursuant to this Agreement or for
other purposes, for the wording or text appearing on any forms, bankcards or
other materials furnished to CB&T or its affiliates by CompuCredit or by any
such other persons, or for whether or not such information, data, instruction,
wording or text complies with applicable laws and regulations.
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E. In no event shall CB&T or any of its affiliates be liable with
respect to any loss, liability, cost, damage or expense arising from any loss,
theft, disappearance of or damage to plastic bankcards, mailers, periodic
statements, reports or other tangible items produced by CB&T or its affiliates
that occurs after the UNITED STATES POSTAL SERVICE, or any courier service
receives such items from CB&T or such affiliate for the purpose of delivery to
CompuCredit, to any cardholders or prospective cardholders with respect to the
Accounts, or to other third parties upon CompuCredit's instructions, provided
such loss, theft, disappearance of or damage to such items did not arise from
the negligent or willful act or omission by CB&T or any of its affiliates. CB&T
shall only use a courier service with a national reputation for prompt, reliable
and secure delivery to transport plastic bankcards, mailers, periodic
statements, reports or other materials of CompuCredit.
F. In no event shall CB&T or any of its affiliates be liable with
respect to any loss, liability, cost, damage or expense arising from any loss,
theft, disappearance of or damage to data transmitted by dataline or other means
of electronic transmission that occurs during such transmission, provided that
such loss, disappearance or damage to such transmitted data is not the result of
a negligent or willful act or omission of CB&T or any such affiliate.
G. [Intentionally Omitted]
H. CompuCredit and CB&T agree to randomly check information produced by
CB&T or its affiliates to determine if such information is correct, and will
promptly report any errors discovered therein to the other party. The steps
which CB&T takes to remedy the error, as described above, shall be at no cost to
CompuCredit where such error results from the sole negligence of CB&T or any of
its affiliates or the failure of CB&T or any of its affiliates to otherwise
comply with the terms of this Agreement. Otherwise, CompuCredit shall pay CB&T
for its efforts to remedy the error in accordance with the terms of this
Agreement. CB&T will promptly take all commercially reasonable steps to remedy
any error and issue correcting information. In no event shall CB&T or any of its
affiliates be liable with respect to any loss, liability, cost, damage or
expense caused by any failure by CB&T to perform hereunder not reported by
CompuCredit to CB&T within ninety (90) days from the time when the first
occurrence of such failure to perform is discovered or known by CompuCredit or
any creditor of the Accounts.
If either CompuCredit or CB&T discovers any actual error in
output information CB&T produces, it shall promptly notify the other party of
the discovery. CB&T shall cooperate with CompuCredit's investigation of the
source of the error.
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CB&T shall promptly take all commercially reasonable steps to remedy the error
and issue correcting information. The steps which CB&T takes to remedy the
error, as described above, shall be at no cost to CompuCredit where such error
results from the sole negligence of CB&T or its affiliates or subcontractors or
the failure of CB&T or its affiliates or subcontractors to otherwise comply with
the terms of this Agreement. The steps which CB&T takes to remedy the error, as
described above, shall be at CompuCredit's expense where such error results from
the sole negligence of CompuCredit and/or any creditor of any of the Accounts
and/or any affiliate or subcontractor of CompuCredit or any such creditor. Where
the error results from the negligence of both (i) CB&T and/or any affiliate or
subcontractor of CB&T, and (ii) CompuCredit and/or any creditor of any of the
Accounts and/or any affiliate or subcontractor of CompuCredit or any such
creditor, the parties shall, in accordance with the dispute resolution
procedure, negotiate in good faith to equitably apportion the responsibility for
such error.
I. In no event shall CB&T or any of its affiliates or subcontractors be
liable with respect to any loss, liability, cost, damage or expense arising out
of a claim by CompuCredit or any creditor with respect to any of the Accounts or
any other third parties, in connection with the data, computations and services
provided and/or performed by CB&T or any of its affiliates or subcontractors
hereunder to the extent such data, computations and/or services as to which the
claim arises were provided and/or performed in accordance with: (i)
CompuCredit's or any such creditor's written requirements and/or instructions in
such regard, including, but not limited to, CompuCredit's or such creditor's
memoranda, data entry instructions or computer field instructions; or (ii)
CompuCredit's or any such creditor's written concurrence that such data,
computations and services provided or performed or to be provided or performed
comply with CompuCredit's or such creditor's previously communicated
requirements and/or instructions in such regard. If CB&T discovers that
CompuCredit's or any such creditor's communicated requirements and/or
instructions referred to in subparagraphs (i) or (ii) above have caused or
resulted in an error, CB&T agrees to promptly notify CompuCredit of such error.
J. In no event shall either party be liable for special or punitive
damages arising from either party's failure to comply with any of the terms of
this Agreement.
K. Excluding breaches of confidentiality as defined in Section 4 of this
Agreement, intentional acts or omissions, CB&T's liability for the financial
penalties specified in Exhibit C, and CompuCredit's liability for fees, expenses
(identified as pass-through expenses on Exhibit A) and/or termination fees
hereunder, the liability of either party (or its affiliates)
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hereunder to the other party or to any party claiming by, through or under the
other party, shall be limited in the aggregate for the Initial Term and for all
subsequent Renewal Term(s) of the Agreement to eight (8) times the "Average
Monthly Billing" as defined hereinbelow.
For purposes of this paragraph, Average Monthly Billing shall be
determined by the average of the twelve (12) months billings of Fees, as defined
in Exhibit A (excluding expenses) actually paid by CompuCredit to CB&T for
providing the Services computed over the twelve (12) month period ending on the
last day of the month immediately preceding the month in which the liable party
first receives notice from the other party or otherwise becomes aware of the
claim which causes the party's liability to the other party hereunder, or if
this Agreement has not then been in effect for twelve (12) months, then such
average shall be computed over such fewer months that this Agreement has been in
effect.
L. (a) Subject to the limit of liability set forth in Section 6.K above,
CB&T agrees to defend, indemnify, and hold harmless CompuCredit and its
directors, officers, employees, affiliates, independent contractors and agents
from and against all loss, cost, damage or expense (including reasonable and
actual attorney fees and related expenses and costs incurred), arising out of
any claim or allegation that any hardware, software or system used by CB&T or
its affiliates or subcontractors of CB&T or any such affiliates in providing the
Services hereunder infringes a patent or copyright or any trade secret or other
intangible property right of any third party except to the extent such claim
arises from the development of any hardware, software or system by CB&T or its
affiliates or subcontractors to support an enhancement or modification requested
by CompuCredit.
(b) Subject to the limit of liability set forth in Section 6.K
above, CompuCredit agrees to defend, indemnify and hold harmless CB&T and its
directors, officers, employees and affiliates, independent contractors and
agents from and against all loss, cost, damage or expense (including reasonable
and actual attorney fees and related expenses and costs incurred), arising out
of any claim or allegation that any hardware, software or system used by
CompuCredit or any creditor of any of the Accounts or any affiliate or
subcontractor of CompuCredit or any such creditor in the operation of
CompuCredit's business or the business of any creditor with respect to any of
the Accounts infringes a patent or copyright or any trade secret or other
intangible property right of any third party.
17
<PAGE>
(c) With respect to any claim or allegation giving rise to
indemnification under Section 6.L(a) or (b) above, each party shall:
(i) advise the other, as promptly as practicable, of any
suit, claim, proceeding or loss;
(ii) cooperate in all reasonable ways with the other in
the defense of such suit, claims or proceeding; and
(iii) have sole control of the defense of legal action
involving a third party suit, claim or proceeding and of all negotiations for
its settlement or compromise but shall not settle any such claim in a manner
creating any liabilities or duty for the other party without its prior written
consent, which consent shall not be unreasonably withheld.
(d) If any hardware, software or system ("Material") for which a
party has indemnification obligations under Section 6.L(a) or (b) ("Indemnifying
Party"), in the Indemnifying Party's opinion is likely to become or does become
the subject of a claim of infringement or misappropriation of a patent,
copyright or any trade secret or other intangible property right of any third
party, or if a temporary restraining order or other injunctive relief is entered
against the use of part or all of the Material, the Indemnifying Party,in
addition to its obligations set forth above, shall either promptly replace the
Material with compatible functionally equivalent non-infringing Material; or, at
such Indemnifying Party's option:
(i) Promptly modify the Material to make them
non-infringing; provided, however, where CB&T is the Indemnifying Party under
Section 6.L(a) above such modification shall not impair CompuCredit's ability to
use the Material as intended and in accordance with the Service Standards
provided for in Section 1.B(1) above; or,
(ii) promptly procure the right to continue using the
portions of the Material enjoined from use; or
(iii) if either remedy is not available on a commercially
reasonable basis, either party may terminate this Agreement, in whole or in part
as to the affected component of the Material, and, subject to the limit of
liability set forth in Section 6.K above, the party being indemnified shall be
entitled to all costs, damages and expenses incurred as a result, including
(without limiting the generality of the foregoing), where CB&T is the
Indemnifying Party under Section 6.L(a) above those costs associated with
replacing the infringing Material with comparable Material from a third party.
18
<PAGE>
(iv) This Section 6.L sets forth the exclusive remedy of
the parties with respect to any action or claim for alleged infringement by any
Material for which a party has indemnification obligations under Section 6.L(a)
or (b), of any patent, copyright, or any trade secret or other intangible
property right of any third party.
M. Force Majeure/Disaster Recovery. In no event shall CB&T or
CompuCredit be liable with respect to the failure of its duties and obligations
under this Agreement (other than an obligation to pay money) which is
attributable to acts of God, war, conditions or events of nature, civil
disturbances, work stoppages, power failures, fire, or other events beyond its
reasonable control, unless the failure to perform such duties and obligations is
a result of CB&T's failure to maintain disaster recovery capabilities in
accordance with the following sentence and to periodically ensure the
effectiveness of same. CB&T covenants and agrees to maintain and retain
throughout the term of this Agreement off-site disaster recovery capabilities
substantially in accordance with the plan attached hereto as Exhibit "D". CB&T
agrees to provide a copy of its disaster recovery plan to CompuCredit.
CompuCredit acknowledges that CB&T may amend such plan from time to time in its
sole discretion provided that the covenant above is not violated. CB&T agrees to
test the operation and effectiveness of such plan on an annual basis to ensure
its effectiveness in providing disaster recovery capability.
N. Insurance. CB&T agrees to maintain during the term of this Agreement
reasonable amounts of business insurance insuring against perils such as fire
and theft.
O. The provisions of this Section 6 shall survive any expiration or
termination of this Agreement.
SECTION 7
NOTICES
A. Any written notice required or permitted to be given by CompuCredit
to CB&T hereunder shall be addressed to:
COLUMBUS BANK AND TRUST COMPANY
Attention: BankCard Center Manager
901 Front Avenue, Suite 202
Columbus, Georgia 31901
-OR-
P.O. Box 120
Columbus, Georgia 31902
FAX: (706) 649-4808
19
<PAGE>
and any written notice required, or permitted to be given by CB&T to CompuCredit
under this Agreement shall be addressed to:
COMPUCREDIT, CORPORATION
Attention: Chief Financial Officer
Two Ravinia Drive, Suite 1750
Atlanta, Georgia 30346
FAX: (770) 901-5815
B. All written notices provided for hereunder shall be delivered in
person, sent by courier, sent by certified mail with a return receipt requested,
sent by nationally recognized overnight delivery service, or transmitted by
facsimile (with oral confirmation of receipt) and shall be effective when
delivered or received. The parties to this Agreement, by notice in writing, may
designate another address or office to which notices shall be given pursuant to
this Agreement.
SECTION 8
[Intentionally Omitted]
SECTION 9
ADDITIONAL PROVISIONS
A. Nothing herein contained shall be construed as constituting a
partnership, joint venture or agency between CompuCredit and CB&T.
B. This Agreement shall not be assignable in whole or in part by either
party without the other party's prior written consent, except that such consent
shall not be required for the assignment of this Agreement to an entity that is
an affiliate of the assigning party (which assignment shall not relieve the
assigning party of any obligation hereunder). However, upon notice to
CompuCredit, CB&T may sub-contract with other entities with respect to the
provision of the Services hereunder, but no such subcontracts shall alter
CompuCredit's rights against CB&T under this Agreement.
C. Each party to this Agreement hereby represents and warrants to the
other that it has the corporate power and authority to enter into and perform
this Agreement in accordance with all the terms, provisions, covenants and
conditions hereof, and that the execution and delivery of this Agreement has
been duly authorized by proper corporate action.
D. Any delay, waiver, or omission by CompuCredit or CB&T to exercise any
right or power arising from any breach or default of the other party in any of
the terms, provisions, or covenants of this Agreement shall not be construed to
be a waiver of any
20
<PAGE>
subsequent breach or default of the same or any other terms, provisions or
covenants on the part of the other party.
E. CB&T represents and warrants that to the best of its knowledge any
media used to render the Services and which were generated by CB&T or its
affiliates contain no computer instructions, circuitry or other technological
means whose purpose is to disrupt, damage, or interfere with CompuCredit's use
of its computer and telecommunications facilities for their commercial, test, or
research purposes.
Compucredit represents and warrants that to the best of its
knowledge any media used in conjunction with the Services and which were
generated by CompuCredit or any creditor of the Accounts, or either of their
affiliates, contain no computer instructions, circuitry or other technological
means whose purpose is to disrupt, damage, or interfere with CB&T's or its
affiliates' use of their computer and telecommunications facilities for their
commercial, test, or research purposes.
F. [intentionally omitted]
G. (1) The provisions of this Section 9.G shall become effective
upon the termination of the Affinity Agreement.
(2) CompuCredit is solely responsible for monitoring and
interpreting (and for complying with, to the extent such compliance requires no
action by CB&T) the federal and state laws, rules and regulations and the VISA
and MasterCard rules and regulations pertaining to CompuCredit's business or to
the business of any creditor with respect to any of the Accounts ("Legal
Requirements"). CompuCredit is responsible for selecting the parameter settings
and programming features and options within CB&T's processing system that will
apply to CompuCredit's card programs and for determining that such selections
are consistent with the Legal Requirements and with the terms and conditions of
the various agreements between CompuCredit and the cardholders and obligors
under the Accounts. In making such determinations, CompuCredit may rely on the
written descriptions of such settings, features and options in CB&T's user
manuals, customer bulletins and other system documentation and advice provided
by CB&T. With respect to its obligations under this paragraph, CompuCredit will
provide CB&T directions based on its interpretation of the Legal Requirements
and its selection of parameter settings and programming features and options
(the "Directions"). CB&T shall perform the Services in a manner that complies
with the Directions of CompuCredit.
(3) CB&T is solely responsible for compliance with: (1)
MasterCard and VISA rules and regulations applicable to CB&T as a third party
provider of processing services, and (2) subject to the paragraph above, all
laws, rules and regulations
21
<PAGE>
applicable to the conduct of CB&T's business as a third party provider of
processing services.
H. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their representatives and their respective successors
and assigns.
I. This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof; provided, however, that there may
be separate written agreements signed by both parties from time to time which
serve to augment certain of the provisions contained herein. No modification or
amendment of this Agreement shall be effective unless and until set forth in
writing and signed by both parties hereto.
J. This Agreement shall be governed in all respects by and construed in
accordance with the laws of the State of Georgia.
K. Except as otherwise specifically provided in this Agreement, all
parties shall pay their own costs and expenses in connection with this Agreement
and the transactions contemplated hereby, including, without limitation, all
regulatory fees, attorneys' fees, accounting fees and other expenses.
L. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original for all purposes and all of which shall be
deemed, collectively, one agreement, but in making proof hereof it shall not be
necessary to exhibit more than one.
M. CB&T represents and warrants that it has, or will have on or before
October 18, 1998, all of the necessary facilities and personnel to provide the
Services at the volume levels shown in the Projections in accordance with the
terms of this Agreement; that it shall perform its obligations hereunder at all
times and in all respects in accordance with all material applicable federal,
state and local laws and regulations; and that it will perform its obligations
hereunder in a timely manner and with due care.
N. In the event that applicable federal, state or local laws, rules or
regulations, or the manner in which they are or may be interpreted, prevents, or
threatens to prevent, the provision of any aspect of the Services or increases,
or threatens to increase, CB&T's compliance burdens or costs associated with the
provision of any aspect of the Services, whether with regard to all or a portion
of the CompuCredit Cards or Accounts, then CB&T shall have the right at its
option and upon notice to CompuCredit to either (i) require that the procedures
followed by CB&T be changed as CB&T may deem advisable with any resulting
changes in the pricing and other provisions
22
<PAGE>
hereof to be as mutually agreed upon by the parties, or (ii) to eliminate from
the Services those aspects of the Services as CB&T may deem advisable, either
entirely, or with regard to a portion of the CompuCredit Cards or associated
accounts or prospective accounts. CB&T will only refuse to offer Services under
the foregoing provision of this Section 9.N which CB&T uniformly refuses to
offer to all other CB&T credit card clients.
O. [Intentionally Omitted]
P. Informal Dispute Resolution. Any controversy or claim between CB&T or
its affiliates and CompuCredit or its affiliates or any creditor with respect to
any of the Accounts, arising from or in connection with this Agreement or the
relationship of the parties under this Agreement whether based on contract,
tort, common law, equity, statute, regulation, order or otherwise ("Dispute")
shall be resolved as follows:
(a) Upon written request of either CB&T or CompuCredit, alleging
in such request the nature or subject matter of the controversy or claim, the
parties will appoint a designated representative of corporate officer ranking,
whose task it will be to meet for the purpose of endeavoring to resolve such
Dispute.
(b) The designated representatives shall meet as often as the
parties reasonably deem necessary to discuss the problem in an effort to resolve
the Dispute without the necessity of any formal proceeding.
(c) Formal proceedings for the resolution of a Dispute may not be
commenced until the earlier of:
(i) the designated representatives concluding in good
faith that amicable resolution through continued negotiation of the matter does
not appear likely; or
(ii) the expiration of the thirty (30) day period
immediately following the initial request to negotiate the Dispute;
provided, however, that this Section 9.P will not be construed to prevent a
party from instituting formal proceedings earlier to avoid the expiration of any
applicable limitations period, to preserve a superior position with respect to
other creditors or to seek temporary or preliminary injunctive relief.
Q. Arbitration. If the parties are unable to resolve any Dispute as
contemplated by Section 9.P above, such Dispute shall be submitted to mandatory
and binding arbitration at the election of either party (the "Disputing Party").
Except as otherwise
23
<PAGE>
provided in this Section 9.Q, the arbitration shall be pursuant to the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA").
(a) To initiate the arbitration, the Disputing Party shall notify
the other party in writing (the "Arbitration Demand"), which shall (i) describe
in reasonable detail the nature of the Dispute, (ii) state the amount of the
claim, (iii) specify the requested relief and (iv) name an arbitrator who (a)
has been licensed to practice law in the U.S. for at least ten (10) years, (b)
is not then an employee of CompuCredit, CB&T, any creditor with respect to any
of the Accounts, or any of their affiliates, and (c) is experienced in
representing clients in connection with commercial agreements (the "Basic
Qualifications"). Within fifteen (15) days after the other party's receipt of
the Arbitration Demand, such other party shall file, and serve on the Disputing
Party, a written statement (i) answering the claims set forth in the Arbitration
Demand and including any affirmative defenses of such party; (ii) asserting any
counterclaim, which shall (a) describe in reasonable detail the nature of the
Dispute relating to the counterclaim, (b) state the amount of the counterclaim,
and (c) specify the requested relief; and (iii) naming a second arbitrator
satisfying the Basic Qualifications. Promptly, but in any event within fifteen
(15) days thereafter, the two arbitrators so named will select a third neutral
arbitrator from a list provided by the AAA of potential arbitrators who satisfy
the Basic Qualifications and who have no past or present relationships with the
parties or their counsel, except as otherwise disclosed in writing to and
approved by the parties. The arbitration will be headed by a panel of the three
arbitrators so chosen (the "Arbitration Panel"), with the third arbitrator so
chosen serving as the chairperson of the Arbitration Panel. Decisions of a
majority of the members of the Arbitration Panel shall be determinative.
(b) The arbitration hearing shall be held in such neutral
location as the parties may mutually agree, and if the parties are unable to
agree, then such location shall be in Atlanta, Georgia. The Arbitration Panel is
specifically authorized to render partial or full summary judgment as provided
for in the Federal Rules of Civil Procedure. The Federal Rules of Evidence shall
apply to the arbitration hearing. The party bringing a particular claim or
asserting an affirmative defense will have the burden of proof with respect
thereto. The arbitration proceedings and all testimony, filings, documents and
information relating to or presented during arbitration proceedings shall be
deemed to be information subject to the confidentiality provisions of this
Agreement. The Arbitration Panel will not have power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend
24
<PAGE>
or disregard any provision of this Agreement, including, without limitation, the
provisions of this Section. The Arbitration Panel shall have the authority to
establish its own jurisdiction.
(c) Should an arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 9.Q, the arbitrator shall
be replaced by the party who selected such arbitrator, or if such arbitrator was
selected by the two party-appointed arbitrators, by such two party-appointed
arbitrators selecting a new third arbitrator in accordance with Section 9.Q(a)
above. Each such replacement arbitrator shall satisfy the Basic Qualifications.
If an arbitrator is replaced pursuant to this Section 9.Q after the arbitration
hearing has commenced, then a rehearing shall take place in accordance with the
provisions of this Section 9.Q and the Commercial Arbitration Rules of the AAA.
(d) Within fifteen (15) days after the closing of the arbitration
hearing, the Arbitration Panel shall prepare and distribute to the parties a
writing setting forth the Arbitration Panel's findings of facts and conclusions
of law relating to the Dispute, including the reasons for the giving or denial
of any award. The findings and conclusions and the award, if any, shall be
deemed to be information subject to the confidentiality provisions of this
Agreement.
(e) The Arbitration Panel is instructed to schedule promptly all
discovery and other procedural steps and otherwise to assume case management
initiative and control to effect an efficient and expeditious resolution of the
Dispute. The Arbitration Panel is authorized to issue monetary sanctions against
either party if, upon a showing of good cause, such party is unreasonably
delaying the proceeding.
(f) Any award rendered by the Arbitration Panel will be final,
conclusive and binding upon the parties and any judgment hereon may be entered
and enforced in any court of competent jurisdiction.
(g) Each party will bear a pro rata of all fees, costs and
expenses of the arbitrators, and notwithstanding any law to the contrary, each
party will bear all fees, costs and expenses of its own attorneys, experts and
witnesses; provided, however, that in connection with any judicial proceeding to
compel arbitration pursuant to this Agreement or to enforce any award rendered
by the Arbitration Panel, the prevailing party in such a proceeding will be
entitled to recover reasonable and actual attorneys' fees and expenses incurred
in connection with such proceedings, in addition to any other relief to which it
may be entitled.
25
<PAGE>
R. Proceedings in Dispute Resolution. Notwithstanding any other
provisions of this Agreement to the contrary, this Agreement may not be
terminated on the basis of a default hereunder if such default is in formal
proceedings for the resolution of a dispute pursuant to Section 9.P or such
dispute is submitted for arbitration pursuant to Section 9.Q. Nothing in this
Section 9.R shall require a party to continue performing under this Agreement if
doing so would cause a continuing violation of applicable law.
S. [Intentionally Omitted]
T. CB&T warrants that the arrival of January 1, 2000 will not cause
CB&T's software or the software of any affiliate or subcontractor of CB&T used
in performing the Services to inaccurately calculate, compare and sequence date
data; provided, however, that the foregoing warranty shall not apply to any
failure attributable to any failure of (i) any software used by CompuCredit or
any creditor of any of the Accounts (or any affiliate or subcontractor of
CompuCredit or any such creditor), or (ii) any software provided to CB&T or any
affiliate or subcontractor of CB&T by CompuCredit or any such creditor (or any
affiliate or subcontractor of CompuCredit or any such creditor) or (iii) any
software which CompuCredit or any such creditor (or any affiliate or
subcontractor of CompuCredit or any such creditor) selects or otherwise
specifies or directs be used by CB&T or any affiliate or subcontractor of CB&T
in performing the Services. Notwithstanding the previous sentence, in no event
shall CB&T or any affiliate or subcontractor of CB&T be deemed to have breached
this warranty where CompuCredit's failure to use any such software in accordance
with the Manuals or other written operating materials caused such software to
inaccurately calculate, compare or sequence date data.
With regard to periodic reports, other periodic statistical data
and any other reports which CB&T is obligated to furnish CompuCredit pursuant to
this Agreement relating to the Services to be provided by CB&T hereunder: (a)
CB&T will maintain information systems which are adequate to generate reliable
periodic reports and other periodic statistical data relating to the Services to
be provided by CB&T hereunder and will make necessary modifications, if any, of
current systems relating to the generation of reliable periodic reports relating
to the Services in the Year 2000 and thereafter; (b) CB&T shall promptly notify
CompuCredit of any systems failure and shall advise CompuCredit of the estimated
time required to remedy such systems failure and of the estimated date on which
such periodic reports, such other periodic statistical data or any such other
reports can be delivered; (c) until a systems failure is remedied, CB&T (i) will
furnish to CompuCredit such periodic status reports and other information
relating to such systems
26
<PAGE>
failure as CompuCredit may reasonably request and (ii) will promptly notify
CompuCredit if CB&T believes that such systems failure cannot be remedied by the
estimated date, which notice shall include a description of the circumstances
which gave rise to such delay, the action proposed to be taken in response
thereto, and a revised estimate of the date on which such periodic reports, such
other periodic statistical data or any such other reports can be delivered; and
(d) CB&T shall promptly notify CompuCredit when a systems failure has been
remedied.
U. It is understood and agreed that the Fees provided for in this
Agreement are exclusive of any and all applicable sales taxes, use taxes, ad
valorem taxes, property taxes or any similar tax or assessment by some other
name or designation, and including any interest or penalties thereon (to the
extent such interest or penalties result from the act or omission of CompuCredit
or any creditor of any of the Accounts or from any change in structure or
operations by CompuCredit or any such creditor or relate to any retroactive
application of any new tax or assessment or of any changed or new interpretation
of any existing tax or assessment), which may be levied upon or assessed by any
governmental or taxing jurisdiction in connection with the performance of
Services hereunder for CompuCredit or the provision to CompuCredit, at the
request or direction of CompuCredit, of any equipment necessary for the
performance of Services hereunder for CompuCredit, and exclusive of any expenses
which expenses, by the express terms hereof, are to be paid by CompuCredit. In
the event of the payment of or for any such tax, assessment or expense by CB&T
for CompuCredit or for any creditor of any of the Accounts, CompuCredit shall in
turn pay CB&T for such items. CB&T shall be responsible for any tax liability
based on CB&T's net income, capital stock or net worth, or any tax based on
CB&T's entire corporate gross receipts.
V. Nothing in this Agreement shall be construed as obligating CB&T to
act, or to continue acting, in the capacity of a card issuer or creditor with
respect to any of the Accounts, or to extend any credit with respect to, or to
own or retain ownership of any interest in, any of the Accounts (it being
understood that any such obligations arise solely pursuant to the Affinity
Agreement).
Nothing in this Agreement shall be construed as relieving either
party of any rights and obligations, including but not limited to
indemnification and confidentiality obligations, it may have under any other
existing or prior agreements to which CB&T and CompuCredit are or were parties,
including but not limited to the Affinity Card Agreement, dated as of January 6,
1997, as amended ("Affinity Agreement").
27
<PAGE>
W. In the event of any inconsistency between any of the provisions of
this Agreement and any of the provisions of Sections 6, 7 and 9 the Amendment
dated March 26, 1998 to the Affinity Agreement, the provisions of such Sections
6, 7 and 9 of said Amendment to the Affinity Agreement shall control to the
extent of such inconsistency.
28
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this agreement to be
executed on its behalf by its duly authorized officers as of the day, month and
year first above written.
COMPUCREDIT CORPORATION
By: /s/ Brett M. Samsky
---------------------------------
Title: CFO
------------------------------
COLUMBUS BANK AND TRUST COMPANY
By: /s/ Richard Marks
---------------------------------
Title: Senior V.P.
------------------------------
29
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
ASPIRE
Card Servicing
Pricing Page One
CATEGORY SERVICES PROVIDED FEE BASIS RATE
- ----------------- ------------------------------------------------- -------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Account
Services
Project Accounts Billed *[material omitted]
Management - Primary liaison with Aspire (monthly)
- Manages and coordinates all projects
with TSYS, Synovus Data and LMI
- Manages problem/issue research and
resolution as related to program
Accounting - Daily settlement of cardholder transactions,
VISA charges and service billing and daily
access to the RMS system
- Rejected items researched and resolved
- Maintenance of a Business Bank Account to
facilitate daily settlement with Visa that
has overdraft allowance provisions
Training
- New hire training on Aspire program
components
- Training of all BankCard employees on
special solicitations
- Training of all BankCard employees on new
product features or changes
- Random surveys of cardholders on quality of
service
- Quality Assurance program including:
- Call monitoring
- "Mystery Shopping"
- Employee Evaluations and Coaching
and Counseling programs
Systems and
Technology - Selection and installation of systems and
software to support and enhance the service
level of Partnership Card Services
- Development of workflow programs to increase
service quality to cardholders
VRU Access
- 24 x 7 availability Per call completed $ .40
- transactions available include, but not within VRU
limited to:
- last five transactions
- balance
- payment due date
- minimum payment amount due
- last deposit amount
Convenience - Check processing and clearing through per item $ .25
Check processing Federal Reserve
- Rejected checks reviewed
Credit - Back-end credit review Per application $3.00
</TABLE>
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 of the Securities Act
of 1933.
<PAGE>
<TABLE>
<CAPTION>
ASPIRE
Card Servicing
Pricing Page Two
CATEGORY SERVICES PROVIDED FEE BASIS RATE
- ----------------- ----------------------------------------------- ------------------------ --------------------------------------
<S> <C> <C> <C>
Application - Data entry of application information Per Application $ 1.50 per keyed application
Entry received through mail, telemarketing or $ .94 per in-bound telemarketing
direct transmission call
- Inbound telemarketing processing
Customer Service - Customer inquiries handled through Per call/contact *[material omitted]
e-mail, mail or phone.
- Phone access available 8 a.m. unti
midnight seven days a week.
- 24 x 7 phone access available by 1-1-99
- General Information
- "Statements not received" research
- Billing Error Resolution
- Line Increases
- Reinstatements / reissue
- Address Changes
- Chargeback requests researched and
processed through network
- Account closures
- Credit Balance refunds
- Credit Life Insurance management
Fraud / - Contacts customer by phone for verbal
Investigations verification of suspicious activity Per contact $2.75
- If unable to contact customer a
computer generated letter is sent out Per lost/stolen case $5.35
- If fraud is identified the account is
statused "fraud" Per payment -
- Services performed on fraudulent convenience check $3.00
activity and or accounts coded lost review
or stolen:
1. Cardholder adjustments Per hour for
2. Affidavit processing investigation work - $85.00
3. Retrieval request processing approved by
4. Chargeback monitoring and initiation CompuCredit
5. Fraud and counterfeit reporting
6. Investigations
7. Account reconciliation
8. Report monitoring
9. Merchant referral calls - including code
10
Collections - Accounts with following status' will be Per account loaded
worked in collections: into dialer with valid *[material omitted]
-delinquent phone numbers(s)
-over-limit
- Mosaix predictive dialer
- Skip Tracing
- User prioritization
Information Customized reports generated through Total Per hour $75.00
Support Access
</TABLE>
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 of the Securities Act
of 1933.
<PAGE>
<TABLE>
<CAPTION>
ASPIRE
Card Servicing Pricing
Page Three
<S> <C> <C> <C>
CATEGORY SERVICES PROVIDED FEE BASIS RATE
- ----------------- ----------------------------------------------- ------------------------ --------------------------------------
Customized New systems/services not defined will be Quoted on a project basis
Projects subject to additional pricing
Pass through - TSYS charges
Expenses - Credit Bureau charges
- Metro Net
- Travel (if required for training purposes)
- Visa Quarterlies
- Base Fees
- Tel com charges
Monthly $10,000 monthly servicing fee
Minimum
</TABLE>
<PAGE>
EXHIBIT "B"
ASPIRE
Performance Standards Page One
Standards apply for services that are completed by
the initial operator responsible for the service.
Those items that procedures require CB&T to elevate
to a supervisor or forwarded to CC will be waived
from the standards.
Description: Standard:
Customer Service Inbound
Calls:
Answer *[material omitted] of calls offered answered within
Rate/Service 20 seconds monthly and no more than four (4) days in
Level: one month will be answered at a rate less than 75%
within 20 seconds
Abandon Rate: Shall not exceed 5.00% monthly and no more than four (4)
days will exceed an 8.00% abandon rate in a month
Collections Inbound Calls: Only available on calls dialed direct to collections
Answer *[material omitted] of calls offered answered within
Rate/Service 20 seconds monthly and no more than four (4) days in
Level: one month will be answered at a rate less than 75%
within 20 seconds
Abandon Rate: Shall not exceed 5.00% monthly and no more than four (4)
days will exceed an 8.00% abandon rate in a month
Credit Inbound Calls: Only available on calls dialed direct to credit
Answer *[material omitted] of calls offered answered within
Rate/Service 20 seconds monthly and no more than four (4) days in
Level: one month will be answered at a rate less than 75%
within 20 seconds
Abandon Rate: Shall not exceed 5.00% monthly and no more than four (4)
days will exceed an 8.00% abandon rate in a month
Customer Service 95% processed accurately within 3 business days
Monetary Adjustments:
100% processed accurately within 5 business days
Settlement:
Daily Settlement: Faxed to CompuCredit by 1:00pm eastern and CompuCredit
access to RMS reports will be available by 1:00pm
eastern daily
New Accounts:
Manual Review: All accounts worked and decisioned within 3 days of
Take Ones: origination Entered applications forwarded to
CompuCredit within 5 days of receipt
Credit Line Increase 95% processed accurately within 3 business days
Requests:
100% processed accurately within 5 business days
Upgrade Requests: 95% processed accurately within 3 business days
100% processed accurately within 5 business days
Data Capture: All items received by 3:00pm will be keyed same day
Adjustments in All entries are verified by Proof & Verification
Accounting following day
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 of the Securities Act
of 1933.
<PAGE>
ASPIRE
Performance Standards Page Two
Payment Processing: These standards will become effective 60
days from beginning date of this contract
Receipt: 100% payments & NSF checks that are
received by 12:00pm are processed same day
(Payments and NSF checks without valid
account numbers will not be required to
meet thisstandard)
Exceptions: Delivery Exceptions & errors received by 12:00pm
will be forwarded to CB&T & CompuCredit on
same day received; exceptions and errors
received after 12:00pm will be forwarded to
CB&T and CompuCredit within 24 hours
Exceptions: Processing Exceptions items of 100 or less will be
processed accurately within 48 hours of
receipt
Transmission All daily transmissions are to be
accuracy/timeliness: received and processed accurately by
6:00pm daily with the exception of the
first and second Monday of each month
Convenience Check Processing: These standards will become effective 60
days from beginning date of this contract.
Receipt: 100% convenience checks that are received
by 12:00pm are processed same day
Exceptions: Delivery Exceptions & errors are forwarded to CB&T
on same day received
Exceptions: Processing Exceptions items of 100 or less will be
processed accurately within 48 hours of
receipt
Transmission
accuracy/timeliness: All daily transmissions are to be received
and processed accurately by 6:00pm daily
Correspondence:
Non-dispute: Processing 95% processed accurately within 3 business
days
100% processed accurately within 5 business
days
Dispute: 95% processed accurately within 3 business
days
100% processed accurately within 5 business
days
Dispute: Processing of 100% within Federal, Visa, & MasterCard
Resolutions regulations
All disputed items will be cleared
within 60 days from date suspended All
valid disputes not handled within Visa
or MasterCard Guidelines will be charged
off at CB&T's expense
Executive Complaints: 99% within 3 business days to author and
Acknowledgment CompuCredit
Executive Complaints:
Resolution Within required timeframes as indicated in
correspondence or as determined by client
Copy Requests:
Statements, Convenience 95% processed accurately within 3 business
Checks, Balance Transfer days 100% processed accurately within 5
Checks, etc. business days
<PAGE>
ASPIRE
Performance Standards Page Three
Fraud Detection/Prevention:
Detection Rate: CB&T will make 2 attempts to contact
cardholder within 48 hours of the time that
potentially fraudulent activity is
identified by the fraud detection system
Reconciliation of activity: All transactions on Lost/Stolen accounts
will be reconciled within 30 days
All transactions determined to be fraud
will be investigated and resolved within
Federal, Visa, & MasterCard regulations
timeframes
Queue management: Specific queues and associated parameters
will be mutually agreed to by CB&T and CC
Large Payments: Authorizations will be posted on qualifying
transactions by 12:00pm each day following
a payment transmission.
Fraud Apps: CB&T will investigate fraudulent
applications and reconcile all activity
within 60 days of determination
Convenience Checks: CB&T will investigate fraudulent
convenience checks and reconcile
all activity within 60 days of
determination
Restitution Arrangements CB&T will establish and administer
restitution payments according
to mutually agreed upon terms
Charge offs: All accounts to be charged off within 60
days of determination of fraudulent
activity
For all of the
aforementioned
standards, accuracy
will be defined as
no more than a 3.00%
error rate
Technical Services:
Call Blockage: No Blocked Calls (busy signals)
VRU Downtime: VRU is to be operational 24 hours/day, 7
days/week at least
98.5 % of operating hours during the month
PEGA Uptime: 95.00%
Additional standards for technical services
and systems are detailed in Exhibit D
Project Management: Including but limited to TSYS, VRU,
Mainframe, & PEGA
Analysis & Estimates: Will follow TSYS Methodology
Implementation:
Report Generation and
Delivery: Hard and/or soft copy reports pertaining to
the measurement of the aforementioned
standards are to be received by
CompuCredit no later than 8:00am on the
following business day for daily
reports, the following Monday at 8:00am
for weekly reports, and the 3rd business
day of the month at 8:00am for monthly
reports
<PAGE>
EXHIBIT "C"
- --------------------------------------------------------------------------------
ASPIRE
- --------------------------------------------------------------------------------
Financial Penalties for Performance Page One
Failures:
All performance levels below the established standard levels detailed in Exhibit
B and not excused under the terms of the Agreement, will generate financial
penalties of:
- *[material omitted] of the applicable service category fee from CB&T
to CC upon the first months failure.
- *[material omitted] of the applicable service category fee from CB&T
to CC upon the second time in a 6 month period
- *[material omitted] of the applicable service category fee from CB&T
to CC upon the third time in a 6 month period
All performance levels below the established standard level detailed in Exhibit
D and not excused under the terms of the Agreement will generate financial
penalties according to Exhibit D.
Aspire
Cancellation Rights for Performance Failures:
The following standards are subject to cancellation rights as iterated in
section 2 .C.( 3), following notice and opportunity to cure as provided therein,
should they fail to the degree indicated below and such failure is not excused
under the terms of the Agreement :
Standard: Penalty Threshold:
1. Customer service calls 60% monthly service level
2. Settlement Three (3) failures in one month
Cancellation and or financial penalty rights do not apply when CB&T compensates
CC from experiencing financial expense associated with settlement failures.
3. Fraud Detection
CB&T will make from 2 attempts to contact cardholder
within 48 hours of the time that potentially
fraudulent activity is identified by the fraud
detection system All transactions on Lost/Stolen
accounts will be reconciled within timeframes as 30
days All transactions determined to be fraud will be
investigated and resolved within Federal, Visa, &
MasterCard regulations timeframes Queue parameters
will be mutually agreed to by CB&T and CC
Large Payment Auths Three (3) failures in one
month
Fraud Apps Reconciliation 95% reconciled w/in 60
days
Convenience Checks 95% reconciled w/in 60
days
Charge Offs 95% reconciled w/in 60
days
Cancellation and or financial penalty rights do not apply when CB&T compensates
CC from experiencing financial expense associated with fraud losses due to
missed standards.
4. Technical Services/System Updates & Performance Performance of 77%
calculated per Exhibit D
Cancellation rights applicable to Technical Services and Systems Updates &
Performance will not apply at such time as CompuCredit contracts directly with
TSYS for these services.
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 of the Securities Act
of 1933.
<PAGE>
EXHIBIT D
PERFORMANCE STANDARD: Plastic Output Timeliness (1)
PURPOSE:
To measure the reliability of TSYS' delivery of Cards and Card Mailers from
request processing until entry into the delivery mailstream (US Postal Service,
FedEx, etc.). This indicator measures the number of cards released in a timely
manner versus the number of cards scheduled to be released.
STANDARD:
100% of "Fast Cards" ordered by 3:00 p.m. mailed the same day
100% of "FedEx" cards mailed within 1 business day of creation of
Embossing File
100% of "Daily" cards mailed within 3 business days of creation of
Embossing File
100% of Reissue cards mailed by the reissue window
SAMPLE SIZE:
100% of plastics scheduled to be released
MEASUREMENT PERIOD:
Monday through Friday
OUTLINE OF PROCEDURE:
Monthly, TSYS will provide Subscriber with the number of successful and
unsuccessful card requests released for the work which dropped during the
previous month. A release will be considered successful if 100% of cards are
mailed within the specifications listed above, and unsuccessful if the standard
is not met. Failures will be recorded on the date the Embossing File was
created.
Example: 2,000 "daily" cards requested on June 3rd are not mailed until
June 7th. Standard is failed. If, in this example, June 5th falls
on a Friday, June 6th and 7th are not working days, the standard
is passed.
Note: Where the embossing work is held with Subscriber's approval, the card
turnaround will be measured from the date the card request or reissue files are
actually processed.
Example: The "Daily" work of the 3rd is held until the 6th, TSYS has until
the 9th to mail the cards.
1
<PAGE>
PERFORMANCE STANDARD: Card Services Accuracy (2)
PURPOSE:
To measure the accuracy of Card Services production output. Accuracy is defined
as the validity of all card information, including use of the correct materials,
the embossing of the plastic, the encoding of the magnetic stripe, the printing
of the card mailer and the accuracy of the inserting.
STANDARD:
50 accounts or less with inaccurate data caused by a single or cumulative issue
within one measurement period.
SAMPLE SIZE:
100% of card production issues reported to or by Subscriber.
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day Subscriber will provide to TSYS Client Relations any report of Card
Services Accuracy issues. TSYS will report any accuracy that cannot be corrected
prior to mailing. This indicator will be reported as 100% if no single or
cumulative issue affects more than 50 accounts or 0% if a single or cumulative
issue affects more than 50 accounts. Failures will be recorded on the date the
issue is reported by Subscriber to have occurred.
Example: 50 accounts affected by three accuracy issues
Card Services Accuracy for the day is 100%, Passed.
51 accounts affected by one accuracy issue
Card Services Accuracy for the day is 0%, Failed.
2
<PAGE>
PERFORMANCE STANDARD: Statement Output Timeliness (3)
PURPOSE:
To measure the reliability of TSYS' delivery of Consumer Card statements from
the end of cycle processing until entry into the US Postal Service Mailstream
within the required time frames. This indicator measures the number of
statements released in a timely manner versus the number of statements scheduled
to be released.
STANDARD:
100% of statements generated for each billing cycle mailed within three (3)
business days
SAMPLE SIZE:
100% of statements scheduled to be released
MEASUREMENT PERIOD:
By Cycle
OUTLINE OF PROCEDURE:
Monthly, TSYS will provide Subscriber with the number of successful and
unsuccessful statements released for each cycle. A release will be considered
successful if 100% of statements are mailed within three (3) business days from
their cycle date, and 0% if this standard is not met. Failures will be recorded
for the actual cycle failed based on 27 cycles numbered 02 through 28, and not
by date.
Example: 20,000 statements cycle on 3rd June
15,000 statements are mailed on 4th June
5,000 statements are mailed on 5th June
The standard is passed.
20,000 statements cycle on 3rd June 15,000 statements are mailed
on 5th June 4,000 statements are mailed on 6th June 1,000
statements are mailed on 7th June
1,000 statements are not mailed within three (3) working days
The standard is failed for cycle 3.
If in the above example, June 5 falls on a Friday, June 6 and 7 are not working
days, the standard is met if the remaining statements are mailed on June 8th.
(Continued)
3
<PAGE>
Statement Output Timeliness (3)
* Note: Where the cycle is held with Subscriber's approval, the statement
turnaround will be measured from the date the statement actually cycles.
Example: Cycle 3 is held until the 6th of the month
TSYS has until the 9th of the month to mail the statements.
4
<PAGE>
PERFORMANCE STANDARD: Statement Accuracy (4)
PURPOSE:
To measure the accuracy of Consumer Card Statements. Accuracy is defined as the
validity of all statement information including use of the correct materials,
the accuracy of the statement data and the accuracy of the inserting.
STANDARD:
50 accounts or less with inaccurate data caused by a single or cumulative issue
within one measurement period
SAMPLE SIZE:
100% of statement issues reported to or by Subscriber (excluding test cycle
output)
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day Subscriber will provide to TSYS Client Relations any report of
Statement Accuracy issues. TSYS will report any accuracy issues that cannot be
corrected prior to mailing. This indicator will be reported as 100% if no single
or cumulative issue affects more than 50 accounts or 0% if a single or
cumulative issue affects more than 50 accounts. Failures will be recorded on the
date the issue is reported to TSYS by Subscriber.
Example: 50 accounts affected by one accuracy issue
Statement Accuracy for the day is 100%, Pass.
51 account affected by one accuracy issue
Statement Accuracy for the day is 0%, Fail.
5
<PAGE>
PERFORMANCE STANDARD: Daily Report Timeliness (5)
PURPOSE:
To measure the reliability of TSYS' delivery of Daily Reports from processing
until entry into the delivery mailstream (US Postal Service, FedEx, etc.). This
indicator measures the number of reports released in a timely manner versus the
number of reports scheduled to be released.
STANDARD:
100% of reports generated daily mailed within two (2) business days
SAMPLE SIZE:
100% of Daily Reports generated
MEASUREMENT PERIOD:
Monday through Friday
OUTLINE OF PROCEDURE:
Monthly, TSYS will provide Subscriber with the number of unsuccessful releases
of hardcopy reports. A release will be considered successful if 100% of reports
are mailed within two (2) business days from their creation date, and 0% if this
standard is not met. Failures will be recorded on the date the issue is reported
to TSYS by Subscriber.
Example: 100 reports created on 3rd June
100 reports mailed on 4th June
The standard is passed.
100 reports created on 3rd June
90 reports mailed on 4th June
10 reports mailed on 5th June
10 reports are not mailed within two (2) working days.
The standard is failed.
6
<PAGE>
PERFORMANCE STANDARD: Month-End Report Timeliness (6)
PURPOSE:
To measure the reliability of TSYS' delivery of Monthly Reports from processing
until entry into the delivery mailstream (US Postal Service, FedEx, etc.). This
indicator measures the number of reports released in a timely manner versus the
number of reports scheduled to be released (hardcopy only).
STANDARD:
100% of reports generated monthly mailed within three (3) business days
SAMPLE SIZE:
100% of Monthly Reports generated
MEASUREMENT PERIOD:
Once, Monthly
OUTLINE OF PROCEDURE:
Monthly, TSYS will provide Subscriber with the number of unsuccessful releases
of Month-end Reports. A release will be considered successful if 100% of
Month-end Reports are mailed within three business (3) days from their creation
date, and unsuccessful if this standard is not met. Failures will be recorded
within the month that the reports were mailed late, unless the notification of
the late mailing has come from Subscriber after the previous month's performance
reports have been completed. In that case, the failure will be recorded for the
current month.
Example: 50 month-end reports for May created on 2nd June
50 reports mailed by 4th June
The standard is passed for May.
50 month-end reports for May created on 2nd June
40 reports mailed on 6th June
10 reports mailed on 7th June
10 reports are not mailed within three (3) business days.
The standard is failed for May.
7
<PAGE>
PERFORMANCE STANDARD: Report Accuracy (7)
PURPOSE:
To measure the accuracy of all reports. Accuracy is defined as the validity of
all system generated report information.
STANDARD:
100% of report output will contain accurate data
SAMPLE SIZE:
100% of report issues reported to or by Subscriber (hardcopy and softcopy
on-line viewing)
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day Subscriber will provide to TSYS Client Relations any report of Report
Accuracy issues. TSYS will report any hardcopy Report Accuracy issues that
cannot be corrected prior to mailing. This indicator will be reported as 100% if
no single or cumulative issue affects 1 report or 0% if a single or cumulative
issue affects 1 report. Failures will be recorded on the date the issue is
reported to TSYS by Subscriber.
Example: 0 reports affected by an accuracy issue
Report Accuracy for the day is 100%, Passed.
1 report affected by one accuracy issue
Report Accuracy for the day is 0%, Failed.
8
<PAGE>
PERFORMANCE STANDARD: Refresh Positive File Timeliness (8)
PURPOSE:
To ensure that TSYS is authorizing against the most current system data. This
indicator measures the timeliness of the scheduled reload of the Positive File
which occurs following nightly processing, Tuesday through Saturday - excluding
holidays.
STANDARD:
100% of Positive Files will be updated by 8:00 AM, EST
SAMPLE SIZE:
100% of Positive Files created
MEASUREMENT PERIOD:
Tuesday through Saturday
OUTLINE OF PROCEDURE:
Monthly, TSYS will provide to Subscriber the number of incidents in which the
Positive File was not reloaded by its scheduled window. This indicator will be
reported as 100% if no single or cumulative issue affects the reload of the
Positive File or 0% if a single or cumulative issue affects the reload of the
Positive File. Failures will be recorded on the date the Positive File was not
loaded within the window.
9
<PAGE>
PERFORMANCE STANDARD: Authorization System External Response (9)
PURPOSE:
To measure the availability of the Tandem Authorizations System in response to
authorization requests from outside sources (i.e. cardholder usage).
STANDARD:
99% of all authorizations will be performed by the TSYS Authorizations System.
SAMPLE SIZE:
100% of authorization requests within a 24 hour period
MEASUREMENT PERIOD:
Sunday through Saturday
OUTLINE OF PROCEDURE:
Monthly, TSYS will provide Subscriber with the total daily number of STIP 1 and
STIP 3 stand in responses, and the total number of daily authorizations
performed for Subscriber. This indicator will be reported as 100% if the
percentage of STIP 1 and STIP 3 authorizations does not causes the availability
to be less than 99%, and 0% if this availability is less than 99%. Failures will
be recorded on the date the STIPS were incurred. The availability percentage
will be calculated as (Total Authorizations - STIP 1 & STIP 3) / Total
Authorizations
Example: Total Authorizations for the day = 50,000
Total STIP 1 and STIP 3 for the day = 500
50,000 - 500 = 49,500
49,500 / 50,000 = .990 = 99.0% Pass
Total Authorizations for the day = 50,000
Total STIP 1 and STIP3 for the day = 501
50,00 - 501 = 49,499
49,499 / 50,000 = .9899 = 98.99% Fail
* STIP totals are currently only available by processing file. A project has
been submitted to allow STIP totals to be reported by client, regardless of
processing file. Until such time, this indicator cannot be accurately reported.
10
<PAGE>
PERFORMANCE STANDARD: ACE-Registered Trademark- System Availability (10)
HOURS OF AVAILABILITY:
See attached: Hours of Availability
PURPOSE:
To measure the availability of the ACE System to Subscriber. Availability of the
system includes the availability of all functions of the system and data files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
The ACE System Availability indicator is based on the minutes of availability of
the ACE System. Each day TSYS will obtain and verify all ACE system outages with
Subscriber and calculate the availability of the ACE System. Outages will be
accumulated for the day to determine the daily performance result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
11
<PAGE>
PERFORMANCE STANDARD: Cardholder System Availability (11)
HOURS OF AVAILABILITY:
See attached: Hours of Availability
PURPOSE:
To measure the availability of the TSYS Cardholder System to Subscriber.
Availability of the system includes the availability of all functions of the
system and data files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
The Cardholder System Availability indicator is based on the minutes of
availability of the Cardholder System. Each day TSYS will obtain and verify all
Cardholder System outages with Subscriber and calculate the availability of the
Cardholder System. Outages will be accumulated for the day to determine the
daily performance result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
12
<PAGE>
PERFORMANCE STANDARD: Collections System Availability (12)
HOURS OF AVAILABILITY:
See attached: Hours of Availability (Performance excludes Collection Download)
PURPOSE:
To measure the availability of the TSYS Collection System to Subscriber.
Availability of the system includes the availability of all functions of the
system and data files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
The Collection System Availability indicator is based on the minutes of
availability of the Collection System. Each day TSYS will obtain and verify all
Collection System outages with Subscriber and calculate the availability of the
Collection System. Outages will be accumulated for the day to determine the
daily performance result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
13
<PAGE>
PERFORMANCE STANDARD: Accounting System Availability (13)
HOURS OF AVAILABILITY:
See attached: Hours of Availability
PURPOSE:
To measure the availability of the TSYS Accounting System to Subscriber.
Availability of the system includes the availability of all functions of the
system and data files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE PROCEDURE:
The Accounting System Availability indicator is based on the minutes of
availability of the Accounting System. Each day TSYS will obtain and verify all
Accounting System outages with Subscriber and calculate the availability of the
Accounting System. Outages will be accumulated for the day to determine the
daily performance result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
14
<PAGE>
PERFORMANCE STANDARD: On-line Reports System Availability (14)
HOURS OF AVAILABILITY:
See attached: Hours of Availability
PURPOSE:
To measure the availability of the TSYS On-line Report System (Softcopy) to
Subscriber. Availability of the system includes the availability of all
functions of the system and data files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
The On-line Reports System Availability indicator is based on the minutes of
availability of the On-line Reports System. Each day TSYS will obtain and verify
all On-line Reports System outages with Subscriber and calculate the
availability of the On-line Reports System. Outages will be accumulated for the
day to determine the daily performance result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
15
<PAGE>
PERFORMANCE STANDARD: TOTAL ACCESS(R)System Availability (15)
HOURS OF AVAILABILITY:
See attached: Hours of Availability
PURPOSE:
To measure the availability of the TOTAL ACCESS System to Subscriber.
Availability of the system includes the availability of all functions of the
system and data files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
The TOTAL ACCESS System Availability indicator is based on the minutes of
availability of the TOTAL ACCESS System. Each day TSYS will obtain and verify
all TOTAL ACCESS System outages with Subscriber and calculate the availability
of the TOTAL ACCESS System. Outages will be accumulated for the day to determine
the daily performance result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
16
<PAGE>
PERFORMANCE STANDARD: TRIAD-TM- System Availability (16)
HOURS OF AVAILABILITY:
See Attached: Hours of Availability
PURPOSE:
To measure the availability of the TRIAD System to Subscriber. Availability of
the system includes the availability of all functions of the system and data
files.
STANDARD:
Less than 15 minutes unavailable each day
SAMPLE SIZE:
Total minutes available; See Attached: Hours of Availability
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
The TRIAD System Availability indicator is based on the minutes of availability
of the TRIAD System. Each day TSYS will obtain and verify all TRIAD System
outages with Subscriber and calculate the availability of the TRIAD System.
Outages will be accumulated for the day to determine the daily performance
result.
Example: 6 minutes of outage from 8:56 A.M. to 9:02 A.M.
8 minutes of outage from 3:00 P.M. to 3:08 P.M.
Total minutes = 6 + 8 =14 minutes, Passed
10 minutes of outage from 8:56 A.M. to 9:06 A.M.
5 minutes of outage from 3:00 P.M. to 3:05 P.M.
Total minutes = 10 + 5 =15 minutes, Failed
17
<PAGE>
PERFORMANCE STANDARD: ACE Batchfeed Accuracy (17)
PURPOSE:
To measure the accuracy of the ACE Batchfeed System. Accuracy is defined as the
validity of all information generated through the Batchfeed System. Should ACE
Batchfeed reporting be inaccurate due to Reporting Accuracy (RMS) issues, the
Reporting Accuracy indicator will be affected. If the ACE Batchfeed reporting is
inaccurate due to ACE System issues, then the ACE Batchfeed Accuracy indicator
will be affected.
STANDARD:
50 accounts or less with inaccurate data caused by single or cumulative issues
within one measurement period
SAMPLE SIZE:
100% of ACE new account issues, on accounts loaded to TSYS through ACE
Batchfeed, reported to or by Subscriber
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day TSYS will obtain and report all ACE Batchfeed accuracy issues to
Subscriber. Subscriber will verify these issues. This indicator will be reported
as 100% if no single or cumulative issue affects 50 accounts or 0% if a single
or cumulative issue affects more than 50 accounts. Failures will be recorded on
the date the issue is reported to TSYS by Subscriber. This standard will not be
considered a failure due to invalid data transmitted to TSYS by Subscriber.
Example: 50 accounts affected by one (1) accuracy issue
ACE Batchfeed Accuracy for the day = 100%, Pass
51 accounts affected by one (1) accuracy issue ACE
Batchfeed Accuracy for the day = 0%, Fail
18
<PAGE>
PERFORMANCE STANDARD: Cardholder System Accuracy (18)
PURPOSE:
To measure the accuracy of the Cardholder System. Accuracy is defined as the
validity of all Cardholder System data after the posting process or on-line
update.
STANDARD:
50 accounts or less with inaccurate data caused by single or cumulative issues
within one measurement period.
SAMPLE SIZE:
100% of Cardholder issues reported to or by Subscriber.
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day TSYS will obtain, verify and report all Cardholder System accuracy
issues to or from Subscriber. This indicator will be reported as 100% if no
single or cumulative issue affects 50 accounts or 0% if a single or cumulative
issue affects more than 50 accounts. Failures will be recorded on the date the
issue is reported to TSYS by Subscriber. This standard will not be considered a
failure due to invalid data transmitted to TSYS by Subscriber.
Example: 50 accounts affected by one accuracy issue.
Cardholder Accuracy for the day = 100%, Pass
51 accounts affected by one accuracy issue.
Cardholder Accuracy for the day = 0%, Fail
19
<PAGE>
PEFORMANCE STANDARD: Collections System Accuracy (19)
PURPOSE:
To measure the accuracy of the Collections System. Accuracy is defined as the
validity of all Collections System data after the posting process or on-line
update.
STANDARD:
50 accounts or less with inaccurate data caused by single or cumulative issues
within one measurement period.
SAMPLE SIZE:
100% of Collection issues reported to or by Subscriber.
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day TSYS will obtain, verify and report all Collection System accuracy
issues to or from Subscriber. This indicator will be reported as 100% if no
single or cumulative issue affects 50 accounts or 0% if a single or cumulative
issue affects more than 50 accounts. Failures will be recorded on the date the
issue is reported to TSYS by Subscriber. This standard will not be considered a
failure due to invalid data transmitted to TSYS by Subscriber.
Example: 50 accounts affected by one accuracy issue.
Collections Accuracy for the day = 100%, Pass
51 accounts affected by one accuracy issue.
Collections Accuracy for the day = 0%, Fail
20
<PAGE>
PERFORMANCE STANDARD: Accounting System Accuracy (20)
PURPOSE:
To measure the accuracy of the Accounting System. Accuracy is defined as the
validity of all Accounting System data after the posting process or on-line
update. Also included in this indicator will be any TSYS caused out-of-balance
issues.
STANDARD:
100% accuracy of all data and no TSYS caused out-of-balance issues
SAMPLE SIZE:
100% of Accounting data and activity in a 24-hour period (excluding 7:00 P.M.
through 7:30 P.M. downtime Monday through Friday) reported to or by Subscriber
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day TSYS will obtain, verify and report all Accounting System Accuracy
issues to or from Subscriber. Subscriber will verify these issues. All accuracy
issues deemed critical, or any TSYS caused out-of-balance issues will impact the
Accounting System Accuracy indicator. Totals will be zero between 7:00 P.M. and
9:00 A.M. and are not considered quality failures.
The Accounting System Accuracy indicator is a 100% indicator. Any critical
accuracy issues or out-of-balance conditions will be considered failing and
reported as 0% for the day.
Example: 0 accounts affected by an Accounting System Accuracy issue
Accounting System Accuracy for the day is 100%, Pass
1 account affected by an Accounting System Accuracy issue
Accounting System Accuracy for the day is 0%, Fail
* Note: Out-of-balance issues will impact the TSYS Accounting System Accuracy
indicator. If the out-of-balance issue is proven to be a non-TSYS caused issue,
the "Fail" indicator will be removed.
21
<PAGE>
PERFORMANCE STANDARD: TOTAL ACCESS System Accuracy (21)
PURPOSE:
To measure the accuracy of the TOTAL ACCESS System. Accuracy is defined as the
validity of all TOTAL ACCESS System data.
STANDARD:
50 accounts or less with inaccurate data caused by single or cumulative issues
within one measurement period.
SAMPLE SIZE:
100% of TOTAL ACCESS System issues reported to or by Subscriber.
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day TSYS will obtain, verify and report all TOTAL ACCESS System accuracy
issues to or from Subscriber. This indicator will be reported as 100% if no
single or cumulative issue affects 50 accounts or 0% if a single or cumulative
issue affects more than 50 accounts. Failures will be recorded on the date the
issue is reported to TSYS by Subscriber.
Example: 50 accounts affected by one accuracy issue.
TOTAL ACCESS System Accuracy for the day = 100%, Pass
51 accounts affected by one accuracy issue.
TOTAL ACCESS System Accuracy for the day = 0%, Fail
22
<PAGE>
PERFORMANCE STANDARD: TRIAD System Accuracy (22)
PURPOSE:
To measure the accuracy of the TRIAD System. Accuracy is defined as the validity
of all TRIAD System data.
STANDARD:
50 accounts or less with inaccurate data caused by single or cumulative issues
within one measurement period.
SAMPLE SIZE:
100% of TRIAD System issues reported to or by Subscriber.
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day TSYS will obtain, verify and report all TRIAD System accuracy issues to
or from Subscriber. This indicator will be reported as 100% if no single or
cumulative issue affects 50 accounts or 0% if a single or cumulative issue
affects more than 51 accounts. Failures will be recorded on the date the issue
is reported to TSYS by Subscriber.
Example: 50 accounts affected by one accuracy issue.
TRIAD System Accuracy for the day = 100%, Pass
51 accounts affected by one accuracy issue.
TRIAD System Accuracy for the day = 0%, Fail
23
<PAGE>
PERFORMANCE STANDARD: Critical Transmission Timeliness - Outgoing (23)
PURPOSE:
To measure TSYS' processing reliability of critical outgoing transmissions
STANDARD:
100% of five critical transmissions listed on the Outgoing Transmission Detail
Schedule
SAMPLE SIZE:
100% of Transmissions listed on the Outgoing Transmissions Detail Schedule
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURES:
Subscriber and TSYS will measure the timeliness of the five (5) critical
transmissions listed on the Transmission Detail Schedule.
Outgoing Transmissions must be available on "Supertracs" or "NDM" by the Window
Time in the Transmission Detail Schedule and must contain accurate data. Only
Outgoing Transmissions transmitted directly to a Mainframe or PC at Subscriber's
Data Center or at Subscriber's designed vendor in a NDM or Supertrac format is
eligible for measurement in this indicator.
The specified transmissions must be available by the designated start time with
complete and accurate data or the indicator will be missed for the day (provided
TSYS' requirements have been met.). Monthly, TSYS will provide Subscriber with
the number of Critical Outgoing Transmissions that were not achieved during the
month.
* This indicator will be reported as 100% should a delay in file creation be a
direct result of a Subscriber imposed error or Subscriber Masterfile update tape
processing.
Example: 0 critical transmissions affected by a timeliness issue
Outgoing Transmission Timeliness for the day is 100%, Pass
1 critical transmission affected by one timeliness issue
Outgoing Transmission Timeliness for the day is 0%, Fail
24
<PAGE>
PERFORMANCE STANDARD: Critical Transmission Timeliness - Incoming (24)
PURPOSE:
To measure TSYS' processing reliability of critical incoming transmissions
STANDARD:
100% of five critical transmissions listed on the Incoming Transmission Detail
Schedule
SAMPLE SIZE:
100% of Transmissions listed on the Incoming Transmissions Detail Schedule
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Subscriber and TSYS will measure the timeliness of the five (5) critical
transmissions listed on the Incoming Transmission Detail Schedule.
Incoming Transmissions that are received by the window time will be processed by
TSYS on the specified date and time. TSYS will not be held liable for invalid or
inaccurate data and data submitted in an incorrect format for the incoming
transmission files.
Example: 0 critical transmissions affected by a timeliness issue
Incoming Transmission Timeliness for the day is 100%, Pass
1 critical transmission affected by one timeliness issue
Incoming Transmission Timeliness for the day is 0%, Fail
25
<PAGE>
PERFORMANCE STANDARD: Outgoing Transmission Accuracy (25)
PURPOSE:
To measure the accuracy of Outgoing Transmissions. Accuracy is defined as the
validity of all outgoing transmission data.
STANDARD:
100% of all transmission data is complete and accurate.
SAMPLE SIZE:
100% of Transmissions sent to Subscriber
MEASUREMENT PERIOD:
Calendar Days
OUTLINE OF PROCEDURE:
Each day Subscriber will provide to TSYS Client Relations any report of
Transmission Accuracy issues. TSYS will report any accuracy issues that cannot
be corrected prior to transmitting. This indicator will be reported as 100% if
no single or cumulative issue affects one transmission or 0% if a single or
cumulative issue affects one or more transmissions. Failures will be recorded on
the date the issue is reported to TSYS by Subscriber. This standard will not be
considered a failure due to invalid input data transmitted to TSYS by
Subscriber.
Example: 0 transmissions affected by one accuracy issue
Transmission Accuracy for the day is 100%, Pass
1 transmission affected by one accuracy issue
Transmission Accuracy for the day is 0%, Fail
26
<PAGE>
STANDARD 23 SCHEDULE OUTGOING
<TABLE>
<CAPTION>
- --------------------- ------------------------------------------------------- ------------------------------
Report Title/ Batch Dataset Name (DSN) Start Window
File
- --------------------- ------------------------------------------------------- ------------------------------
<S> <C> <C>
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
</TABLE>
27
<PAGE>
STANDARD 24 SCHEDULE INCOMING
<TABLE>
<CAPTION>
- --------------------- ------------------------------------------------------- ------------------------------
Report Title/ Batch Dataset Name (DSN) Window
File
- --------------------- ------------------------------------------------------- ------------------------------
<S> <C> <C>
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
- --------------------- ------------------------------------------------------- ------------------------------
</TABLE>
28
<PAGE>
HOURS OF AVAILABILITY:
All times are Eastern Standard or Eastern Daylight Savings Time.
<TABLE>
<CAPTION>
- ----------------- -------------------------------- --------------------- ---------------------------------------
System Hours of Availability Daily Minutes Exceptions (unavailability)
Available
- ----------------- -------------------------------- --------------------- ---------------------------------------
<S> <C> <C> <C>
Accounting Sunday through Saturday 8:00 660 Sunday - Saturday, 7:00 P.M. (DCE
A.M. to 7:00 P.M. and CSA nightly pulls.)
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
ACE Same as Cardholder Same as Cardholder
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
Cardholder To be determined based on Hours available x
Subscriber location (East / 60 minutes
West Coast)
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
Collections Same as Cardholder Same as Cardholder
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
On-line Reports 24 hours daily, 7 days 1320 Monday - Saturday, 8:00 P.M. to 10:00
P.M. (daily file reorg)
Sunday 12:00 P.M. to 2:00 P.M.
(daily file reorg)
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
TOTAL ACCESS Sunday through Saturday 9:00 600 Approximately 36 hours at month-end.
A.M. to 7:00 P.M. Schedule to be communicated prior to
event (monthly file reorg).
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
TRIAD Same as Cardholder Same as Cardholder Hourly, a 5-minute refresh of tables
must occur. At 2:00 PM daily, the
move to production will cause certain
function codes to be unavailable for
less than a 10 minute period.
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
- ----------------- -------------------------------- --------------------- ---------------------------------------
</TABLE>
NIGHTLY PROCESSING: As of 10/06/98, Nightly Processing for Cardholder File 09
begins at 7:00 PM, Eastern Time and completes by 08:00 AM, Eastern Time the
following morning.
<PAGE>
TS1 Consumer Card Performance Standards
- --------------------------------------------------------------------------------
Exhibit D
General Rules
The following provision shall apply with respect to the Performance Standards
and achieving the Performance Standards:
1. There are 26 Performance Standards consisting of the following: Plastic
Output Timeliness, Card Services Accuracy, Statement Output Timeliness,
Statement Accuracy, Daily Report Timeliness, Month-end Report
Timeliness, Report Accuracy, Refresh Positive File Timeliness,
Authorization System External Response, ACE(R) System Availability,
Cardholder System Availability, Collections System Availability,
Accounting System Availability, On-line Reports System Availability,
TOTAL ACCESS(R)System Availability, TRIADTM System Availability, ACE
Batchfeed Accuracy, Cardholder System Accuracy, Collections System
Accuracy, Accounting System Accuracy, TOTAL ACCESS System Accuracy,
TRIAD System Accuracy, Outgoing Transmission Timeliness, Incoming
Transmission Timeliness, Outgoing Transmission Accuracy and
Authorizations System Accuracy.
2. The following pages of the Attachment identify and state each
Performance Standard, as well as the procedure to be followed in
determining whether each Performance Standard has been achieved.
3. TSYS shall be entitled to the points associated with any Performance
Standard where such Performance Standard is failed as a result of the
acts or omissions of a third party (including but not limited to
submissions of inaccurate or incomplete data or Visa/MasterCard abends).
This includes hardware failures, when said equipment is owned by the
third party and is located on site at TSYS.
4. The effective date of this Performance Agreement, including the scoring
thereof, shall become effective _________1998, unless prior to such date
the parties in good faith amend the effective date of this Performance
Agreement.
5. In the event that TSYS fails to achieve the Monthly Service Score for
Performance Standards as described in this Performance Agreement for two
(2) consecutive months, the TSYS Account Manager and Director of Client
Relations will meet with Subscriber to discuss problems and corrective
actions.
6. TSYS shall be entitled to the points associated with any Performance
Standard where such Performance Standard is failed as a result of acts
or omissions of Subscriber (including but not limited to submission of
inaccurate or incomplete data or misuse of system design features).
7. In the following pages, Performance Standards are sometimes referred to
as "Indicators" and such term shall have the meaning for the purposes
thereof.
i
<PAGE>
8. TSYS shall be entitled to the points associated with any Performance
Standard where such Performance Standard is failed as a result of
downtime, provided TSYS gives Subscriber at least seven (7) days notice
(or other mutually agreed upon notice) and such downtime is reasonable
under the circumstances. TSYS shall be entitled to the points associated
with any Performance Standard where such Performance Standard is failed
as a result of emergency downtime; provided TSYS gives Subscriber at
least eight (8) hours notice. Emergency downtime shall be defined as
"downtime which is not reasonably foreseeable at least seven (7) days
prior to the occurrence of such downtime". Authorization System
emergency downtime will only provide for a one (1) hour notice.
(i) TSYS agrees to provide Subscriber with a monthly
downtime schedule.
9. All references to time shall be Eastern Standard Time or Eastern
Daylight Savings Time, unless otherwise stated. The measurement period
will begin at 00:00 hours and end at 23:59:59 the same day.
10. Performance Reports will be distributed to Subscriber on a monthly
basis.
11. TSYS and Subscriber agree that the Performance Standards will be
reviewed annually by a group of four individuals, two from Subscriber
and two from TSYS. These individuals may also designate representatives
from their respective areas to participate in the reviews. During the
review, these individuals will evaluate the existing Performance
Standards and determine whether to recommend changes or additions.
Changes or additions that are recommended by these individuals and
agreed upon by the parties shall become effective as of the date agreed
upon by the parties. Any new standard that the parties propose to adopt
will be tested for at least thirty (30) days before becoming a
Performance Standard for the purposes hereof. No new Performance
Standard shall become effective until all testing is complete and both
parties agree in writing that such Performance Standard shall go into
effect.
12. TSYS and Subscriber agree to communicate all incidences of
non-conformance to standards at the time of the occurrence of the
incident or as soon as either party is made aware of the incident.
13. TSYS shall be entitled to the points associated with any Performance
Standard (excluding Card Accuracy and Statement Accuracy) where such
Performance Standard is failed as a result of any occurrence which
Subscriber fails to report to TSYS within fourteen (14) business days of
such occurrence.
14. Test accounts/test agent banks are excluded from all Performance
Standards except Card Accuracy and Statement Accuracy.
ii
<PAGE>
15. In the event that an application Function Code is not available to
Subscriber, impact to the appropriate "availability" indicator will be
recorded based on the programming group whose resolution alleviates the
impact. Example: The Inquire Collection Messages (ICM) function is
accessible though the Cardholder System, but the Function Code is
"owned" by Collections Programming. Therefore, impact will be recorded
as impact to the Collection Availability indicator only.
iii
<PAGE>
Scoring
The following provisions shall apply with respect to the Performance Standards
and achieving the Performance Standards:
1. For each Performance Standard achieved on a day, TSYS shall receive one
(1) point for the Performance Standard for that day. For each
Performance Standard not achieved on a day, TSYS shall receive no points
with respect to such Performance Standard for that day.
2. At the end of each month, the points achieved for each Performance
Standard on each day shall be totaled. Such total shall be the "Monthly
Points Achieved".
3. Possible points for each Performance Standard for the month shall be
totaled. Such total shall be the "Monthly Possible Points". The Monthly
Possible Points for all Performance Standards shall be totaled.
This total shall be the "Total Possible Points."
4. The Total Points Achieved for each indicator shall be divided by the
Total Possible Points. The quotient obtained from the division described
in the previous sentence shall be expressed as a percentage. Such
percentage shall be the "Monthly Service Score."
5. A Monthly Service Score of ninety-four percent (94%) or higher shall be
a passing monthly score for Performance Standards. A monthly service
score of less than ninety-four percent (94%) shall be a failing monthly
score. In the event that TSYS does not achieve the agreed upon monthly
service score of ninety-four percent (94%) or higher for the indicators
in successive months, TSYS agrees to pay Subscriber a penalty based on
the following incremental penalty schedule:
First month failure Penalty amount is zero percent (0%) of
Core Processing Fees (excluding
expenses).
Second Consecutive failure Penalty amount is one percent (1%) of
Core Processing Fees (excluding
expenses).
Any score of ninety-four percent (94%) or better will "reset" the
incremental penalty amount to zero percent (0%).
This penalty will be paid in the form of a credit on Subscriber's
processing bill for the following month.
iv
<PAGE>
6. If TSYS achieves an average monthly score of ninety-nine percent (99%)
or higher for the Performance Standards, Subscriber shall award TSYS a
bonus based on the following incremental bonus schedule:
First month bonus Bonus amount is zero percent (0%) of
Core Processing Fees (excluding
expenses).
Second Consecutive bonus Bonus amount is half of one percent
(0.5%) of Core Processing Fees
(excluding expenses).
Any score of less than ninety-nine percent (99%) will "reset" the
incremental bonus amount to zero percent (0%).
Such payment shall be in the form of "Bonus Dollars" to be utilized by
TSYS to offset any future performance failure amounts owed to
Subscriber. The average monthly score is calculated by taking the
quotient of the number of Performance Standards divided by the
Performance Standards achieved.
7. The term "core processing fees" is described in Attachment A ("Pricing
Attachment").
v
<PAGE>
Exhibit 10.7.5
Amendment to Affinity Card Agreement
and Facilities Management Agreement
This is an Amendment (this "Amendment"), dated as of November 11, 1998,
to that certain Affinity Card Agreement (the "Affinity Agreement"), dated as of
January 6, 1997, as heretofore amended, by and among Columbus Bank & Trust
Company ("CB&T"), CompuCredit Acquisition Corporation, a Georgia corporation
("CAC-GA") and CompuCredit Corporation, a Georgia corporation ("CompuCredit"),
and to that certain Facilities Management Services Agreement (the "Facilities
Agreement"), dated as of August 1, 1998, by and between CB&T and CompuCredit.
RECITALS
A. Under a proposed transaction among CB&T, CompuCredit Acquisition
Corporation, a Nevada corporation ("CompuCredit Acquisition"), Greenwood Trust
Company ("Seller") and NOVUS Services, Inc. ("Servicer"), CB&T as Purchaser
would acquire certain credit card accounts and related receivables from Seller
and, simultaneously with closing any such acquisition CB&T would transfer the
receivables so acquired to CompuCredit Acquisition. Such agreement as may be
entered into among CB&T, CompuCredit Acquisition and the Seller relating to any
such transaction is referred to herein as the "Sale and Purchase Agreement".
Such agreement as may be entered into among CB&T, CompuCredit Acquisition and
Servicer providing for servicing of the acquired credit card accounts and
related receivables prior to conversion of same to CB&T's system is referred to
herein as the "Interim Servicing Agreement". Such Interim Servicing Agreement,
any assignment and assumption agreement, and any other agreements and
instruments (except for this Amendment) to which CB&T may become a party in
connection with the proposed acquisition of credit card accounts and related
receivables, are hereinafter referred to collectively as the "Related
Agreements".
B. This Amendment sets forth certain agreements between CB&T,
CompuCredit, CAC-GA and CompuCredit Acquisition (i) with respect to the sale of
receivables to CompuCredit Acquisition by CB&T should CB&T close the purchase
from Seller of such receivables and the related credit card accounts, (ii) with
respect to the addition of CompuCredit Acquisition as a party to the Affinity
Agreement and the status under the Affinity Agreement and Facilities Agreement
of such receivables and the related credit card accounts, if so acquired, and
future receivables arising pursuant thereto following such closing, and (iii)
otherwise pertaining to the respective rights and obligations of CB&T,
CompuCredit, CAC-GA and CompuCredit Acquisition.
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, CB&T, CompuCredit, CAC-GA and
CompuCredit Acquisition agree as follows:
<PAGE>
1. CB&T, CompuCredit, CAC-GA and CompuCredit Acquisition agree that
CompuCredit Acquisition, upon its execution of this Amendment, is added as a
party to the Affinity Agreement, and that CompuCredit, CAC-GA and CompuCredit
Acquisition shall be jointly and severally liable for all obligations of
CompuCredit, CAC-GA or CompuCredit Acquisition, or any two or more of said
corporations, under the Affinity Agreement as herein amended, regardless of
whether such obligations are referred to as the obligations of CompuCredit,
CAC-GA or of CompuCredit Acquisition, or of any two or more of said
corporations.
2. (a) In the event CB&T purchases credit card accounts ("Acquired
Bravo Accounts") and related receivables ("Acquired Bravo Receivables") pursuant
to the Sale and Purchase Agreement and the Assignment and Assumption Agreement
referred to therein, CompuCredit Acquisition hereby irrevocably and
unconditionally agrees that it shall, at the Closing of said purchase and
simultaneously therewith, conclude the purchase from CB&T of 100% of CB&T's
interest in the Acquired Bravo Receivables so acquired from Seller, paying CB&T
as the purchase price therefor, in immediately available funds, an amount equal
to 100% of the purchase price required to be paid by CB&T at such Closing to the
Seller as the purchase price for the Acquired Bravo Receivables, the Acquired
Bravo Accounts and any other assets acquired by CB&T from Seller at Closing.
(b) At CB&T's option, CompuCredit Acquisition's payment of the
purchase price as described in Section 2(a) above shall either be by wire
transfer to CB&T's account or wire transfer directly to the account of Seller in
payment of the purchase price due from CB&T to Seller in connection with the
Closing of the Sale and Purchase Agreement.
(c) The Acquired Bravo Accounts, and any other assets acquired
by CB&T pursuant to the Sale and Purchase Agreement (except the Acquired Bravo
Receivables), shall remain the property of CB&T. The Acquired Bravo Accounts,
the Acquired Bravo Receivables, and receivables arising on or after the Closing
Date pursuant to the Acquired Bravo Accounts, shall,
(i) commencing as of the Closing Date, be subject to the
terms of the Affinity Agreement, and
(ii) commencing as of the "Conversion Date" (as defined in
the Sale and Purchase Agreement), be subject to the
Facilities Agreement, to the extent hereinafter
specified in this Amendment.
3. At the Closing, upon consummation of the purchase by CB&T from
2
<PAGE>
Seller and the payment by CompuCredit Acquisition of the purchase price due CB&T
with respect to the sale of Acquired Bravo Receivables by CB&T to CompuCredit
Acquisition, CB&T and CompuCredit Acquisition shall execute and deliver an
assignment and assumption and any other instruments as may be requested by CB&T,
each in form and substance satisfactory to CB&T, reflecting such sale to
CompuCredit Acquisition, of all of CB&T's interest in the Acquired Bravo
Receivables, and the assumption by CompuCredit Acquisition of all of CB&T's
obligations under the Purchase and Sale Agreement and the Related Agreements.
Upon completion of the post-Closing settlement between CB&T
and Seller (including, without limitation, any repurchase of Accounts pursuant
to Section 7.1 of the Sale and Purchase Agreement) adjusting the Purchase Price
under the Sale and Purchase Agreement, a like adjustment shall be made in the
purchase price paid by CompuCredit Acquisition to CB&T hereunder for the
Acquired Bravo Receivables and CompuCredit Acquisition or CB&T, as the case may
be, shall remit the amount of the adjustment to the other.
4. CB&T hereby covenants and agrees with CompuCredit, CAC-GA and
CompuCredit Acquisition as follows:
(a) CB&T shall provide an opinion of counsel dated as of
the Closing of the Sale and Purchase Agreement and
relating to same, and an opinion of counsel dated as of
the same date and relating to the Interim Servicing
Agreement, both in substantially the form attached
hereto as EXHIBIT A.
(b) CB&T shall provide an opinion of counsel dated as of
the Closing Date and addressed to CompuCredit
Acquisition, and to such other parties as CompuCredit
Acquisition may reasonably request or as may reasonably
be required to facilitate the closing of CompuCredit
Acquisition's securitization transaction (the
"Securitization") relating to CompuCredit Acquisition's
interest in the Acquired Bravo Receivables and other
Credit Card Receivables arising pursuant to the
Acquired Bravo Accounts and sold from time to time by
CB&T to CompuCredit Acquisition; such opinion to be in
form and substance mutually agreed upon between CB&T
and CompuCredit Acquisition and relating to
(i) CB&T's due organization and good standing as
a Georgia state-chartered bank, and
(ii) CB&T's corporate power and authority to enter
3
<PAGE>
into and perform its obligations under the
Receivables Purchase Agreement (as
hereinafter defined), and
(iii) the due authorization, execution and delivery
by CB&T of the Receivables Purchase
Agreement, and
(iv) CB&T's corporate power and authority to enter
into and perform its obligations under the
Subservicer Letter Agreement (as hereinafter
defined); and
(v) the due authorization, execution and delivery
by CB&T of the Subservicer Letter Agreement;
and
specifying, to such counsel's knowledge, whether
(vi) no consent, approval, authorization or order
of any governmental agency or body was or is
required for the execution and delivery by
CB&T of the Receivables Purchase Agreement or
the performance by CB&T of its obligations
thereunder, except such as have been obtained
and the filing of Uniform Commercial Code
financing statements relating to the
Purchased Assets (as such term is defined in
the Receivables Purchase Agreement); and
(vii) neither the execution and delivery of the
Receivables Purchase Agreement by CB&T nor
the performance by CB&T of the transactions
therein contemplated, nor the fulfillment of
the terms thereof by CB&T did or will (A)
result in any violation of any statute or
regulation or any order or decree of any
court or governmental authority binding upon
CB&T or its property, or (B) conflict with,
or result in a breach or violation of any
term or provision, or result in a default
under any of the terms and provisions, of
CB&T's articles of incorporation or by-laws
or any material indenture, loan agreement or
other material agreement known to such
counsel to which CB&T is a party or by which
CB&T is bound; and
4
<PAGE>
(viii) there are no legal governmental proceedings
pending (or, if to such counsel's knowledge
any are pending, listing same) to which CB&T
is a party or subject which, individually or
in the aggregate would have a material
adverse effect on the ability of CB&T to
perform its obligations under the Receivables
Purchase Agreement, or which assert the
invalidity thereof, or which seek to prevent
any of the transactions contemplated thereby.
(c) Notwithstanding anything else to the contrary, CB&T
hereby consents to the transfer and assignment, prior
to the "Conversion Date" as defined in the Sale and
Purchase Agreement, of all of its interest in the
Acquired Bravo Assets and its rights and obligations
under the Sale and Purchase Agreement and Interim
Servicing Agreement to any third party designated by
CompuCredit or CompuCredit Acquisition; provided,
however, that such assignment shall not affect the
rights of CB&T for any indemnification, or the rights
of CB&T under those sections of the Sale and Purchase
Agreement and Interim Servicing Agreement captioned "No
Proceedings or Claims". It is further agreed that,
notwithstanding any inconsistent provisions in the
sections of the Sale and Purchase Agreement and Interim
Servicing Agreement captioned "Consent of Purchaser",
CB&T's consent shall be limited to that set forth
herein.
(d) CB&T agrees, in connection with the Securitization,
(i) to execute and deliver a receivables purchase
agreement ("Receivables Purchase Agreement"),
and
(ii) to execute and deliver a subservicer letter
agreement ("Subservicer Letter Agreement"),
in each case in substantially the form as the
comparable document executed by CB&T on April 17,
1998, but both revised to reflect in any
representations or warranties of CB&T any changed
circumstances the failure to reflect which would
make such representation or warranty untrue as of
the date of execution of such Receivables Purchase
Agreement.
5
<PAGE>
(e) Upon the reasonable request of CompuCredit or
CompuCredit Acquisition, CB&T agrees to cooperate with
and assist CompuCredit and CompuCredit Acquisition in
consummating the Securitization, such cooperation and
assistance to be provided at the expense of CompuCredit
and CompuCredit Acquisition.
5. Commencing following the Closing of the purchase by CompuCredit
Acquisition from CB&T of the Acquired Bravo Receivables,
(a) "Credit Card Receivables" as defined in the Affinity
Agreement shall include all amounts owing to CB&T on
the Acquired Bravo Accounts including, without
limitation, principal balances from outstanding
purchases and cash advances, accrued finance charges,
late charges, returned check charges and any other
charges and fees, whether or not billed, as of the
close of business on a given day, less any payments and
credits received in respect of the Acquired Bravo
Accounts prior to the close of business on such day,
(b) each of the Acquired Bravo Accounts shall be considered
a "Credit Card Account" or "Account" pursuant to the
Affinity Agreement,
(c) each credit card associated with the Acquired Bravo
Accounts shall be considered a "Credit Card" or "Card"
pursuant to the Affinity Agreement,
(d) each individual in whose name an Acquired Bravo Account
is established shall be considered a "Cardholder" under
the Affinity Agreement,
(e) each agreement between CB&T and a Cardholder for the
extension of credit in connection with an Acquired
Bravo Account shall be considered a "Cardholder
Agreement" under the Affinity Agreement,
(f) the net outstanding book principal balances of new
purchases and cash advances made on the Acquired Bravo
Accounts on and after the Closing Date shall be
considered "Program Receivables" pursuant to the
Affinity Agreement,
(g) on and after the "Conversion Date" (as defined in the
Sale and Purchase Agreement) each of the Acquired Bravo
Accounts shall be considered an "Account" pursuant to
6
<PAGE>
the Facilities Agreement, and
(h) on and after the "Conversion Date" (as defined in the
Sale and Purchase Agreement) each credit card
associated with the Acquired Bravo Accounts shall be
considered a "CompuCredit Card" pursuant to the
Facilities Agreement,
and, as such, each of the foregoing shall be subject to the various agreements
of the parties applicable thereto pursuant to those terms and conditions of the
Affinity Agreement and Facilities Agreement as are not inconsistent with the
terms of this Amendment, but the terms of this Amendment shall control to the
extent of any inconsistency; provided, however, that any receivables arising in
the Acquired Bravo Assets will be purchased by CompuCredit Acquisition.
6. Notwithstanding any provision of the Affinity Agreement or of the
Facilities Agreement or of the Sale and Purchase Agreement or any Related
Agreement to the contrary, except as expressly stated below in Section 8:
(a) the Credit Card Receivables consisting of the Acquired
Bravo Receivables sold by CB&T to CompuCredit Acquisition at the Closing shall
be sold without recourse to CB&T; and
(b) Program Receivables and any other Credit Card Receivables
arising pursuant to the Acquired Bravo Accounts and sold from time to time by
CB&T to CompuCredit Acquisition or to any third party designated by CompuCredit
or CompuCredit Acquisition, shall be so sold without recourse to CB&T; and
(c) Any Acquired Bravo Accounts as may be sold by CB&T to
CompuCredit Acquisition or to any third party designated by CompuCredit or
CompuCredit Acquisition, shall be so sold without recourse to CB&T; and
(d) CB&T makes no representation or warranty and shall have no
obligation to CompuCredit, CAC-GA or CompuCredit Acquisition (including but not
limited to any obligation to indemnify or hold harmless CompuCredit, CAC-GA or
CompuCredit Acquisition or any other person), (i) with respect to any matter or
condition (regardless of when asserted or discovered) wholly or partly relating
to, or having its origins in, the period prior to the Closing of the Sale and
Purchase Agreement, or (ii) with respect to any other matter to which the
indemnification obligations of CompuCredit, CAC-GA and CompuCredit Acquisition
under Section 7 below are applicable.
7. Notwithstanding any provision of the Affinity Agreement or of
7
<PAGE>
the Facilities Agreement or of the Sale and Purchase Agreement or any Related
Agreement to the contrary, CompuCredit, CAC-GA and CompuCredit Acquisition
hereby jointly and severally agree to indemnify and hold harmless, CB&T and its
parent and affiliated corporations, and each of their directors, officers,
employees, agents and affiliates and permitted assigns (the "Indemnified CB&T
Parties"), from and against any and all existing and future claims, demands,
fines, taxes, penalties, damages, liabilities, losses (which shall include, but
not be limited to, all "Losses" as that term is defined in the existing
indemnification provisions of the Affinity Agreement), costs, and expenses of
any kind whatsoever (including but not limited to reasonable attorneys' and
accountants' fees), arising out of or relating to the Sale and Purchase
Agreement or any Related Agreements or any of the transactions contemplated
therein or herein or any of the Acquired Bravo Accounts or Acquired Bravo
Receivables or any other receivables related to the Acquired Bravo Accounts, and
including, without limiting the generality of the foregoing:
(a) taxes of any kind (including but not limited to "Taxes" as
defined in the Sale and Purchase Agreement), whether accruing under the terms of
the Sale and Purchase Agreement or any Related Agreements, or as a result of any
of the transactions contemplated therein or herein;
(b) any obligations of CB&T paid or incurred pursuant to the
Sale and Purchase Agreement or any of the Related Agreements, and any claims,
defenses or offsets of any kind asserted by the Seller or Servicer, or by any
other person, under or in connection with the Sale and Purchase Agreement, or
under or in connection with any Related Agreements, and including without
limitation claims asserted under or in respect of any provisions pursuant to
which CB&T assumes any liabilities or makes any representations or warranties or
agrees to provide indemnification or otherwise undertakes any obligation;
(c) claims, defenses or offsets of any kind asserted by or on
behalf of any cardholders or guarantors under any of the Acquired Bravo
Accounts;
(d) claims or demands of regulatory or administrative agencies
with respect to the Sale and Purchase Agreement or any Related Agreements or the
transactions contemplated therein or herein (except to the extent CB&T shall
have breached any of its representations set forth in Section 8 hereof and the
claim or demand of the regulatory or administrative agency directly results from
the state of affairs to which such breach relates), or with respect to any of
the Acquired Bravo Accounts;
(e) any losses on any of the Acquired Bravo Accounts or
8
<PAGE>
Acquired Bravo Receivables or any other receivables related to the Acquired
Bravo Accounts, including but not limited to credit losses and fraud losses; and
(f) conversion costs and expenses, and any other costs and
expenses incurred under or in connection with the negotiation, execution,
delivery and performance of the Sale and Purchase Agreement and any Related
Agreements;
provided, however, that none of CompuCredit, CAC-GA or CompuCredit Acquisition
shall have any obligation to indemnify any CB&T Indemnified Party for a loss
amount claimed under this Section 7 if CB&T shall have breached any of its
representations set forth in Section 8 of this Amendment and the loss in
question directly results from the state of affairs to which such breach
relates.
The indemnification provided for in this Section 7 shall be in addition
to, and not in limitation of, any indemnification obligations of CompuCredit,
CAC-GA or CompuCredit Acquisition under the existing provisions of the Affinity
Agreement or the Facilities Agreement. Further, CB&T, at its option, may elect
to have the section of the Affinity Agreement entitled "Procedures for
Indemnification" apply to any and all matters for which indemnification is
provided pursuant to this Section 7.
CompuCredit, CAC-GA and CompuCredit Acquisition shall provide copies of
their financial statements to CB&T on a quarterly basis.
8. CB&T represents to CompuCredit, CAC-GA and CompuCredit Acquisition
that, as of the time of execution and delivery by CB&T of the Sale and Purchase
Agreement:
(a) CB&T is a state-chartered bank, validly existing and in
good standing under the laws of the State of Georgia.
(b) CB&T has all necessary corporate power and authority to
enter into the Sale and Purchase Agreement, and the
Assignment and Assumption Agreement and Interim
Servicing Agreement referred to therein, and to perform
all of the obligations to be performed by it under said
Agreements. The Sale and Purchase Agreement, Assignment
and Assumption Agreement and Interim Servicing
Agreement and the consummation by CB&T of the
transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action of
CB&T. The Sale and Purchase Agreement has been duly
executed and delivered by CB&T. The Sale and Purchase
Agreement,
9
<PAGE>
Assignment and Assumption Agreement and Interim
Servicing Agreement, once duly executed and delivered
by all parties thereto, shall constitute the valid
and binding obligations of CB&T, enforceable against
CB&T in accordance with their respective terms
(except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium,
receivership, conservatorship, the rights and
obligations of receivers and conservators of insured
depository institutions under 12 U.S.C.ss.1821(d) and
(e) and other laws relating to or affecting
creditors' rights generally and by general equity
principles).
(c) To CB&T's knowledge, neither the execution and delivery
of the Sale and Purchase Agreement, and the Assignment
and Assumption Agreement and Interim Servicing
Agreement referred to therein, by CB&T nor the
consummation of the transactions contemplated thereby
by CB&T will (i) conflict with, result in the breach
of, constitute a default under, or accelerate the
performance required by, the terms of any order, law,
regulation, contract, instrument or commitment to which
CB&T is a party or by which CB&T is bound, (ii) violate
the organizational document of CB&T, (iii) require any
consent, approval, authorization or filing (other than
UCC filings) under any law, regulation, judgment,
order, writ, decree, permit or license to which CB&T is
a party or by which CB&T is bound, or (iv) require the
consent or approval of any other party to any contract,
instrument or commitment to which CB&T is a party or by
which CB&T is bound, other than the approvals of
regulatory authorities, if any, which have been
obtained or will be obtained prior to or on the Closing
Date of the Sale and Purchase Agreement. To CB&T's
knowledge, CB&T is not subject to any agreement or
understanding with any regulatory authority which would
prevent the consummation by CB&T of the transactions
contemplated by the Sale and Purchase Agreement and the
Assignment and Assumption Agreement and Interim
Servicing Agreement referred to therein.
(d) CB&T has not agreed to pay any fee or commission to any
agent, broker, finder, or other person for or on
account of services rendered as a broker or finder in
connection with the Sale and Purchase Agreement or the
transactions contemplated thereby which would give rise
to any valid claim against the Seller under the Sale
and Purchase
10
<PAGE>
Agreement for any brokerage commission or finder's fee
or like payment.
(e) To CB&T's knowledge, there is no federal or state
statute, rule or regulation, or order or rule of any
federal or state regulatory agency, which would prevent
CB&T from purchasing the Acquired Bravo Accounts or
Acquired Bravo Receivables or other assets to be
acquired by CB&T pursuant to the Sale and Purchase
Agreement.
(f) CB&T is qualified to participate in, and is a member in
good standing of, the Visa credit card programs.
As used in the foregoing representations, CB&T's knowledge refers to the actual
knowledge of any of CB&T's officers; accordingly, for all purposes of this
Amendment representations made above "To CB&T's knowledge" shall be deemed to
have been breached only if the matters so represented are not true within the
actual knowledge of said officers at the time as of which such representations
are made as hereinabove set forth.
9. The provisions of this Amendment shall survive the execution,
delivery and termination or expiration of the Sale and Purchase Agreement and
any Related Agreements, the Closing of the Sale and Purchase Agreement, the sale
by CB&T of the Acquired Bravo Receivables to CompuCredit Acquisition, the
execution, delivery, and termination or expiration of the Receivables Purchase
Agreement and Subservicer Letter Agreement and any related transactions, the
execution, delivery and termination or expiration of any other transactions
relating to the securitization or other disposition of any of the Acquired Bravo
Assets or any receivables arising on or after the Closing date pursuant to the
Acquired Bravo Accounts, the conversion of Acquired Bravo Accounts to CB&T's
system, the expiration or termination of the Affinity Agreement, and the
expiration or termination of the Facilities Agreement.
10. In the event of any inconsistency between any provisions of this
Amendment and any provisions of:
(a) the existing Affinity Agreement or the existing
Facilities Agreement, or
(b) the Sale and Purchase Agreement, or
(c) any of the Related Agreements, or
(d) any other agreements to which CB&T and/or CompuCredit,
CAC-GA or CompuCredit Acquisition may now or hereafter
11
<PAGE>
be a party to the extent such agreements affect any
matters which are the subject of Sections 6, 7 and 9 of
this Amendment,
the provisions of this Amendment shall control to the extent of such
inconsistency.
11. The invalidity or unenforceability of any provision of this
Amendment shall not affect the validity or enforceability of any other
provision.
12. Except as herein amended, the Affinity Agreement and Facilities
Agreement shall continue in effect in accordance with their respective terms.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.
CB&T: CompuCredit:
COLUMBUS BANK AND TRUST COMPANY COMPUCREDIT CORPORATION
By: By: /s/ Brett M. Samsky
---------------------------- ------------------------
CAC-GA:
COMPUCREDIT ACQUISITION CORPORATION
By: /s/ Brett M. Samsky
----------------------------
CompuCredit Acquisition:
COMPUCREDIT ACQUISITION CORPORATION
By: /s/ Ashley L. Johnson
-----------------------------
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.
CB&T: CompuCredit:
COLUMBUS BANK AND TRUST COMPANY COMPUCREDIT CORPORATION
By: /s/ N. Fraser Cruickshank By:
---------------------------- ------------------------
CAC-GA:
COMPUCREDIT ACQUISITION CORPORATION
By:
----------------------------
CompuCredit Acquisition:
COMPUCREDIT ACQUISITION CORPORATION
By:
-----------------------------
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<PAGE>
EXHIBIT A
CompuCredit Acquisition Corporation
- ----------------
- ----------------
Ladies and Gentlemen:
I am Deputy General Counsel of Synovus Financial Corp., the parent
company of Columbus Bank and Trust Company, a state bank chartered under the
laws of the State of Georgia ("CB&T"). This opinion is being provided to you in
connection with the Sale and Purchase Agreement ("Sale and Purchase Agreement"),
dated as of ___________, 1998 by and among Greenwood Trust Company, CompuCredit
Acquisition Corporation ("CAC"), and CB&T.
As the basis for rendering the following opinions, I, or attorneys
under my supervision, have examined, or caused to be examined, a copy of the
Sale and Purchase Agreement and originals or copies certified or otherwise
identified to my satisfaction of such certificates, records, other agreements
and instruments and documents as I, or such attorneys, have deemed necessary or
advisable. In such examination, the genuineness of all signatures (other than
those of CB&T), the authenticity of all documents submitted as originals and the
conformity to the originals of all documents submitted as copies have been
assumed. Also, as to matters of fact expressed herein, I have relied upon
statements, representations or certificates of the responsible officers of CB&T
and public officers.
I have assumed that all parties to the Sale and Purchase Agreement
other than CB&T have the power and authority to enter into and perform their
obligations under the Sale and Purchase Agreement, respectively, and that the
Sale and Purchase Agreement was duly authorized, executed and delivered by, and
constitutes the legal, valid and binding obligation of each of the parties
thereto, other than CB&T, enforceable against such parties in accordance with
its terms.
In this opinion, the phrase "to my knowledge" refers to my actual
knowledge or to the actual knowledge of an attorney under my supervision in
connection with our review of the Sale and Purchase Agreement and the
information, inquiries and investigations described in the preceding paragraphs.
In giving the opinions set forth below, you should note that I am a
member of the bar of the State of Georgia and I express no opinion other than
under the laws of the Sate of Georgia and the Federal laws of the United States
of America.
14
<PAGE>
Based on the foregoing, I am of the opinion that:
(i) CB&T is a Georgia state-chartered bank in good standing, duly
organized and validly existing under the laws of the State of Georgia;
(ii) CB&T had and has full corporate power and authority to enter into
and perform its obligations under the Sale and Purchase Agreement;
(iii) the Sale and Purchase Agreement has been duly authorized,
executed and delivered by CB&T;
(iv) to my knowledge, no consent, approval, authorization or order of
any governmental agency or body was or is required for the execution and
delivery by CB&T of the Sale and Purchase Agreement or the performance by CB&T
of its obligations thereunder, except such as have been obtained and the filing
of Uniform Commercial Code financing statements;
(v) to my knowledge, neither the execution and delivery of the Sale and
Purchase Agreement by CB&T nor the performance by CB&T of the transactions
therein contemplated, nor the fulfillment of the terms thereof by CB&T did or
will (A) result in any violation of any statute or regulation or any order or
decree of any court or governmental authority binding upon CB&T or its property,
or (B) conflict with, or result in a breach or violation of any term or
provision, or result in a default under any of the terms and provisions, of
CB&T's articles of incorporation or by-laws or any material indenture, loan
agreement or other material agreement known to me to which CB&T is a party or by
which CB&T is bound;
(vi) to my knowledge, there are no legal or governmental proceedings
pending to which CB&T is a party or subject which, individually or in the
aggregate, would have a material adverse effect on the ability of CB&T to
perform its obligations under the Sale and Purchase Agreement, or which assert
the invalidity thereof, or which seek to prevent any of the transactions
contemplated thereby.
My opinions are subject to: (a) limitations imposed by bankruptcy,
insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, or
other laws relating to or affecting the rights of creditors generally, (b)
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or in law; (c) the unenforceability of
rights to indemnification and contribution which may be limited by applicable
law or equitable principles or as otherwise may be unenforceable as against
public policy; and (d) the unenforceability under certain circumstances of
provisions imposing penalties, forfeitures, late payment charges or an increase
in
15
<PAGE>
interest rate upon delinquency in payment or the occurrence of any event of
default.
This opinion is solely for your benefit and may not be relied upon or
used by, circulated, quoted or referred to, nor may copies hereof be delivered
to, any other person without my prior written approval. I disclaim any
obligation to update this opinion letter for events occurring or coming to our
attention after the date hereof.
Very truly yours,
Kathleen Moates
<PAGE>
Exhibit 10.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSFER AND ADMINISTRATION AGREEMENT
among
SHEFFIELD RECEIVABLES CORPORATION,
as Buyer,
COMPUCREDIT ACQUISITION FUNDING CORP. II,
as the Transferor,
COMPUCREDIT CORPORATION,
individually and
as the Servicer
and the Guarantor
and
BARCLAYS BANK PLC
as the Agent
Dated as of November 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBITS
EXHIBIT A Form of Credit Card Agreement
EXHIBIT B [Reserved]
EXHIBIT C Form of Statement of Estimated Amounts
EXHIBIT D Form of Independent Accountants Report
EXHIBIT E Form of Monthly Servicer Report
EXHIBIT F [Reserved]
EXHIBIT G [Reserved]
EXHIBIT H List of Actions and Suits
EXHIBIT I [Reserved]
EXHIBIT J List of Subsidiaries, Divisions and Tradenames
EXHIBIT K Form of Investment Letter
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS...........................................................................................1
SECTION 1.1. Certain Defined Terms.................................................................1
SECTION 1.2. Other Terms..........................................................................25
SECTION 1.3. Computation of Time Periods..........................................................25
ARTICLE II TRANSFERS AND SETTLEMENTS...........................................................................25
SECTION 2.1. Facility.............................................................................25
SECTION 2.2. Transfers............................................................................25
SECTION 2.3. Selection of Interest Rates and Collection Periods...................................28
SECTION 2.4. [Reserved]...........................................................................28
SECTION 2.5. Allocation of Collections............................................................28
SECTION 2.6. [Reserved]...........................................................................29
SECTION 2.7. Fees29
SECTION 2.8. Protection of Transferred Interest of the Owners.....................................29
SECTION 2.9. Deemed Collections; Application of Payments..........................................31
SECTION 2.10. Payments and Computations, Etc.......................................................33
SECTION 2.11. Reports..............................................................................33
SECTION 2.12. Collection Account...................................................................34
SECTION 2.13. Sharing of Payments, Etc.............................................................35
SECTION 2.14. Defaulted Receivables................................................................36
SECTION 2.15. Optional Amortization................................................................36
ARTICLE III REPRESENTATIONS AND WARRANTIES.....................................................................36
SECTION 3.1. Representations and Warranties of the Transferor.....................................36
SECTION 3.2. [Reserved]...........................................................................40
SECTION 3.3. Representations and Warranties of the Servicer.......................................40
SECTION 3.4. Reaffirmation of Representations and Warranties by the Servicer......................41
ARTICLE IV CONDITIONS PRECEDENT................................................................................42
SECTION 4.1. Conditions to Closing................................................................42
ARTICLE V COVENANTS............................................................................................44
SECTION 5.1. Affirmative Covenants of Transferor..................................................44
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.2. Negative Covenants of the Transferor.................................................52
SECTION 5.3. Affirmative Covenants of the Servicer................................................53
SECTION 5.4. Negative Covenants of the Servicer...................................................55
ARTICLE VI ADMINISTRATION AND COLLECTIONS......................................................................57
SECTION 6.1. Appointment of Servicer..............................................................57
SECTION 6.2. Duties of Servicer...................................................................57
SECTION 6.3. Rights After Designation of New Servicer.............................................58
SECTION 6.4. Servicer Default.....................................................................59
SECTION 6.5. Responsibilities of the Transferor...................................................59
ARTICLE VII TERMINATION EVENTS.................................................................................60
SECTION 7.1. Termination Events...................................................................60
SECTION 7.2. Termination..........................................................................63
SECTION 7.3. Optional Repurchase..................................................................64
ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS........................................................64
SECTION 8.1. Indemnities by the Transferor........................................................64
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses...........................................68
SECTION 8.3. Taxes................................................................................70
SECTION 8.4. Other Costs, Expenses and Related Matters............................................71
SECTION 8.5. Amounts Limited to Available Funds...................................................72
SECTION 8.6. Indemnification by Servicer..........................................................72
ARTICLE IX THE AGENT...........................................................................................74
SECTION 9.1. Authorization and Action.............................................................74
SECTION 9.2. Agent's Reliance, Etc................................................................74
SECTION 9.3. Termination Events...................................................................75
SECTION 9.4. Agents and Affiliates................................................................75
SECTION 9.5. Indemnification of the Agent.........................................................75
SECTION 9.6. Non-Reliance.........................................................................76
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 9.7. Resignation of Agent.................................................................76
SECTION 9.8. Payments by the Agent................................................................77
SECTION 9.9. UCC Filings..........................................................................77
ARTICLE X GUARANTY AND GUARANTOR COVENANTS.....................................................................77
SECTION 10.1. Guaranty.............................................................................77
SECTION 10.2. Waivers..............................................................................78
SECTION 10.3. Reinstatement........................................................................79
SECTION 10.4. Subrogation..........................................................................79
SECTION 10.5. Net Worth Ratio......................................................................79
SECTION 10.6. Financial Reporting..................................................................79
SECTION 10.7. Notices..............................................................................80
SECTION 10.8. Sub-Servicing Fee....................................................................80
SECTION 10.9. Co-Beneficiary Designations..........................................................81
ARTICLE XI MISCELLANEOUS.......................................................................................81
SECTION 11.1. Term of Agreement....................................................................81
SECTION 11.2. Waivers; Amendments..................................................................81
SECTION 11.3. Notices..............................................................................82
SECTION 11.4. Governing Law; Submission to Jurisdiction; Integration...............................84
SECTION 11.5. Severability; Counterparts...........................................................84
SECTION 11.6. Successors and Assigns...............................................................85
SECTION 11.7. Disclosure...........................................................................85
SECTION 11.8. Confidentiality Agreement............................................................85
SECTION 11.9. No Bankruptcy Petition...............................................................86
SECTION 11.10. No Recourse Against Stockholders, Officers or Directors..............................86
SECTION 11.11. Tax Matters..........................................................................86
SECTION 11.12. Tax Treatment........................................................................90
</TABLE>
iii
<PAGE>
TRANSFER AND ADMINISTRATION AGREEMENT
TRANSFER AND ADMINISTRATION AGREEMENT (this "Agreement"), dated as of
November 30, 1998, by and among SHEFFIELD RECEIVABLES CORPORATION, a Delaware
corporation (the "Buyer"), COMPUCREDIT ACQUISITION FUNDING CORP. II, a Nevada
corporation, as transferor (in such capacity, the "Transferor"), COMPUCREDIT
CORPORATION, a Georgia corporation, individually, as servicer (in such capacity,
the "Servicer") and as guarantor (in such capacity, the "Guarantor"), and
BARCLAYS BANK PLC, as agent for the Buyer and the other "Owners" (as defined
below) (the "Agent").
PRELIMINARY STATEMENTS
WHEREAS, the Transferor may desire to convey, transfer and assign, from
time to time, undivided percentage interests in certain accounts receivable, and
Buyer shall accept such conveyance, transfer and assignment of such undivided
percentage interests, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 As used in this Agreement, the following terms shall have the
following meanings:
"Accounts" means each credit card account established pursuant to a
Credit Card Agreement with an Obligor as of the Cut-Off Date, which account (i)
(a) was sold to CB&T pursuant to the Sale and Purchase Agreement by the Original
Seller, (b) is a credit card account of an Obligor into which an Account of such
Obligor is, pursuant to the Conversion, transferred in accordance with the
Credit Card Guidelines, (c) is a Transferred Account or (d) is a Related
Account, and (ii) is identified by account number and by the principal
receivables thereof as of the Cut-Off Date and referred to in the Account
Schedule delivered to the Agent on the Closing Date pursuant to Section 2.8(b),
as such schedule is amended, modified or supplemented thereafter pursuant to
Section 2.8(b).
"Account Owner" means CB&T or any other entity which is the issuer of
the credit card relating to an Account pursuant to a Credit Card Agreement,
subject to Section 5.2(h) hereof.
"Account Schedule" means the schedule of Accounts (which schedule may
be in the form of a computer file or microfiche) of the Transferor delivered to
the
1
<PAGE>
Agent on the Closing Date, as amended or modified from time to time pursuant to
the terms of this Agreement.
"Adverse Claim" means a lien, security interest, charge or encumbrance,
or other right or claim in, of or on any Person's assets or properties in favor
of any other Person (including any UCC financing statement or any similar
instrument filed against such Person's assets or properties) excluding, however,
Permitted Liens.
"Affected Assets" means, collectively, the Receivables and the Related
Security, Collections and Proceeds relating thereto.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies of the controlled
Person, whether through ownership of voting stock, by contract or otherwise.
"Affinity Card Agreement" means the Affinity Card Agreement, dated
January 6, 1997, among CB&T, CompuCredit and CAC, and all schedules and exhibits
thereto, as the same has been and may hereafter be amended, modified or
supplemented and in effect from time to time.
"Agent" means Barclays Bank PLC, in its capacity as agent for the Buyer
and the other Owners, and any successor thereto appointed pursuant to Article
IX.
"Aggregate Unpaids" means, at any time, an amount equal (without
duplication) to the sum of (i) the aggregate accrued and unpaid Carrying Costs
at such time, (ii) the Net Investment at such time and (iii) all other amounts
owed (whether due or accrued) under the Transaction Documents by the Transferor
to the Buyer and the other Owners at such time, including, without limitation,
any Early Collection Fee then due and owing.
"Alternative Rate" shall mean, with respect to any Collection Period
(or portion thereof), an interest rate per annum equal to the LIBO Rate (Reserve
Adjusted); provided, however, that:
(i) If the Majority Owners shall notify the Agent prior to the related
rate determination date that a LIBO Rate Disruption Event has occurred and
is continuing, then the "Alternative Rate" for such Collection Period
(or portion thereof) shall be an interest rate per annum equal to the
Base Rate in effect from time to time during such Collection Period (or
portion thereof) unless the Agent and the Transferor agree in writing
to a different rate;
(ii) if any Owner shall have notified the Agent on or before the
applicable rate determination date that the LIBO Rate for any Collection
Period
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(or portion thereof) does not accurately reflect the cost to such
Owner of funding its investment in the Transferred Interest for such
Collection Period (or portion thereof), then the "Alternative Rate" with
respect to such Owner's share of the Transferred Interest for such
Collection Period (or portion thereof) shall be an interest rate per annum
equal to the Base Rate in effect from time to time during such Collection
Period (or portion thereof) unless the Agent and the Transferor agree in
writing to a different rate;
(iii) if for any reason the Alternative Rate becomes applicable on
notice to the Agent of less than three Business Days (determined giving
effect to the LIBO Rate (Reserve Adjusted) provisions of the definition of
"Business Day"), the "Alternative Rate" shall be the Base Rate in effect
from time to time during the period prior to the satisfaction of such three
Business Days' notice requirement (determined giving effect to the LIBO
Rate (Reserve Adjusted) provisions of the definition of "Business Day");
and
(iv) notwithstanding anything to the contrary in clauses (i) through
(iii) above, at all times following the occurrence of a Termination Event
(other than a Termination Event pursuant to Section 7.1(i)) the
"Alternative Rate" for any Collection Period (or portion thereof) shall be
a rate per annum equal to the sum of (i) the Base Rate in effect from time
to time during such Collection Period and (ii) 2.00% per annum, unless the
Agent and the Transferor agree in writing to a different rate.
"Applicable Rate" shall mean, for any Collection Period, the Cost of
Funds for such Collection Period, adjusted, as necessary, to yield, when applied
to the Net Investment, an amount sufficient to pay interest on the incremental
effective principal balance of any funding resulting from the capitalization of
interest, if any, during such Collection Period. In the case of the final
Collection Period (as described in the definition of Collection Period), on the
fifth Business Day immediately preceding the final Remittance Date, the Agent
shall notify the Servicer of the Applicable Rate for the related Collection
Period. The Applicable Rate reported pursuant to the preceding sentence shall be
calculated using an estimate of the component rates for the remaining days in
such Collection Period. On the Remittance Date for such Collection Period, the
Agent shall redetermine the Applicable Rate in respect of such Collection Period
and if such redetermined Applicable Rate is higher or lower than the Applicable
Rate reported to the Servicer on the fifth Business Day immediately preceding
the corresponding Remittance Date, the Agent shall, within three Business Days
following such Remittance Date, advise the Servicer of such redetermined
Applicable Rate, specifying the amount of any resulting underpayment or
overpayment of interest on such Remittance Date.
"Arrangement Fee" means the fee payable by the Transferor to the
Administrative Agent pursuant to Section 2.7 hereof, the terms of which are set
forth in the Fee Letter.
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"Assignment" means any sale, assignment or transfer by the Buyer or any
other Owner of all or any part of its interest in this Agreement, but shall not
include a participation as described in Section 11.11(f).
"Bankruptcy Code" has the meaning assigned to that term in Section
3.1(k).
"Barclays" shall mean Barclays Bank PLC and its successors.
"Base Rate" or "BR" means, a rate per annum equal to the greater of (i)
the prime rate of interest publicly announced by Barclays from time to time,
changing when and as said prime rate changes (such rate not necessarily being
the lowest or best rate charged by Barclays) and (ii) the sum of (a) 0.50% and
(b) the rate equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day for such transactions received
by Barclays from three Federal funds brokers of recognized standing selected by
it. "Benefit Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA in respect of which the Transferor or any ERISA Affiliate thereof is, or
at any time during the immediately preceding six years was, an "employer" as
defined in Section 3(5) of ERISA. "Business Day" means any day other than (a) a
Saturday or Sunday or (b) any other day on which national banking associations
or state banking institutions in New York, New York, Atlanta, Georgia, Columbus,
Georgia or any other State in which the principal executive offices of
CompuCredit, the Transferor, the Agent, CB&T or any other Account Owner, as the
case may be, are located, are authorized or obligated by law, executive order,
or governmental decree to be closed, and, when used with respect to the
determination of any LIBO Rate (Reserve Adjusted) or any notice with respect
thereto, any such day which is also a day for trading by and between banks in
United States dollar deposits in the London interbank market.
"Buyer" means Sheffield Receivables Corporation, a Delaware
corporation. "CAC" means CompuCredit Acquisition Corporation, a Nevada
corporation, together with its successors and assigns.
"Capitalized Lease" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
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"Carrying Costs" shall mean with respect to any Remittance Date, an
amount equal to the sum of (i) the product of (A) the Applicable Rate in effect
with respect to the Collection Period ending immediately prior to such
Remittance Date, (B) the average daily Net Investment during such Collection
Period, and (C) a fraction the numerator of which is the actual number of days
in such Collection Period and the denominator of which is 360, plus (ii) all
Early Collection Fees incurred by Owners during the immediately preceding
Collection Period, plus (iii) the product of (A) the Program Fee Rate, (B) (1)
the average daily Facility Limit during such Collection Period, minus (2) that
portion of the average daily Net Investment during such Collection Period that
is funded other than through the issuance of Related Commercial Paper and (C) a
fraction the numerator of which is the actual number of days in such Collection
Period and the denominator of which is 360, plus (iv) any amounts owed to any
Indemnified Parties pursuant to Section 8.1, 8.2, 8.3, 8.4 and 8.6, plus (v) any
past due Carrying Costs owing in respect of any prior Collection Period,
together with interest thereon (to the extent permitted by applicable law) at a
rate equal to the sum of the Base Rate and 2.00% per annum for the period from
and including the original due date for such past due Carrying Costs to but
excluding the date on which they are paid in full together with such interest
thereon.
"Cash Advance Fees" shall mean cash advance transaction fees, if any,
as specified in the Credit Card Agreement applicable to each Account.
"CB&T" means Columbus Bank and Trust Company, a state chartered bank
organized under the laws of the State of Georgia, together with its successors
and assigns.
"CB&T Agreement" means the subservicer letter agreement, dated the date
hereof, among CB&T, CAC and the Agent, as it may be amended, modified or
supplemented from time to time.
"Charge-Off Rate" means, for any Collection Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the
aggregate amount of the Principal Receivables of all Receivables that became
Defaulted Receivables during such Collection Period, less all Recoveries
received during such Collection Period, and the denominator of which is the
average daily Principal Receivables during such Collection Period.
"Closing Date" means November 30, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" has the meaning assigned to that term in Section
2.12.
"Collection Period" means the calendar month ending immediately prior
to a Remittance Date, or in the case of the first Collection Period, the period
commencing
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on (and including) the Closing Date to the end of the calendar month ending
immediately prior to the first Remittance Date and in the case of the final
Collection Period, the period commencing on (and including) the first day of the
calendar month immediately preceding the month in which the final Remittance
Date falls and ending on (but excluding) the final Remittance Date.
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all Recoveries, Finance Charges, Interchange and cash proceeds of
Related Security with respect to such Receivable; provided, however, the
Sub-Servicing Fee and any commissions and similar amounts received in respect of
any benefit agreements with respect to receipts from parties using the Obligors
for product marketing purposes shall be excluded from "Collections." For the
purposes hereof, "cash" shall include payments received in the form of checks,
wire transfers, electronic transfers, ATM transfers and any other form of
payment made in accordance with a Credit Card Agreement.
"Commercial Paper" means the promissory notes issued by Buyer in the
commercial paper market.
"CompuCredit" means CompuCredit Corporation, a Georgia corporation.
"Conversion" means the transfer of the processing of the Accounts to
CB&T pursuant to the Interim Servicing Agreement.
"Cost of Funds" shall mean, for any Collection Period, the weighted
average (based upon time and dollar amount) of the following rates applicable
during such Collection Period for each Owner: (a) to the extent such Owner is
the Buyer and funds its share of the Net Investment for such Collection Period
(or any portion thereof) by issuing Related Commercial Paper, a rate equal to
the CP Rate for such Collection Period (or portion thereof) and (b) to the
extent such Owner either (i) is not the Buyer or (ii) is the Buyer and funds its
share of the Net Investment for such Collection Period (or any portion thereof)
other than by issuing Related Commercial Paper, a rate equal to the Alternative
Rate for such Collection Period (or any portion thereof) or such other rate as
the Agent and the Transferor shall agree to in writing.
"CP Margin" shall have the meaning specified in the Fee Letter.
"CP Rate" shall mean with respect to any Collection Period (or portion
thereof), the sum of (i) the CP Margin and (ii) the per annum rate calculated to
yield the "weighted average cost" (as defined below) related to the issuance of
Related Commercial Paper during such Collection Period (or portion thereof);
provided, however, that if any component of such rate is a discount rate, in
calculating the "CP Rate" for such Collection Period (or portion thereof) the
Buyer shall for such component use the rate resulting from converting such
discount rate to an interest-bearing equivalent rate per annum. As used in this
definition, the Buyer's "weighted average cost" for any Collection Period means
the sum of (x) the actual interest paid to
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purchasers of the applicable Related Commercial Paper, (y) the commissions of
placement agents and dealers in respect of such Related Commercial Paper not to
exceed 0.05% per annum without prior written notification to the Transferor, and
(z) other borrowings by the Purchaser to fund small or odd dollar amounts that
are not easily accommodated in the commercial paper market; and provided,
further, that at all times following the occurrence of a Termination Event
(other than a Termination Event pursuant to Section 7.1(i)), the "CP Rate" for
any Collection Period (or portion thereof) shall be the Alternative Rate in
effect from time to time.
"Credit Card Agreement" shall mean, with respect to a revolving credit
card account, the agreements (including any applicable truth in lending
disclosure statements), in substantially the form or forms attached as Exhibit A
hereto on the Closing Date and pursuant to Section 5.3(k), between an Account
Owner and the Obligor governing the terms and conditions of such account, as
such agreements or statements may be amended, modified or otherwise changed from
time to time and as distributed (including any amendments and revisions thereto)
to holders of such account.
"Credit Card Guidelines" shall mean the respective policies and
procedures of the Servicer, as such policies and procedures relate to the
Accounts and as such may be amended from time to time, (a) relating to the
operation of its credit card business, which generally are applicable to its
portfolio of revolving credit card accounts or, in the case of an Account Owner
that has only a portion of its portfolio subject to a receivables purchase
agreement, applicable to such portion of its portfolio, and in each case which
are consistent with prudent practice, including the policies and procedures for
determining the creditworthiness of credit card customers and the extension of
credit to credit card customers, and (b) relating to the maintenance of credit
card accounts and collection of credit card receivables.
"Credit Support Agreement" means the agreement between Buyer and the
Credit Support Provider evidencing the obligation of the Credit Support Provider
to provide credit support to Buyer in connection with the issuance by Buyer of
Commercial Paper.
"Credit Support Provider" means the Person or Persons who provides
credit support to Buyer in connection with the issuance by Buyer of Commercial
Paper.
"Cut-Off Date" means November 6, 1998.
"Deemed Collections" means any Collections on any Receivable deemed to
have been received pursuant to Section 2.9(b) and (c) hereof.
"Defaulted Receivable" means a Receivable: (i) as to which any payment,
or part thereof, remains unpaid for 180 days or more from the original due date
for payment under such Receivable; (ii) as to which an Event of Bankruptcy has
occurred and is continuing with respect to the Obligor thereof; (iii) which has
been identified by
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the Transferor, the Servicer or the Sub-Servicer as uncollectible; (iv) as to
which the Obligor is deceased; or (v) which, consistent with the Credit Card
Guidelines, should be written off as uncollectible. A Receivable shall become a
Defaulted Receivable no later than on the day on which such Receivable is
recorded as charged-off on the Servicer's computer file of revolving credit card
accounts.
"Delinquent Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for more than 60 days from the original
due date for payment under such Receivable and (ii) which is not a Defaulted
Receivable.
"Early Collection Fee" means, for any funding period during which the
portion of the Net Investment that was allocated to such funding period is
reduced for any reason whatsoever, the excess, if any, of (i) the additional
interest that would have accrued during such funding period if such reductions
had not occurred, minus (ii) the income, if any, received by the recipient of
such reductions from investing the proceeds of such reductions.
"Eligible Account" shall mean, as of the Cut-Off Date, each Account
other than the following:
(i) Any account that has a disputed balance;
(ii) Any account (a) with respect to which a filing has been made by
the related Obligor under the Bankruptcy Code or any other bankruptcy,
insolvency or other similar laws providing for relief of debtors, whether
such filing is voluntary or involuntary or (b) which has or should have (in
accordance with the Policies and Procedures) a status code of External
Status 'B';
(iii) Any account (a) that has charged-off or (b) which has or should
have (in accordance with the Policies and Procedures) a status code of
External Status 'Z';
(iv) Any account (a) the Obligor of which is deceased or (b) which has
or should have (in accordance with the Policies and Procedures) a status
code of RMS Status 'I';
(v) Any account that is currently under litigation;
(vi) Any account that has been classified, or should have been
classified (in accordance with the Policies and Procedures) as a
Lost/Stolen/Fraud (External Status 'L' or 'U') account;
(vii) Any account with a net credit balance;
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(viii) Any account classified, or that should have been classified (in
accordance with the Policies and Procedures) as revoked (External Status
'E') or interest prohibited (External Status 'I') or customer closed
(External Status `C') account, in each case, with a zero balance;
(ix) Any account that is not subject to a valid Credit Card Agreement
that is the legal, valid and binding obligation of the related Obligor and
that is enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights
generally and by general equity principles or as otherwise may be limited
by a right to offset, recoupment, adjustment or any other claim under 12
CFR Section 226.12(c), 12 CFR Section 226.13(d) and the Soldiers and
Sailors Civil Relief Act.
"Eligible Investments" means negotiable instruments or securities
represented by instruments in bearer or registered form, or, in the case of
deposits described below, deposit accounts held in the name of the Agent, other
than securities issued by or obligations of CompuCredit or any Affiliate
thereof, which mature so that funds will be available no later than the close of
business on the Business Day preceding the Remittance Date following each
Collection Period and which evidence:
(a) direct obligations of, or obligations fully guaranteed as to timely
payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of
depository institutions or trust companies incorporated under the laws of the
United States of America or any state thereof, including the District of
Columbia (or domestic branches of foreign banks) and subject to supervision and
examination by federal or state banking or depository institution authorities;
provided that at the time of the Buyer's investment or contractual commitment to
invest therein, the short-term debt rating of such depository institution or
trust company shall be A-1+ by Standard and Poor's and P-1 by Moody's;
(c) commercial paper having, at the time of the Buyer's investment or
contractual commitment to invest therein, a rating of A-1+ by Standard & Poor's
and P-1 by Moody's;
(d) demand deposits, time deposits and certificates of deposit which
are fully insured by the FDIC having, at the time of the Buyer's investment
therein, a rating of A-1+ by Standard & Poor's and P-1 by Moody's;
(e) bankers' acceptance issued by any depository institution or trust
company referred to in clause (b) above; or
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(f) investments in money market funds having a rating from either of
Standard & Poor's or Moody's in the highest investment category granted thereby
or otherwise approved by the Agent.
"Eligible Pool Balance" means, as determined as of any day, an
amount equal to the sum of (i) the product of *[material omitted] and the
amount of Principal Receivables that are not Delinquent Receivables on and as
of such day and (ii) the product of *[material omitted] and the amount of
Principal Receivables that are Delinquent Receivables on and as of such day.
From and after a Termination Date, the Eligible Pool Balance shall be equal
to zero.
"Eligible Receivable" means, at any time, any Receivable:
(i) with respect to which the related Account is an Eligible Account as
of the Cut-Off Date;
(ii) which has been originated by the Original Seller or the Account
Owner in the ordinary course of its business, sold to CAC pursuant to the
Initial Purchase Agreement and sold to the Transferor pursuant to (and in
accordance with) the Receivables Purchase Agreement and to which the
Transferor has good title thereto, free and clear of all Adverse Claims
(other than any lien for municipal or other local taxes if such taxes are
not then due and payable or if the Transferor is then contesting the
validity thereof in good faith by appropriate proceedings and has set aside
on its books adequate reserves with respect thereto);
(iii) which (together with the Related Security, Collections and
Proceeds related thereto) has been the subject of either a Transfer or the
grant of a first priority perfected security interest therein (and in the
Collections and Related Security related thereto), effective until the
termination of this Agreement;
(iv) the Obligor of which is a United States resident (except for
Receivables in an outstanding amount not to exceed at any time $500,000
individually or in the aggregate), is not an Affiliate of any of the
parties hereto, and is not a government or a governmental subdivision or
agency;
(v) which (A) arises pursuant to an Account with respect to which each
of CB&T, CAC, the Transferor and the Original Seller, as applicable, have
performed all obligations required to be performed by it thereunder, and
(B) has been billed in accordance with the Credit Card Agreement related
thereto;
(vi) which is an "eligible asset" as defined in Rule 3a-7 under the
Investment Company Act of 1940, as amended;
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 of the Securities Act
of 1933.
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(vii) a purchase of which with the proceeds of Commercial Paper would
constitute a "current transaction" within the meaning of Section 3(a)(3) of
the Securities Act of 1933, as amended;
(viii) which is an "account", "chattel paper" or "general intangible"
within the meaning of Article 9 of the UCC of all applicable jurisdictions;
(ix) which (A) satisfies all applicable requirements of the Credit Card
Guidelines and (B) is assignable without the consent of, or notice to, the
Obligor thereunder;
(x) which has not been compromised, adjusted or modified (including by
the extension of time for payment or the granting of any discounts,
allowances or credits); provided, however, that only such portion of such
Receivable that is the subject of such compromise, adjustment or
modification shall be deemed to be ineligible pursuant to the terms of this
clause (x);
(xi) which is serviced by the Servicer or the Sub-Servicer;
(xii) which, at all times will be the legal, valid and binding payment
obligation of the Obligor thereon enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, affecting the enforcement of
creditors' rights in general and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at
law or in equity);
(xiii) which is denominated and payable only in United States dollars
in the United States;
(xiv) with respect to which all material consents, licenses, approvals
or authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given by the
Transferor or Account Owner in connection with the creation of such
Receivable or the execution, delivery, creation and performance by the
Account Owner of the Credit Card Agreement pursuant to which such
Receivable was created, have been duly obtained, effected or given and are
in full force and effect;
(xv) which was created in compliance in all material respects with all
Requirements of Law applicable to the institution which owned such
Receivable at the time of its creation and pursuant to a Credit Card
Agreement which complies in all material respects with all Requirements of
Law applicable to CB&T or other Account Owner, as the case may be;
(xvi) which, as of the Transfer Date is not subject to any right of
rescission, setoff, counterclaim or any other defense (including defenses
arising
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out of violations of usury laws) of the Obligor, other than defenses
arising out of applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights in general; and
(xvii) as to which, as of the Transfer Date, the Account Owner, has not
taken any action which would impair, or omitted to take any action the
omission of which would impair, the rights of the Agent, the Buyer or any
other Owner therein.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means, with respect to any Person, (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as such Person; (ii) a trade
or business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Code) with such Person; or (iii) a member of
the same affiliated service group (within the meaning of Section 414(n) of the
Code) as such Person, any corporation described in clause (i) above or any trade
or business described in clause (ii) above.
"Event of Bankruptcy" means, (x) with respect to the Transferor, that
(a) such Person shall consent to the appointment of a bankruptcy trustee or
conservator or receiver or liquidator in any bankruptcy proceeding or other
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to such Person or of or relating to all or
substantially all of the property of such Person; or (b) an action seeking a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a bankruptcy trustee or a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or the winding-up
or liquidation of its affairs, shall have been commenced against such Person and
either such decree or order shall have been entered against such Person or such
action shall have remained in force undischarged or unstayed for a period of 60
days; or (c) such Person shall admit in writing its inability to pay its debts
generally as they become due, file, or consent or fail to object (or object
without dismissal of any such filing within 60 days of such filing) to the
filing of, a petition to take advantage of any applicable bankruptcy,
insolvency, reorganization, receivership or conservatorship statute or make any
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations and (y) with respect to any Person other than the Transferor,
that such Person (a) shall consent to the appointment of a bankruptcy trustee or
conservator or receiver or liquidator in any bankruptcy proceeding or other
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to such Person or of or relating to all or
substantially all of the property of such Person; or (b) a decree or order of a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a bankruptcy trustee or a conservator or receiver or
liquidator in any insolvency,
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readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or the winding-up or liquidation of its affairs, shall have been
entered against such Person and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or (c) such Person shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable bankruptcy, insolvency or
reorganization statute or make any assignment for the benefit of its creditors
or voluntarily suspend payment of its obligations.
"Excluded Taxes" shall have the meaning specified in Section 8.3
hereof.
"Facilities Management Agreement" means the Facilities Management
Services Agreement dated as of August 1, 1998 by and between CB&T and
CompuCredit and all amendments, modifications and supplements thereto and
restatements thereof.
"Facility Limit" means (a) on the Closing Date, an amount equal to the
Initial Net Investment; (b) during the period commencing on the Remittance Date
immediately following the Closing Date and ending on the December 1999
Remittance Date, an amount equal to the Net Investment (after giving effect to
the application of Collections on such Remittance Date); (c) during the period
commencing on the January 2000 Remittance Date and ending on the July 2000
Remittance Date, the lesser of (i) the Facility Limit on the December 1999
Remittance Date and (ii) the product of (A) the Facility Limit on the Closing
Date and (B) 95%; (d) during the period commencing on the August 2000 Remittance
Date and ending on the February 2001 Remittance Date, the lesser of (i) the
Facility Limit on the December 1999 Remittance Date and (ii) the product of (A)
the Facility Limit on the Closing Date and (B) 90%; (e) during the period
commencing on the March 2001 Remittance Date and ending on the September 2001
Remittance Date, the lesser of (i) the Facility Limit on the December 1999
Remittance Date and (ii) the product of (A) the Facility Limit on the Closing
Date and (B) 80%; and (f) thereafter, the lesser of (i) the Facility Limit on
the December 1999 Remittance Date and (ii) the product of (A) the Facility Limit
on the Closing Date and (B) 70%; or, in each case, such other lesser amount as
determined at the Transferor's sole discretion and presented in writing to the
Agent two (2) Business Days prior to the date that such lesser amount takes
effect; provided, that, any reduction in the Facility Limit shall be permanent.
"Facility Termination Date" means November 29, 1999, or such later date
to which the Facility Termination Date may be extended by Transferor, the Agent
and the Buyer not later than 30 days prior to the then current Facility
Termination Date.
"Fee Letter" means the letter agreement dated November 30, 1998 among
the Agent, the Buyer and the Transferor with respect to the fees to be paid by
the Transferor hereunder, as amended, modified or supplemented and in effect
from time to time.
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"Finance Charge Receivables" shall mean all amounts billed to the
Obligors on any Account, as determined based on either (a) the actual amounts
posted on the system servicing reports provided to the Servicer by the
Sub-Servicer or any Affiliate of the Sub-Servicer, or other provider of such
reports, if available to the Servicer, or (b) if such actual amounts are not
available to the Servicer, the amount of Finance Charge Receivables for the
prior Collection Period or other reasonable estimation method, in respect of (i)
all Periodic Rate Finance Charges, (ii) Cash Advance Fees, (iii) annual
membership fees and annual service charges, (iv) Late Fees, (v) Overlimit Fees,
and (vi) any other fees with respect to the Accounts designated by the
Transferor at any time and from time to time to be included as Finance Charge
Receivables (but any such amount estimated pursuant to this clause (b) shall be
reduced by the amount of all accrued Finance Charge Receivables on Defaulted
Receivables for such Collection Period). Finance Charge Receivables shall also
include (a) Interchange payable to the Account Owners in respect of the
Receivables, (b) all Recoveries with respect to Receivables previously charged
off as uncollectible and (c) all amounts paid by CB&T to CAC pursuant to Section
8.1(e)(iii) of the Affinity Card Agreement.
"Finance Charges" means, with respect to an Account, any finance,
interest, late or similar charges owing by an Obligor pursuant to such Account.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
accounting profession, which are in effect as of the date of this Agreement.
"Governmental Authority" shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantor" means CompuCredit and its successors and assigns.
"Guaranty" means the Guaranty of CompuCredit contained in Article X of
this Agreement.
"Incremental Transfer" means a Transfer which is made pursuant to
Section 2.2(a) hereof.
"Indebtedness" means, with respect to any Person, without duplication,
such Person's (i) obligations for borrowed money, (ii) obligations representing
the deferred purchase price of property other than accounts payable arising in
the ordinary course of such Person's business on terms customary in the trade,
(iii) obligations, whether or not assumed, secured by liens or payable out of
the proceeds or production from property now or hereafter owned or acquired by
such Person, (iv) obligations which are evidenced by notes, acceptances, or
other instruments, (v) Capitalized Lease
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obligations and (vi) any agreement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes liable upon, the obligation of any other Person, or agrees
to maintain the net worth or working capital or other financial condition of any
other Person or otherwise assures any other creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement or take-or-pay contract and shall include, without limitation, the
contingent liability of such Person in connection with any application for a
letter of credit.
"Indemnified Amounts" has the meaning specified in Section 8.1 hereof.
"Indemnified Parties" has the meaning specified in Section 8.1 hereof.
"Initial Net Investment" means $54,873,067.49.
"Initial Purchase Agreement" means the receivables purchase agreement,
dated the date hereof, between CB&T, as seller, and CAC, as purchaser, as
amended, modified or supplemented and in effect from time to time.
"Insurance Proceeds" shall mean any amounts received by the Servicer
pursuant to the payment of benefits under any credit life insurance policies,
credit disability or unemployment insurance policies covering any Obligor with
respect to Receivables under such Obligor's Account.
"Interchange" shall mean interchange fees payable to CB&T or any other
Account Owner (net of any interchange fees paid by such Account Owner), in its
capacity as credit card issuer, through Novus Network, VISA or MasterCard in
connection with cardholder charges for goods or services with respect to the
Accounts. Any reference in this Agreement to Interchange shall refer to only the
fractional undivided interest in the interchange fees that are transferred by
CAC to the Transferor pursuant to the Receivables Purchase Agreement, which
fractional undivided interest may be less than 100% interest therein.
"Interim Servicing Agreement" means the Interim Servicing Agreement,
dated as of November 30, 1998, among CAC, CB&T and Novus Services, Inc., as
amended, modified or supplemented and in effect from time to time.
"Investment Letter" has the meaning set forth in Section 11.11(c)
hereof.
"Late Fees" shall have the meaning specified in the Credit Card
Agreement applicable to each Account for late fees or similar terms.
"Law" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Governmental Authority.
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"LIBO Rate" means, with respect to any Collection Period, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 as the London interbank offered rate for deposits in U.S.
dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Collection Period for a term of one month. If for any reason
such rate is not available, the term "LIBO Rate" shall mean, for any Collection
Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Collection Period for a term of one
month; provided, however, if more than one rate is specified on the Reuters
Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such
rates. In the event no such rate appears as described in the preceding
sentences, the LIBO Rate shall be, with respect to any Collection Period, the
per annum rate of interest at which U.S. Dollar deposits in immediately
available funds are offered to the Agent by prime banks in the interbank
eurodollar market at or about 10:00 a.m., London time, on the second Business
Day before (and for value on) the first day of such Collection Period (or
portion thereof) and in an amount of not less than $1,000,000 for such
Collection Period (or portion thereof).
"LIBO Rate (Reserve Adjusted)" shall mean, with respect to any
Collection Period (or portion thereof), the sum of (a) 0.875% per annum and (b)
the per annum rate of interest (rounded upward, if necessary, to the nearest
whole multiple of 1/16th of one percent per annum) determined by dividing (i)
the LIBO Rate for such Collection Period (or portion thereof) by (ii) one minus
the LIBO Rate Reserve Percentage (expressed as a decimal) applicable during such
Collection Period (or portion thereof).
"LIBO Rate Disruption Event" shall mean, for any Owner for any
Collection Period, any of the following: (i) a determination by such Owner that
it would be contrary to law or to the directive of any central bank or other
Governmental Authority to obtain U.S. Dollars in the London interbank market to
fund or maintain its investment in the Transferred Interest for such Collection
Period or (ii) the inability of such Owner by reason of circumstances affecting
the London interbank market generally, to obtain U.S. Dollars in such market to
fund its investment in the Transferred Interest for such Collection Period.
"LIBO Rate Reserve Percentage" shall mean, with respect to any
Collection Period (or portion thereof), the reserve percentage (rounded upwards,
if necessary, to the nearest 1/16th of one percent per annum) applicable during
such Collection Period (or portion thereof) (or, if more than one such
percentage shall be so applicable during such Collection Period, the daily
average of such percentages for those days in such Collection Period (or portion
thereof) during which any such percentages shall be in effect) under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for banks or other financial
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institutions subject to such regulations with respect to liabilities or assets
consisting of or including "eurocurrency liabilities" as defined in Regulation D
issued by the Board of Governors of the Federal Reserve System or any successor
regulation having a term equal to such Collection Period (or portion thereof).
"Liquidity Provider" means the Person or Persons who will provide
liquidity support to Buyer in connection with the issuance by Buyer of
Commercial Paper.
Liquidity Provider Agreement" means the agreement between Buyer and the
Liquidity Provider evidencing the obligation of the Liquidity Provider to
provide liquidity support to Buyer in connection with the issuance by Buyer of
Commercial Paper.
"Majority Owners" shall mean, at any time, the Agent and those Owners
holding interests in the Transferred Interest aggregating in excess of 51% of
the outstanding Net Investment as of such date.
"Material Adverse Effect" means any event or condition which would have
a material adverse effect on (i) the collectibility of the Receivables, (ii) the
condition (financial or otherwise), businesses or properties of the Transferor,
Account Owner, Servicer or Sub-Servicer or (iii) the ability of the Transferor,
Account Owner, Servicer or Sub-Servicer to perform its respective obligations
under the Transaction Documents to which it is a party.
"Monthly Servicer Report" means a report, in substantially the form
attached hereto as Exhibit E or in such other form as is mutually agreed to by
the Transferor and the Agent, furnished by the Servicer pursuant to Section 2.11
hereof.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is or was at any time during the current year or the
immediately preceding five years contributed to by the Transferor or any ERISA
Affiliate thereof on behalf of its employees.
"Net Investment" means the sum of the amounts paid to the Transferor by
the Buyer less the aggregate amount of Collections received and applied by the
Agent to reduce such Net Investment pursuant to Section 2.5, 2.12, 2.15 or 7.3
hereof; provided that such Net Investment shall be restored and reinstated in
the amount of any Collections so received and applied if at any time the
distribution of such Collections is rescinded or must otherwise be returned for
any reason.
"Notice of Termination Event" shall have the meaning specified in
Section 9.3 hereof.
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"Obligor" means a Person obligated to make payments for the provision
of goods and services pursuant to an Account.
"Officer's Certificate" shall mean, unless otherwise specified in this
Agreement, a certificate delivered to the Agent signed by the President, any
Vice President, the Treasurer, Chief Financial Officer, Controller or Member of
the Transferor or the Servicer, as the case may be, (or an officer holding an
office with equivalent or more senior responsibilities or, in the case of the
Servicer, a Servicing Officer, and, in the case of the Transferor, any executive
of the Transferor designated in writing by a Vice President or more senior
officer of the Transferor for this purpose) or by the President, any Vice
President, the Chief Financial Officer, Controller or Member of a successor
Servicer.
"Optional Amortization Amount" shall have the meaning specified in
Section 2.15.
"Optional Amortization Date" shall have the meaning specified in
Section 2.15.
"Optional Amortization Notice" shall have the meaning specified in
Section 2.15.
"Original Seller" means, Greenwood Trust Company, a Delaware
state-chartered bank.
"Other Transferor" means any Person other than the Transferor that has
entered into a receivables purchase agreement, transfer and administration
agreement or other similar agreement with Buyer.
"Overlimit Fees" shall have the meaning specified in the Credit Card
Agreement applicable to each Account for overlimit fees or similar terms if such
fees are provided for with respect to such Account.
"Owner" shall mean the Buyer and all other owners by assignment,
participation or otherwise of any interest in the Transferred Interest.
"Participant" has the meaning set forth in Section 11.11(f) hereof.
"Payment Rate" means, as of any month, the percentage equivalent of a
fraction, the numerator of which is equal to the average monthly
amount of all Collections (including amounts retained by the Sub-Servicer in
respect of the Sub-Servicing Fee) received during the preceding three Collection
Periods and the denominator of which is equal to the average monthly amount of
Principal Receivables outstanding during the preceding three Collection Periods.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation or any other
entity succeeding to the functions currently performed by the Pension Benefit
Guaranty Corporation.
"Periodic Rate Finance Charges" shall have the meaning specified in the
Credit Card Agreement applicable to each Account for finance charges (due to
periodic rate) or any similar term.
"Permitted Assignee" shall mean each of Barclays, each Liquidity
Provider, each Credit Support Provider and each other Person consented to by the
Transferor, such consent not to be unreasonably withheld.
"Permitted Liens" means the liens (a) created under this Agreement, (b)
arising under the Purchase Agreement or (c) otherwise permitted by the Agent in
writing. A "Permitted Lien" shall also include the sale, pledge, transfer,
conveyance, hypothecation or granting of a security interest in the Transferor's
Interest to any Person so long as (i) any claim of such Person in the
Transferor's Interest or Affected Assets is in all respects subordinate to the
claims of the Buyer, the Agent and the other Owners and the purchaser under the
Purchase Agreement and the Agent shall be satisfied with the terms of such
subordination.
"Person" means any corporation, limited liability company, natural
person, firm, joint venture, partnership, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Policies and Procedures" means the written policies and procedures of
the Original Seller relating to the Accounts, as in effect from time to time.
"Potential Termination Event" means an event which but for the lapse of
time or the giving of notice, or both, would constitute a Termination Event.
"Principal Receivables" means, at any time, the then outstanding
principal amount of Eligible Receivables excluding any accrued and outstanding
Finance Charges related thereto and giving effect to the amount of any credit
balances and other adjustments existing with respect to such Receivable on such
day. The outstanding principal amount of any Defaulted Receivables shall be
considered to be zero for the purposes of any determination hereunder of the
aggregate outstanding amount of Principal Receivables.
"Private Holder" shall mean (i) each holder of a right to receive
interest or principal in respect of any direct or indirect interest in the
Transferred Interest including any financial instrument or contract the value of
which is determined in whole or in part by reference to the Transferred Interest
and (ii) any other Person that the Transferor determines is, may be or may
become a "partner" within the meaning of Section 1.7704-1(h)(1)(ii) of the
United States Treasury Regulations (including by reason of Section
1.7704-1(h)(3)). Any Person holding more than one interest in the Transferred
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Interest each of which separately would cause such Person to be a Private Holder
shall be treated as a single Private Holder. Each holder of an interest in a
Private Holder which is a partnership, an S Corporation or a grantor trust under
the Code shall be treated as a Private Holder unless excepted with the consent
of the Transferor.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC.
"Program Fee" means the fee payable by the Transferor to the Agent
pursuant to Section 2.7 hereof, computed as described in clause (iii) of the
definition of Carrying Costs.
"Program Fee Rate" has the meaning specified in the Fee Letter.
"Purchase Agreement" means that certain Purchase Agreement dated as of
November 30, 1998 by and among the Transferor and Cargill Financial Services
Corporation.
"Purchase Termination Date" means the date upon which the Transferor
shall cease, for any reason whatsoever, to make purchases of Receivables from
CAC under the Receivables Purchase Agreement or the Receivables Purchase
Agreement shall terminate for any reason whatsoever.
"Reassignment Amount" shall mean, with respect to any Remittance Date,
after giving effect to any deposits and distributions otherwise to be made on
such Remittance Date, for the Buyer, without duplication, the sum of (a) the Net
Investment on such Remittance Date plus (b) accrued interest, fees, and all
other Aggregate Unpaids due and owing to the Buyer for such Remittance Date.
"Receivable" means the indebtedness owed by any Obligor under an
Account and sold by (i) to the extent outstanding on the Cut-Off Date, the
Original Seller to CB&T pursuant to the Sale and Purchase Agreement, (ii) CB&T
to CAC pursuant to the Initial Purchase Agreement and (iii) CAC to the
Transferor pursuant to the Receivables Purchase Agreement, arising in connection
with the sale or lease of merchandise or the rendering of services, and includes
the right to payment of any Finance Charges and other obligations of such
Obligor with respect thereto. Notwithstanding the foregoing, once a Receivable
has been deemed collected pursuant to Section 2.9 hereof, it shall no longer
constitute a Receivable hereunder.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement, dated as of the date hereof, by and between CAC, as seller, and the
Transferor, as purchaser, as such agreement may be amended, modified or
supplemented and in effect from time to time.
"Recipients" shall have the meaning specified in Section 2.13 hereof.
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"Records" means all Credit Card Agreements and other documents, books,
records and other information (including, without limitation, computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained with respect to Receivables, the Accounts and the related
Obligors.
"Recoveries" means all amounts received or collected by the Servicer or
the Sub-Servicer (net of out-of-pocket costs of collection) with respect to
Defaulted Receivables, including any amounts received through the sale or other
disposition of the Defaulted Receivables to unaffiliated third parties.
"Related Account" shall mean an Account with respect to which a new
credit account number has been issued by the applicable Account Owner or
Servicer or the Transferor under circumstances resulting from an error or a lost
or stolen credit card and not requiring standard application and credit
evaluation procedures under the Credit Card Guidelines.
"Related Commercial Paper" shall mean Commercial Paper issued by the
Buyer the proceeds of which were allocated in whole or in part by the Buyer (or
the Agent or its behalf) to acquire, or refinance the acquisition of, an
interest in Receivables with respect to the Transferor.
"Related Security" means with respect to any Receivable, all of the
Transferor's rights, title and interest in, to and under:
(i) all of the Transferor's interest, if any, in the
merchandise (including returned or repossessed merchandise), if
any, the sale of which gave rise to such Receivable; (ii) all
other security interests or liens and property subject thereto
from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Account related to such
Receivable or otherwise, together with all financing statements
signed by an Obligor describing any collateral securing such
Receivable;
(iii) all guarantees, indemnities, warranties,
insurance (and proceeds and premium refunds thereof) or other
agreements or arrangements of any kind from time to time
supporting or securing payment of such Receivable whether
pursuant to the Account related to such Receivable or otherwise;
(iv) all Records related to such Receivable;
(v) all rights and remedies of the Transferor under
the Receivables Purchase Agreement, together with all financing
statements filed by the Transferor against CAC in connection
therewith; and
(vi) all Proceeds of any of the foregoing.
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"Remittance Date" means January 15, 1999 and thereafter the fifteenth
day of each calendar month, or if such day is not a Business Day, the next
succeeding Business Day.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events for which notice to the PBGC is waived
under applicable PBGC regulations.
"Required Subordinate Percentage" shall equal 45%.
"Requirements of Law" shall mean any law, treaty, rule or regulation,
or determination of an arbitrator of Governmental Authority, whether Federal,
state or local (including usury laws, the Federal Truth in Lending Act and
Regulation B and Regulation Z of the Board of Governors of the Federal Reserve
System), and, when used with respect to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person.
"Sale and Purchase Agreement" means the sale and purchase agreement,
dated as of November 10, 1998, by and among the Original Seller, CAC and CB&T,
as it may be amended, modified or supplemented and in effect from time to time.
"Section 8.2 Costs" has the meaning specified in Section 8.2(f) hereof.
"Servicer" means at any time the Person then authorized pursuant to
Section 6.1 hereof to service, administer and collect Receivables.
"Servicer Advance" has the meaning set forth in Section 2.5(c) hereof.
"Servicer Default" has the meaning set forth in Section 6.4 hereof.
"Servicing Fee" means, with respect to any Remittance Date, the fee
payable to the Servicer on such Remittance Date with respect to the Accounts in
an amount equal to (a) one-twelfth of the product of (i) 6% per annum prior to
the third anniversary of the Closing Date and 4% per annum thereafter and (ii)
the average daily Principal Receivables during the related Collection Period
minus (b) the Sub-Servicing Fee with respect to such Collection Period. Such fee
shall accrue from the initial Transfer Date to the date on which the Net
Investment is reduced to zero. Such fee shall be payable only from Collections
pursuant to, and subject to the priority of payments set forth in, Section 2.5
hereof.
"Servicing Officer" shall mean any officer of the Servicer or an
attorney-in-fact of the Servicer who in either case is involved in, or
responsible for, the administration and servicing of the Receivables and whose
name appears on a list of servicing officers furnished to the Agent by the
Servicer, as such list may from time to time be amended.
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"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc.
"Subordinate Percentage" shall mean an amount, stated as a percentage,
equal to (a) 1 minus (b) the Net Investment divided by the Principal
Receivables.
"Sub-Servicer" shall mean CB&T or any other third party contractual
servicer approved of in writing by the Agent.
"Sub-Servicing Fee" means, with respect to any Collection Period, the
fee excluded from Collections and payable by the Servicer to the Sub-Servicer
with respect to the Accounts. Such fee shall accrue from the initial Transfer
Date to the date on which the Net Investment is reduced to zero.
"Subsidiary" of a Person means any Person more than 50% of the
outstanding voting interests of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Taxes" shall have the meaning specified in Section 8.3 hereof.
"Telerate Page 3750" means the display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service or
such other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits).
"Termination Date" means the earliest of (i) the date of termination of
the commitment of the Liquidity Provider under the Liquidity Provider Agreement,
(ii) the date of termination of the commitment of the Credit Support Provider
under the Credit Support Agreement, (iii) the day upon which the Termination
Date is declared or automatically occurs pursuant to Section 7.2(a) hereof, (iv)
two Business Days prior to the Facility Termination Date, (v) the Purchase
Termination Date or (vi) the Optional Amortization Date or the date on which the
Transferor exercises the purchase option described in Section 7.3(b).
"Termination Event" means an event described in Section 7.1 hereof.
"Three-Month Average Charge-Off Rate" means, as of any month, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to the aggregate amount of Principal Receivables that became Defaulted
Receivables during the preceding three consecutive Collection Periods, less all
Recoveries received during such Collection Periods, and the denominator of which
is the average daily Principal Receivables during such preceding three
Collection Periods.
"Transaction Costs" has the meaning specified in Section 8.4(a) hereof.
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"Transaction Documents" means, collectively, this Agreement, the
Receivables Purchase Agreement, the Initial Purchase Agreement, the CB&T
Agreement, the Interim Servicing Agreement, the Fee Letter, the Affinity Card
Agreement, the Sale and Purchase Agreement, and all of the other instruments,
documents and other agreements executed and delivered by CB&T, CAC, CompuCredit
or the Transferor in connection with any of the foregoing, in each case, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.
"Transfer" means a conveyance, transfer and assignment by the
Transferor to the Buyer of an undivided percentage interest in Receivables
hereunder (including, without limitation, as a result of any reinvestment of
Collections in Transferred Interests pursuant to Sections 2.2(b), 2.2 (e) and
2.5).
"Transfer Date" means, with respect to each Transfer, the Business Day
on which such Transfer is made.
"Transfer Price" means with respect to any Transfer, the amount paid to
the Transferor by the Buyer as described in the notice delivered by the
Transferor pursuant to Section 2.2(b).
"Transferor" means CompuCredit Acquisition Funding Corp. II, a Nevada
corporation, and its successors and permitted, as approved in writing by the
Agent, assigns.
"Transferor's Interest" means the Principal Receivables less the Net
Investment.
"Transferred Account" shall mean each account into which an Account
shall be transferred, provided that such transfer is made in accordance with the
Credit Card Guidelines.
"Transferred Interest" means, at any time of determination, an
undivided percentage interest in (i) each and every then outstanding Receivable,
(ii) all Related Security with respect to each such Receivable, (iii) all
Collections with respect thereto, and (iv) other Proceeds of the foregoing. The
Transferred Interest in each Receivable, together with Related Security,
Collections and Proceeds with respect thereto, shall at all times be equal to
the Transferred Interest in each other Receivable, together with Related
Security, Collections and Proceeds with respect thereto. To the extent that the
Transferred Interest shall decrease as a result of a recalculation of the
Transferor's Interest, the Agent, on behalf of the Buyer shall be considered to
have reconveyed to the Transferor an undivided percentage interest in each
Receivable, together with Related Security, Collections and Proceeds with
respect thereto, in an amount equal to such decrease such that in each case the
Transferred Interest in each Receivable shall be equal to the Transferred
Interest in each other Receivable. The Transferred Interest
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shall be determined as a percentage equal to the Net Investment divided by the
Principal Receivables.
"UCC" means, with respect to any state, the Uniform Commercial Code as
from time to time in effect in such state.
"U.S." or "United States" means the United States of America.
SECTION 1.2. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. All terms used in Article 9
of the UCC in the State of New York, and not specifically defined herein, are
used herein as defined in such Article 9.
SECTION 1.3. Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including", the words
"to" and "until" each means "to but excluding", and the word "within" means
"from and excluding a specified date and to and including a later specified
date".
ARTICLE II
TRANSFERS AND SETTLEMENTS
SECTION 2.1 Facility. Upon the terms and subject to the conditions
herein set forth, at any time prior to the earlier of the Termination Date and
the occurrence of any Termination Event, (x) the Transferor may, at its option,
convey, transfer and assign to the Agent, on behalf of the Buyer and (y) the
Agent, on behalf of the Buyer shall accept such conveyance, transfer and
assignment from the Transferor of, without recourse except as provided herein,
undivided percentage interests in all of the Transferor's right, title and
interest in and to the Receivables, together with Related Security, Collections
and Proceeds with respect thereto, from time to time. By accepting any
conveyance, transfer and assignment hereunder, none of the Buyer, the Agent or
any of the other Owners from time to time assumes or shall have any obligations
or liability under any of the Accounts, all of which shall remain the
obligations and liabilities of the Transferor, CAC and any Account Owner.
SECTION 2.2. Transfers.
(a) Upon the terms and subject to the conditions herein set forth, the
Transferor may, at its option, convey, transfer and assign to the Agent, on
behalf of Buyer, and the Agent, on behalf of the Buyer, provided that neither
the Termination Date nor a Termination Event shall have occurred, shall accept
such conveyance, transfer and assignment from the Transferor, without recourse
except as provided herein, of undivided percentage interests in the Receivables,
together with Related Security, Collections and Proceeds with respect thereto
(each, an "Incremental
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Transfer"); provided, however, that (a) the amount of any such Incremental
Transfer made to Buyer, shall not exceed the least of the following amounts
after giving effect to such Incremental Transfer, each as determined on the
Business Day prior to the date of such Incremental Transfer: (x) the Facility
Limit minus the Net Investment, (y) the amount of the Eligible Pool Balance
minus the Net Investment, and (z) the aggregate amount of principal receivables
purchases made by Obligors which were not funded pursuant to Section 2.5 (a)(v)
since the date of the last Incremental Transfer, (b) that after giving effect to
the payment to the Transferor of such Transfer Price, no Termination Event shall
have occurred, (c) the representations and warranties set forth in Sections 3.1
and 3.3 hereof shall be true and correct as of the date of any such Incremental
Transfer, (d) the payment to the Transferor of the Transfer Price related
thereto and the Monthly Servicer Report shall have been delivered as required by
Section 2.11 hereof and (e) the Transferor shall have delivered to the Agent on
the date of such Incremental Transfer a certificate in form and substance
satisfactory to the Agent, dated such date certifying that the conditions
specified in the preceding clauses (a) through (d) of this Section 2.2(a) have
been satisfied; provided further, however, that each such Incremental Transfer
other than the initial Incremental Transfer, shall occur only on a Remittance
Date.
(b) The Transferor shall, by notice to the Agent given by 10:00 a.m.
(New York City time) at least two (2) Business Days prior to the proposed date
of any Incremental Transfer by telecopy, offer to convey, transfer and assign to
the Agent, on behalf of Buyer, undivided percentage interests in the Receivables
and the other Affected Assets relating thereto. Each such notice shall specify
(x) the desired Transfer Price (which shall be at least $1,000,000 or integral
multiples of $100,000 in excess thereof) or, to the extent that the then
available unused portion of the Facility Limit is less than such amount, such
lesser amount equal to such available portion of the Facility Limit), (y) the
desired date of such Incremental Transfer and (z) the desired funding period(s)
and allocation of the Net Investment arising in connection with such Incremental
Transfer thereto as required by Section 2.3. The Agent will promptly notify the
Buyer, of the Agent's receipt of any request for an Incremental Transfer to be
made to the Agent on behalf of such Person. Each notice of proposed Transfer
shall be irrevocable and binding on the Transferor and the Transferor shall
indemnify the Buyer against any loss or expense incurred by the Buyer, either
directly or indirectly (including through the Liquidity Provider Agreement) as a
result of any failure by the Transferor to complete such Incremental Transfer,
including, without limitation, any loss or expense incurred by the Buyer, either
directly or indirectly (including pursuant to the Liquidity Provider Agreement)
by reason of the liquidation or reemployment of funds acquired by the Buyer (or
the Liquidity Provider) (including, without limitation, funds obtained by
issuing commercial paper or promissory notes or obtaining deposits as loans from
third parties) for the Buyer to fund such Incremental Transfer.
(c) On the date of the initial Incremental Transfer, the Agent, on
behalf of the Buyer shall deliver written confirmation to the Transferor of the
Transfer Price, the funding period(s) and the Applicable Rate(s) relating to
such Transfer. On the date of
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each subsequent Incremental Transfer, the Agent shall send written confirmation
to the Transferor of the Transfer Price, the funding period(s) and the
Applicable Rate(s) applicable to such Incremental Transfer. Following each
Incremental Transfer, the Buyer shall deposit to the Transferor's account at the
location indicated in Section 11.3 hereof, in immediately available funds, an
amount equal to the Transfer Price for such Incremental Transfer made to the
Buyer.
(d) By no later than 11:00 a.m. (New York City time) on the date of any
Incremental Transfer, the Buyer shall remit the Transfer Price for such
Incremental Transfer to the account of the Agent specified therefor from time to
time by the Agent by notice to such Persons. Following each Incremental Transfer
and the Agent's receipt of funds from the Buyer, the Agent shall remit the
Transfer Price to the Transferor's account at the location indicated in Section
11.3 hereof, in immediately available funds, an amount equal to the Transfer
Price for such Incremental Transfer.
(e) On each Business Day occurring after the initial Incremental
Transfer hereunder and prior to the earlier of the Termination Date and the
occurrence of any Termination Event, the Transferor hereby agrees to convey,
transfer and assign to the Agent, on behalf of the Buyer, and the Agent, on
behalf of the Buyer, shall, agree to purchase from the Transferor undivided
percentage interests in each and every Receivable, together with Related
Security, Collections and Proceeds with respect thereto, to the extent of the
aggregate amount of principal receivables purchases made since the preceding
purchase under this Section 2.2(e), net of purchases made pursuant to Section
2.2(a) hereof since such preceding purchase, such that after giving effect to
such Transfer, no Termination Event or Potential Termination Event shall occur
and the Subordinate Percentage is at least equal to or greater than the Required
Subordinate Percentage.
(f) The Transferor agrees to pay to CAC any portion of the purchase
price for Receivables received by the Transferor hereunder which is due and
owing to CAC for the purchase of such Receivables on the same Business Day as
such price was paid to the Transferor hereunder.
(g) The Transferor hereby grants to the Agent, on behalf of the Buyer
and the other Owners from time to time, a first priority perfected and
continuing security interest in all of the Transferor's right, title and
interest in, to and under the Receivables, together with Related Security,
Collections and Proceeds with respect thereto, and together with all of the
Transferor's rights under the Receivables Purchase Agreement with respect to the
Receivables and with respect to any obligations thereunder of CAC with respect
to the Receivables. This Agreement shall constitute a security agreement under
applicable law. The Transferor hereby assigns to the Agent, on behalf of Buyer
and the other Owners from time to time, all of its rights and remedies under the
Receivables Purchase Agreement with respect to the Receivables and with respect
to any obligations thereunder of CAC with respect to the Receivables.
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SECTION 2.3. Selection of Interest Rates and Collection Periods
(a) Prior to the Termination Date. At all times hereafter, but prior to
the Termination Date, the Transferor may, subject to the Agent's approval and
the limitations described below, request that the Net Investment be allocated
among one or more funding periods, so that the aggregate amounts so allocated at
all times shall equal the Net Investment. The Transferor shall give the Agent
irrevocable notice by telephone of the new requested funding period(s) at least
two (2) Business Days prior to the expiration of any then existing funding
period; provided, however, that the Agent may select, (i) in its sole
discretion, any such new funding period if the Transferor fails to provide such
notice on a timely basis or (ii) any such new funding period if the Agent
determines after consultation and with the consent of the Transferor, that the
funding period requested by the Transferor is unavailable or for any reason
commercially undesirable. The Buyer confirms that it is its intention to fund
all or substantially all of the Net Investment held on its behalf by issuing
Related Commercial Paper; provided that the Buyer may determine, from time to
time, in its reasonable judgment, that funding the Net Investment by means of
Related Commercial Paper is not possible or is not desirable for any reason. In
the case of any funding period outstanding upon the Termination Date, such
funding period shall end on such date.
(b) After the Termination Date; Transferred Interest Held on Behalf of
Buyer. At all times on and after the Termination Date, the Agent shall select
all funding periods and the Alternative Rate shall be applicable to each such
funding period.
SECTION 2.4. [Reserved]
SECTION 2.5. Allocation of Collections. (a) On each Remittance Date,
the Servicer shall apply Collections (including, without limitation, the amount
of Deemed Collections)for the immediately preceding Collection Period in the
following order:
(i) first, to repay any unreimbursed Servicer Advances;
(ii) second, to the payment to the Agent of any accrued and unpaid
Carrying Costs for any preceding Collection Period;
(iii) third, to the Agent for the benefit of the Owners, in reduction
of the Net Investment, any excess of the Net Investment over the amount of
the Eligible Pool Balance as of the last Business Day of the immediately
preceding Collection Period;
(iv) fourth, to the Servicer for any accrued and unpaid Servicing Fees
for any preceding Collection Period;
(v) fifth, to the Transferor to be applied to the purchase of
additional undivided percentage interests in the Receivables pursuant to
Section 2.2(e)
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equal to the aggregate amount of principal receivables purchases made by
Obligors during such Collection Period, minus the amount of purchases made
pursuant to Sections 2.2(a) and 2.2(e) since the preceding Remittance Date;
(vi) sixth, to the Agent in reduction of the Net Investment, until the
Net Investment is reduced to zero;
(vii) seventh, to the Agent, without duplication, in satisfaction of
all other Aggregate Unpaids that are due and owing on such Remittance Date;
and
(viii) eighth, any amounts remaining after application in accordance
with clauses (i) through (vii) above shall be distributed to the
Transferor.
(b) In the event that, on any date, there are not sufficient
Collections to pay the Carrying Costs due and payable on such day, the Servicer,
acting upon written notice from the Agent, shall make an advance in an amount
equal to the shortfall in funds available on such day (each, a "Servicer
Advance") and pay to the Agent, the amount of such advance, provided, that the
Servicer shall not be required to make a Servicer Advance to the extent that it
determines, in its sole discretion, that such advance is unlikely to be
recovered from Collections in subsequent Collection Periods. On each Remittance
Date, the Servicer shall be entitled to reimbursement, without interest, for any
Servicer Advances not previously reimbursed in accordance with Section
2.5(a)(i).
(c) Subject to Section 2.12, the Servicer may apply Collections to pay
Carrying Costs related to the funding of the Net Investment through the issuance
of Related Commercial Paper on any date that such Related Commercial Paper
becomes due and payable.
SECTION 2.6. .[Reserved]
SECTION 2.7. Fees. Notwithstanding any limitation on recourse
contained in this Agreement, the Transferor shall pay the following
non-refundable fees:
(a) On each Remittance Date, to the Agent, for the account of the
Buyer, the Agent and certain other parties, as determined by the Agent, the
Program Fee accrued during the related Collection Period and to the extent not
paid on or prior to such Remittance Date pursuant to Section 2.5(a)(ii).
(b) On the date of execution hereof, to the Agent solely for its own
account, the Arrangement Fee.
SECTION 2.8. Protecton of Transferred Interest of the Owners. (a)
The Transferor agrees that it will from time to time, at its expense,
promptly execute and deliver all instruments and documents and take all actions
as may be required by law or as the Agent may reasonably request in order to
perfect or protect
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the Transferred Interest or to enable the Agent, the Buyer or any other Owner to
exercise or enforce any of their respective rights hereunder. Without limiting
the foregoing, the Transferor will upon the request of the Agent, the Buyer or
any of the other Owners, in order to accurately reflect the Transfers hereunder
and the Transferred Interest, (x) execute and file such financing or
continuation statements or amendments thereto or assignments thereof (as
permitted pursuant to Section 9.9 hereof) as may be reasonably requested by the
Agent, the Buyer or any of the other Owners and (y) mark its respective master
data processing records and other documents with a legend describing the
conveyance to the Agent, for the benefit of the Buyer and other Owners, of the
Transferred Interest. The Transferor shall obtain such additional search reports
as the Agent, the Buyer or any of the other Owners shall reasonably request. To
the fullest extent permitted by applicable law, the Agent shall be permitted to
sign and file continuation statements and amendments thereto and assignments
thereof without the Transferor's signature. Carbon, photographic or other
reproduction of this Agreement or any financing statement shall be sufficient as
a financing statement. The Transferor shall not change its respective name,
identity or corporate structure (within the meaning of Section 9-402(7) of the
UCC as in effect in the States of New York, Georgia and Nevada) nor relocate its
respective chief executive office or any office where Records are kept unless it
shall have: (i) given the Agent at least thirty (30) days prior notice thereof
and (ii) prepared at Transferor's expense and delivered to the Agent all
financing statements, instruments and other documents necessary to preserve and
protect the Transferred Interest or requested by the Agent in connection with
such change or relocation. Any filings under the UCC or otherwise that are
occasioned by such change in name or location shall be made at the expense of
Transferor.
(b) On the Closing Date, the Transferor agrees to deliver or to cause
the Servicer to deliver to the Agent a computer file or microfiche list
containing a true and complete list of all Accounts, identified by account
number and by Receivable balance as of the Cut-Off Date. Such file or list shall
be marked as the Account Schedule delivered to the Agent as confidential and
proprietary, and is hereby incorporated into and made a part of this Agreement.
The Transferor agrees to deliver or to cause the Servicer to deliver to the
Agent within five (5) Business Days of the request therefor by the Agent a
computer file or microfiche list containing a true and complete list of all
Accounts, including all Accounts created on or after the Cut-Off Date, in
existence as of the last day of the prior Collection Period, identified by
account number and by Receivable balance as of the last day of the prior
Collection Period. Such file or list shall be marked as the Account Schedule
delivered to the agent as confidential and proprietary, shall replace the
previous Account Schedule delivered to the Agent and shall be incorporated into
and made a part of this Agreement. The Servicer agrees, at its own expense, by
the end of each Collection Period in which any Accounts or Related Accounts have
been originated, to indicate clearly and unambiguously in its master data
processing records that the Receivables created in connection with such Accounts
have been conveyed to the Transferor and transferred
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to the Agent, for the benefit of the Buyer and the other Owners, pursuant to
this Agreement.
SECTION 2.9. Deemed Collections Application of Payments. (a) If (i) the
Servicer makes a deposit into the Collection Account in respect of a Collection
of a Receivable and such Collection was received by the Servicer in the form of
a check which is not honored for any reason or (ii) the Servicer makes a mistake
with respect to the amount of any Collection and deposits an amount that is less
than or more than the actual amount of such Collection, the Servicer shall
appropriately adjust the amount subsequently deposited into the Collection
Account to reflect such dishonored check or mistake. Any Receivable in respect
of which a dishonored check is received shall be deemed not to have been paid.
Notwithstanding the first two sentences of this paragraph, adjustments made
pursuant to this Section shall not require any changes in any report previously
delivered pursuant to Section 2.11.
(b) If the Servicer adjusts downward the amount of any Receivable
because of a rebate, refund, unauthorized charge or billing error to a
cardholder, because such Receivable was created in respect of merchandise which
was refused or returned by a cardholder, or if the Servicer otherwise adjusts
downward the amount of any Receivable without receiving Collections therefor or
charging off such amount as uncollectible, then, in any such case, the amount of
Principal Receivables used to calculate the Transferor's Interest and (unless
otherwise specified) any other amount required herein to be calculated by
reference to the amount of Principal Receivables, will be reduced by the amount
of the adjustment. Similarly, the amount of Principal Receivables used to
calculate the Transferor's Interest and (unless otherwise specified) any other
amount required herein to be calculated by reference to the amount of Principal
Receivables will be reduced by the principal amount of any Receivable which was
discovered as having been created through a fraudulent or counterfeit charge or
with respect to which the covenant contained in subsection 5.1(j) was breached.
Any adjustment required pursuant to either of the two preceding sentences shall
be made on or prior to the end of the Collection Period in which such adjustment
obligation arises. In the event that, following the exclusion of such Principal
Receivables from the calculation of the Subordinate Percentage, the Subordinate
Percentage would be less than the Required Subordinate Percentage, not later
than seven days after such adjustment, the Transferor shall make a deposit into
the Collection Account in immediately available funds in an amount equal to such
adjustment.
(c) (i) If on any day any of the representations or warranties in
Article III (except for the representations and warranties in Sections 3.1(l)
and 3.3(f)) was or becomes untrue with respect to a Receivable (whether on or
after the date of any transfer of an interest therein to the Agent or the Buyer
as contemplated hereunder), the Transferor shall be deemed to have received on
such day a Collection of such Receivable in full and the Transferor shall on
such day make a deposit into the Collection Account in immediately available
funds in an amount equal to the amount of such Receivable, to be applied as
Collections in accordance with Section 2.5 hereof.
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(ii) If any Account for which a Credit Card (as defined in the
Sale and Purchase Agreement) is in effect shall not constitute an Eligible
Account as of the Cut-Off Date, (x) the Transferor shall be deemed to have
received on such day a Collection in respect of such Account in an amount
specified in the following clause (y) and (y) the Transferor shall make a
deposit into the Collection Account in immediately available funds in an amount
equal to the amount received by the Transferor pursuant to the Sale and Purchase
Agreement in respect of such Account, when such amount is received by the
Transferor or CAC, as the case may be, or within 2 Business Days after receipt
by the Account Owner, in each case pursuant to the Sale and Purchase Agreement,
to be applied as Collections in accordance with Section 2.5 hereof.
(iii) If on any day any Receivable related to an Account
governed by the terms of a Credit Card Agreement (other than the Credit Card
Agreement entered into with the Original Seller) is not an Eligible Receivable
or a Defaulted Receivable, (x) the Transferor shall be deemed to have received
on the date on which it is determined that such Receivable is not an Eligible
Receivable or Defaulted Receivable a Collection of such Receivable in full and
(y) the Transferor shall make a deposit into the Collection Account in
immediately available funds in the amount of such Receivable, to be applied as
Collections in accordance with Section 2.5 hereof.
(d) In the event that the Transferor is unable for any reason to
transfer Receivables to the Agent in accordance with the provisions of this
Agreement, including by reason of any order of any Governmental Authority (a
"Transfer Restriction Event"), then, in any such event, (a) the Transferor and
the Servicer agree (except as prohibited by any such order) to allocate and pay
to the Agent, after the date of such inability, all Collections, including
Collections of Receivables transferred to the Agent prior to the occurrence of
such event, and all amounts which would have constituted Collections but for the
Transferor's inability to transfer Receivables (up to an aggregate amount equal
to the amount of Receivables transferred to the Agent by the Transferor up to
the Transferred Interest on such date), (b) the Transferor and the Servicer
agree that such amounts will be applied as Collections in accordance with
Article II and (c) for so long as the allocation and application of all
Collections and all amounts that would have constituted Collections are made in
accordance with clauses (a) and (b) above, Principal Receivables and all amounts
which would have constituted Principal Receivables but for the Transferor's
inability to transfer Receivables to the Agent which are written off as
uncollectible in accordance with this Agreement shall continue to be allocated
in accordance with Article II. For the purpose of the immediately preceding
sentence, the Transferor and the Servicer shall treat the first received
Collections with respect to the Accounts as allocable to the Agent until the
Agent shall have been allocated and paid Collections in an amount equal to the
aggregate amount of Principal Receivables up to the Transferred Interest as of
the date of the occurrence of such event. If Transferor and the Servicer are
unable pursuant to any requirements of law to allocate Collections as described
above, the Transferor and the Servicer agree that, after the occurrence of such
event, payments on each Account with respect to the
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principal balance of such Account shall be allocated first to the oldest
principal balance of such Account and shall have such payments applied as
Collections in accordance with Article II. The parties hereto agree that Finance
Charge Receivables, whenever created and accrued in respect of Principal
Receivables which have been conveyed to the Agent shall continue to be a part of
the Transferred Interest notwithstanding any cessation of the transfer of
additional Principal Receivables to the Agent and Collections with respect
thereto shall continue to be allocated and paid in accordance with Article II.
SECTION 2.10. Payments and Computations, Etc. All amounts to be paid or
deposited by the Transferor or the Servicer hereunder shall be paid or deposited
in accordance with the terms hereof no later than 4:00 p.m. (New York City time)
on the day when due in immediately available funds; if such amounts are payable
to the Agent (whether on behalf of the Buyer or any other Owner or otherwise)
they shall be paid or deposited in the account of the Agent indicated in Section
11.3 hereof, until otherwise notified by the Agent. The Transferor shall, to the
extent permitted by law, pay to the Agent, for the benefit of the Buyer and the
other Owners upon demand, interest on all amounts not paid or deposited when due
hereunder at a rate equal to 2% per annum plus the Base Rate. All computations
of interest and all per annum fees hereunder shall be made on the basis of a
year of 360 days for the actual number of days (including the first but
excluding the last day) elapsed. Any computations by the Agent of amounts
payable by the Transferor hereunder shall be binding upon the Transferor absent
manifest error.
SECTION 2.11. Reports. (a) Reports and Records for the Agent.
(i) Daily Records. On each Business Day, the Servicer shall
make or cause to be made available at the office of the Servicer for inspection
by the Agent upon request a record setting forth (i) the Collections in respect
of Principal Receivables and in respect of Finance Charge Receivables processed
by the Servicer on the second preceding Business Day in respect of each Account
and (ii) the amount of Receivables as of the close of business on the second
preceding Business Day in each Account. The Servicer shall, at all times,
maintain its computer files with respect to the Accounts in such a manner so
that the Accounts may be specifically identified and shall make available to the
Agent at the office of the Servicer on any Business Day any computer programs
necessary to make such identification.
(ii) Monthly Servicer Report. Not later than the second
Business Day preceding each Remittance Date, the Servicer shall deliver to the
Agent a Monthly Servicer's Report signed by a Servicing Officer in substantially
the form of Exhibit E hereto.
(b) Quarterly Certificate. The Servicer shall deliver, or the
Transferor shall cause the Servicer to deliver, to the Agent within fifteen (15)
days after the end of each calendar quarter of each calendar year, beginning
with the calendar quarter
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ending June 30, 1998, an Officer's Certificate stating that (a) a review of the
activities of the Servicer during the preceding calendar quarter (or such
shorter period as may have elapsed since the Closing Date), and of its
performance under this Agreement was made under the supervision of the officer
signing such certificate and (b) to the best of such officer's knowledge, based
on such review, the Servicer has fully performed all of its obligations under
this Agreement throughout such quarter (or such shorter period as may have
elapsed since the Closing Date), or, if there has occurred an event which, with
the giving of notice or passage of time or both, would constitute a Termination
Event or Servicer Default, specifying each such event known to such officer, the
nature and status thereof and the actions which the Transferor or the Servicer,
as the case may be, proposes to take with respect thereto.
(c) Semi-Annual Servicing Report of Independent Public Accountants. On
or before October 15 of each year, for the period from January 1 through June 30
for such year, and on or before April 15 of each year, for the period from July
1 through December 31, beginning with October 15, 1999 (for the period from the
Closing Date through June 30, 1999), the Servicer shall cause a firm of
nationally recognized independent public accountants (who may also render other
services to the Servicer or the Transferor) to furnish a report to the Agent to
the effect that such firm has applied the procedures and made the examinations
set forth in Exhibit D hereto.
SECTION 2.12 Colection Account. There shall be established on the day
of the initial Incremental Transfer hereunder and maintained with NationsBank,
N.A., a segregated account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the benefit of
the Agent, on behalf of the Buyer and the Owners, provided, however, that if at
any time the short-term debt rating of NationsBank, N.A. shall be lower than
"A-1+" or "P-1" by Standard & Poor's or Moody's, respectively, the Servicer
shall instruct NationsBank, N.A. to transfer such Collection Account and all
funds deposited therein into a new account that it will establish and maintain
in the name of the Agent, on behalf of the Buyer and the other Owners, which
shall be a fully segregated account with the trust department bearing a
designation clearly indicating that the funds deposited therein are held in
trust for the benefit of the Agent, on behalf of the Buyer and the other Owners.
The Servicer and the Transferor shall remit or cause to be remitted daily within
two Business Days of receipt to the Collection Account all Collections received
with respect to any Receivables; provided, however, prior to the date of the
Conversion, the Servicer and Transferor shall remit daily within two Business
Days of receipt to the Collection Account all Collections received with respect
to any Receivables less the aggregate amount of principal receivables purchases
made hereunder since the last day on which Collections were remitted to the
Collection Account. Funds on deposit in the Collection Account (other than
investment earnings) shall be invested by the Agent in Eligible Investments that
will mature so that such funds will be available on the Business Day preceding
the Remittance Date following such investment. All interest and earnings (net of
losses and investment expenses) on funds on deposit in the Collection Account
shall be retained in the Collection Account and be available to make any
payments
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required to be made pursuant to Section 2.5(a). Notwithstanding the foregoing,
so long as (i) no Termination Event or Potential Termination Event shall have
occurred and be continuing and (ii) the amount of the Eligible Pool Balance
shall exceed the Net Investment as of the last day of the most recent Collection
Period, the Servicer shall be entitled to withdraw any Collections held in the
Collection Account in excess of the amount estimated by the Servicer to accrue
during such Collection Period for Carrying Costs; provided, that, within two
Business Days after the first such withdrawal of every calendar month, the
Servicer shall deliver to the agent a statement in the form of Exhibit C hereto;
provided further, however, that the Servicer may withdraw Collections during any
Collection Period only to the extent such withdrawn amounts are applied (a) to
pay Carrying Costs or to reduce the Net Investment during such Collection
Period, (b) to make purchases pursuant to Section 2.2(e) during such Collection
Period or (c) in respect of amounts which would otherwise be distributed on the
related Remittance Date pursuant to Section 2.5(a)(i) or 2.5(a)(iv). Any such
amounts withdrawn from the Collection Account during the preceding Collection
Period shall be deemed to have been applied in accordance with Section 2.5(a).
Any amounts withdrawn pursuant to clause (c) above in respect of Section
2.5(a)(iv) shall be based on the Servicer's reasonable estimation of the
Servicing Fees for the applicable Collection Period and in any event shall not
exceed the amount received by the Servicer in respect of Servicing Fees for the
immediately preceding Collection Period. On the Business Day preceding the
Remittance Date, the Servicer shall remit to the Collection Account the excess,
if any, of (i) the amount withdrawn pursuant to clause (c) above in respect of
Section 2.5(a)(iv) over (ii) the Servicing Fees for the immediately preceding
Collection Period.
SECTION 2.13.Sharing of Payments. Etc. If any Owner (for purposes of
this Section 2.13 only, being a "Recipient") shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of a Transferred Interest owned by it (other than pursuant
to Section 2.7, or Article VIII and other than as a result of the differences in
the timing of the applications of Collections pursuant to Section 2.5) in excess
of its ratable share of payments on account of the Transferred Interest obtained
by the Owners entitled thereto, such Recipient shall forthwith purchase from the
other Owners entitled to a share of such amount of the Transferred Interest
owned by such Persons hereunder as shall be necessary to cause such Recipient to
share the excess payment with each such other Person entitled thereto; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such Recipient, such purchase from each such other Person shall
be rescinded and each such other Person shall repay to the Recipient the
purchase price paid by such Recipient for such amount to the extent of such
recovery, together with an amount equal to such other Person's share (according
to the proportion of (a) the amount of such other Person's required payment to
(b) the total amount so recovered from the Recipient) of any interest or other
amount paid or payable by the Recipient in respect of the total amount so
recovered.
SECTION 2.14. Defaulted Receivables. On the date when any Receivable in
an Account becomes a Defaulted Receivable, the Agent shall
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automatically and without further action or consideration transfer, set over and
otherwise convey to the Transferor with respect to such Account, without
recourse, representation or warranty, all right, title and interest of the Agent
in and to the Defaulted Receivables in such Account, all monies due or to become
due with respect thereto, all Proceeds thereof and any Insurance Proceeds
relating thereto; provided, that Recoveries of such Account shall remain
property of the Agent and be applied as provided herein.
SECTION 2.15. Optional Amortization. On any day prior to the occurrence
of a Termination Event, the Transferor may in its sole discretion cause the
Servicer to provide written notice to the Agent (an "Optional Amortization
Notice") at least five Business Days prior to any Business Day that is the last
day of a Collection Period stating its intention to cause a full amortization of
the Net Investment on the following Remittance Date (the "Optional Amortization
Date") in an amount equal to the sum of (a) the Net Investment and (b) all
Aggregate Unpaids on such Optional Amortization Date (the "Optional Amortization
Amount"). The Optional Amortization Notice shall state the Optional Amortization
Date and the allocation of the Optional Amortization Amount among the various
outstanding funding periods that mature on such Optional Amortization Date. The
Optional Amortization Amount shall be paid from any Collections on deposit in
the Collection Account or from the proceeds of the issuance of one or more
interests in the Transferred Interest issued substantially contemporaneously
with such full amortization (or any combination of the above).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Transferor. As of
the Closing Date, each Remittance Date and the date of each Incremental Transfer
hereunder, the Transferor represents and warrants to the Agent, the Buyer and
the other Owners that:
(a) Corporate Existence and Power. The Transferor is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted. The
Transferor is duly qualified to do business in, and is in good standing (or is
exempt from such requirement), in every other jurisdiction in which the nature
of its business requires it to be so qualified, except where the failure to be
so qualified or in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by the Transferor of this Agreement, the
Receivables Purchase Agreement, the Fee Letter and the other Transaction
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Documents to which the Transferor is a party are within the Transferor's
corporate powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any Governmental
Authority or official thereof (except as contemplated by Section 2.8 hereof),
and do not contravene, or constitute a default under, any provision of
applicable law, rule or regulation or of the Certificate of Incorporation or
Bylaws of the Transferor or of any agreement, judgment, injunction, order, writ,
decree or other instrument binding upon the Transferor or result in the creation
or imposition of any Adverse Claim on the assets of the Transferor (except as
contemplated by Section 2.8 hereof).
(c) Binding Effect. Each of this Agreement, the Receivables Purchase
Agreement, the Fee Letter, and the other Transaction Documents to which the
Transferor is a party constitutes the legal, valid and binding obligation of the
Transferor, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally.
(d) Perfection. Immediately preceding each Transfer hereunder, the
Transferor shall be the owner of all of the Receivables, free and clear of all
Adverse Claims. On or prior to each Transfer, all financing statements and other
documents required to be recorded or filed in order to perfect and protect the
Agent's Transferred Interest against all creditors of and purchasers from the
Transferor will have been duly filed in each filing office necessary for such
purpose and all filing fees and taxes, if any, payable in connection with such
filings shall have been paid in full.
(e) Accuracy of Information. All information heretofore furnished by
the Transferor (including without limitation, the Monthly Servicer Reports,
Account Schedule, any reports delivered pursuant to Section 2.11 hereof and the
Transferor's financial statements) to the Buyer, any other Owner, the Agent or
the Administrative Agent for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all such information hereafter
furnished by the Transferor to the Buyer, any other Owner, the Agent or the
Administrative Agent will be, true and accurate in every material respect, on
the date such information is stated or certified.
(f) Tax Status. The Transferor has filed all tax returns (federal,
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other governmental charges other
than taxes, assessments and other governmental charges being contested in good
faith, and for which adequate reserves have been set aside on the books of the
Transferor.
(g) Action, Suits. Except as set forth in Exhibit H hereof, there are
no actions, suits or proceedings pending, or to the knowledge of the Transferor
threatened, against or affecting the Transferor or any Affiliate of the
Transferor or their respective properties, in or before any court, arbitrator or
other body, which may, individually or in the aggregate, have a Material Adverse
Effect.
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(h) Use of Proceeds. No proceeds of any Transfer will be used by the
Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and chief
executive office of the Transferor are located at the address of the Transferor
indicated in Section 11.3 hereof.
(j) Good Title. Upon each Transfer, the Agent shall acquire a valid and
perfected first priority undivided percentage interest to the extent of the
Transferred Interest or a first priority perfected security interest in each
Receivable that exists on the date of such Transfer and in the Related Security,
Collections and Proceeds with respect thereto free and clear of any Adverse
Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the Transferor has only
the subsidiaries and divisions listed on Exhibit J hereto; and (ii) the
Transferor has, within the last five (5) years, operated only under the
tradenames identified in Exhibit J hereto, and, within the last five (5) years,
has not changed its name, merged with or into or consolidated with any other
corporation or been the subject of any proceeding under Title 11, United States
Code (the "Bankruptcy Code"), except as disclosed in Exhibit J hereto.
(l) Nature of Receivables. Each Receivable (x) represented by the
Transferor or the Servicer to be an Eligible Receivable (including in any
Monthly Servicer Report or other report delivered pursuant to Section 2.11
hereof) or (y) included in the calculation of Principal Receivables in fact
satisfies at such time the definition of "Eligible Receivable" set forth herein
and, in the case of clause (y) above, is not a Receivable of the type excluded
from the definition of "Principal Receivables."
(m) Coverage Requirement; Amount of Receivables. The Subordinate
Percentage as of the most recent calculation date is not less than the Required
Subordinate Percentage.
(n) Credit Card Guidelines. Since November 1, 1998, there have been no
material changes in the Credit Card Guidelines other than as permitted
hereunder.
(o) No Termination Event. No event has occurred and is continuing and
no condition exists which constitutes a Termination Event or a Potential
Termination Event.
(p) Not an Investment Company. The Transferor is not, and is not
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
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(q) ERISA. Each of the Transferor and its ERISA Affiliates is in
compliance in all material respects with ERISA and no lien exists in favor of
the PBGC on any of the Receivables.
(r) Bulk Sales. No transaction contemplated hereby or by the
Receivables Purchase Agreement requires compliance with any bulk sales act or
similar law.
(s) Transfers Under Receivables Purchase Agreement. Each Receivable
which has been transferred to the Transferor by CAC has been purchased by the
Transferor from CAC pursuant to, and in accordance with, the terms of the
Receivables Purchase Agreement, by CAC from CB&T pursuant to the Initial
Purchase Agreement and, to the extent applicable, by CB&T from the Original
Seller under the Sale and Purchase Agreement.
(t) Preference; Voidability. The Transferor shall have given reasonably
equivalent value to CAC in consideration for the transfer to the Transferor of
the Receivables and Related Security from CAC, and each such transfer shall not
have been made for or on account of an antecedent debt owed by CAC to the
Transferor and no such transfer is or may be voidable under any Section of the
Bankruptcy Reform Act of 1978 (11 U.S.C. Sections 101 et seq.), as amended.
(u) Representations and Warranties of the Transferor. Each of the
representations and warranties of the Transferor set forth in the Receivables
Purchase Agreement is true and correct in all material respects and the
Transferor hereby remakes all such representations and warranties for the
benefit of the Agent, the Buyer, each other Owner and the Administrative Agent.
(v) Notice of Breach. The representations and warranties set forth in
this Section 3.1 shall survive the transfers and assignments of the Receivables.
Upon discovery by the Transferor, the Servicer or the Agent of a breach of any
of the representations and warranties set forth in this Section 3.1, the party
discovering such breach shall give prompt written notice thereof to the other
parties within three Business Days following such discovery, provided that the
failure to give notice within three Business Days does not preclude subsequent
notice.
(w) Notice of Events Having a Material Adverse Effect. The Transferor
shall advise the Agent promptly, in reasonable detail, of the occurrence of any
event, other than as described in Section 3.1(v) or Section 5.1(l), which would
have a material adverse effect on the Agent's, Buyer's or any other Owner's
interest in the Receivables or the collectibility thereof.
(x) Notice of Amendments to Affinity Card Agreement and Facilities
Management Agreement. The Transferor shall deliver to the Agent promptly copies
of all changes or amendments to the Affinity Card Agreement and the Facilities
Management Agreement.
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SECTION 3.2. [Reserved]
SECTION 3.3. Representations and Warranties of the Servicer. As of the
Closing Date, the Servicer represents and warrants to the Agent, the Buyer and
the other Owners that:
(a) Corporate Existence and Power. The Servicer is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted. The
Servicer is duly qualified to do business in, and is in good standing (or is
exempt from such requirement), in every other jurisdiction in which the nature
of its business requires it to be so qualified, except where the failure to be
so qualified or in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by the Servicer of this Agreement are within
the Servicer's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
Governmental Authority or official thereof, and do not contravene, conflict
with, or constitute a default under, any provision of applicable law, rule or
regulation or of the Certificate of Incorporation or Bylaws of the Servicer or
of any agreement, judgment, injunction, order, writ, decree or other instrument
binding upon the Servicer or result in the creation or imposition of any Adverse
Claim on the assets of the Servicer or any of its Subsidiaries.
(c) Binding Effect. This Agreement and each other Transaction Document
to which the Servicer is a party constitute the legal, valid and binding
obligations of the Servicer, enforceable against the Servicer in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors.
(d) Accuracy of Information. All information heretofore furnished by
the Servicer to the Agent, the Buyer, any other Owner or the Administrative
Agent for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Servicer to the Agent, the Buyer, any other Owner or the Administrative Agent
will be, true, accurate and complete in every material respect, on the date such
information is stated or certified.
(e) Action, Suits. Except as set forth in Exhibit H, there are no
actions, suits or proceedings pending, or to the knowledge of the Servicer
threatened, against or affecting the Servicer or any Affiliate of the Servicer
or their respective properties, in or before any court, arbitrator or other
body, which may, individually or in the aggregate, have a Material Adverse
Effect.
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(f) Nature of Receivables. Each Receivable included in the calculation
of Principal Receivables in fact satisfies at such time the definition of
"Eligible Receivable" and is not a Receivable excluded from the definition of
"Principal Receivables".
(g) Amount of Receivables. As of November 6, 1998, the aggregate amount
of Receivables was approximately *[material omitted].
(h) Credit Card Guidelines. Since November __, 1998, there have been no
material changes in the Credit Card Guidelines other than as permitted
hereunder.
(i) Collections and Servicing. Since November 1, 1998, there has been
no material adverse change in the ability of the Servicer or Sub-Servicer to
service and collect the Receivables.
(j) Not an Investment Company. The Servicer is not, and is not
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(k) No Conflict. The execution and delivery of this Agreement by the
Servicer, and the performance of the transactions contemplated by this Agreement
and the fulfillment of the terms hereof and thereof applicable to the Servicer,
will not conflict with, violate or result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a material default under, any indenture, contract, agreement, mortgage,
deed of trust or other instrument to which the Servicer is a party or by which
it or its properties are bound.
(l) All Consents. All authorizations, consents, orders or approvals of
or registrations or declarations with any Governmental Authority required to be
obtained, effected or given by the Servicer in connection with the execution and
delivery of this Agreement by the Servicer and the performance of the
transactions contemplated by this Agreement by the Servicer, have been duly
obtained, effected or given and are in full force and effect.
(m) Tax Status. The Servicer has filed all tax returns (federal, state
and local) required to be filed and has paid or made adequate provision for the
payment of all taxes, assessments and other governmental charges, other than
taxes, assessments and other governmental charges being contested in good faith.
(n) ERISA. The Servicer is in compliance in all material respects with
ERISA.
SECTION 3.4. Reaffirmation of Representation and Warranties by the
Servicer. On each Remittance Date and on the date of each Incremental Transfer
made hereunder, the Servicer shall be deemed to have certified that all
representations
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 of the Securities Act
of 1933.
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and warranties described in Section 3.3 hereof are correct on and as of such day
as though made on and as of such date.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1 Conditions to Closing. On or prior to the Closing Date, the
sales of Accounts and initial Receivables under the Sale and Purchase Agreement,
and the sale of Receivables under the Initial Purchase Agreement and Receivables
Purchase Agreement shall have been consummated and the Transferor shall deliver
to the Agent the following documents and instruments and pay the following fees,
all of which shall be in form and substance acceptable to the Agent:
(a) A copy of the resolutions of the Board of Directors of the
Transferor certified by its Secretary approving the execution, delivery and
performance by the Transferor of this Agreement, the Receivables Purchase
Agreement and the other Transaction Documents to be delivered by the Transferor
hereunder or thereunder.
(b) A copy of the resolutions of the Board of Directors of each of CAC
and CompuCredit certified by its Secretary approving the execution, delivery and
performance by it of this Agreement and the other Transaction Documents to which
it is a party to be delivered by it hereunder or thereunder.
(c) The Articles of Incorporation of the Transferor certified by the
Secretary of State or other similar official of the Transferor's jurisdiction of
incorporation dated a date reasonably prior to the Closing Date.
(d) The Articles of Incorporation of each of CAC and CompuCredit
certified by the Secretary of State or other similar official of its
jurisdiction of incorporation dated a date reasonably prior to the Closing Date.
(e) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement and the other Transaction Documents, in each case, dated a date
reasonably prior to the Closing Date.
(f) A Good Standing Certificate for the each of CAC and CompuCredit
issued by the Secretary of State or a similar official of its jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction when
such qualification is material to the transactions contemplated by this
Agreement and the Receivables Purchase
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Agreement and the other Transaction Documents, in each case, dated a date
reasonably prior to the Closing Date.
(g) A Certificate of the Secretary of the Transferor substantially in
the form requested by the Agent.
(h) A Certificate of the Secretary of CompuCredit substantially in the
form requested by the Agent.
(i) Copies of proper financing statements (Form UCC-1), dated a date
reasonably near to the date of the initial Incremental Transfer naming the
Transferor as the debtor in favor of the Agent, for the benefit of the Buyer and
the other Owners, as secured party or other similar instruments or documents as
may be necessary or in the reasonable opinion of the Agent desirable under the
UCC of all appropriate jurisdictions or any comparable law to perfect the
Agent's undivided percentage interest in all Receivables and the Related
Security, Collections and Proceeds relating thereto.
(j) Copies of proper financing statements (Form UCC-1), dated a date
reasonably near to the date of the initial Incremental Transfer naming (i) CAC
as the debtor in favor of the Transferor as secured party and the Agent, for the
benefit of the Buyer and the other Owners, as assignee of the secured party,
(ii) CB&T as the debtor in favor of CAC as secured party and (iii) the Original
Seller as the debtor and CB&T as secured party, or other similar instruments or
documents as may be necessary or in the reasonable opinion of the Agent
desirable under the UCC of all appropriate jurisdictions or any comparable law
to perfect the Transferor's interest in all Receivables.
(k) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of any person in
Accounts or Receivables previously granted.
(l) Certified copies of request for information or copies (Form UCC-11)
(or a similar search report certified by parties acceptable to the Agent) dated
a date reasonably near the date of the initial Incremental Transfer listing all
effective financing statements which name CB&T, CAC or the Transferor (under
their respective present names and any previous names) as debtor and which are
filed in jurisdictions in which the filings were made pursuant to items (i) or
(j) above together with copies of such financing statements (none of which shall
cover any Receivables or Accounts).
(m) An opinion of Orrick, Herrington & Sutcliffe LLP and Jones, Day,
Reavis & Pogue, counsel to the Transferor, the Servicer and CAC, covering the
matters requested by the Agent.
(n) An opinion of Orrick, Herrington & Sutcliffe LLP, counsel to the
Transferor and CAC, covering certain bankruptcy and insolvency matters (i.e.
"true sale" and nonconsolidation) in form and substance satisfactory to the
Agent and Agent's counsel.
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(o) The Account Schedule, consisting of a computer tape setting forth
all Receivables and the Principal Receivables thereon as of the Cut-Off Date and
such other information as the Agent may reasonably request.
(p) An executed copy, including exhibits and opinions thereto, of this
Agreement, the Initial Purchase Agreement, the Receivables Purchase Agreement,
the Fee Letter and each of the other Transaction Documents.
(q) The Arrangement Fee in accordance with Section 2.7(b).
(r) A summary of daily net settlements to the extent provided by the
Original Seller for the period from November 7, 1998 through the Closing Date.
(s) Evidence of the appointment of CT Corporation as agent for process
as required by Section 11.4 hereof.
(t) An executed copy of the CB&T Agreement.
(u) Copies of all documents relating to the servicing of Accounts,
including all fee schedules and exhibits.
(v) An executed copy of the Fee Letter.
(w) The form of Credit Card Agreement currently in effect.
(x) A copy of the Credit Card Guidelines.
ARTICLE V
COVENANTS
SECTION 5.1 Affirmative covenants of Transferor. At all times from the
date hereof to the later to occur of (i) the Termination Date or (ii) the date
on which the Net Investment has been reduced to zero, all Carrying Costs and all
other Aggregate Unpaids shall have been paid in full, in cash, unless the Agent
shall otherwise consent in writing:
(a) Financial Reporting. The Transferor will maintain a system of
accounting established and administered in accordance with GAAP, and furnish to
the Agent:
(i) Annual Reporting. Within one hundred and five (105) days
after the close of the Transferor's fiscal years, beginning with the fiscal year
ending in 1998, unaudited financial statements, prepared in accordance with GAAP
for the Transferor, including balance sheets (but excluding financial footnotes,
except for footnotes regarding accounting policies and procedures) as of the end
of such period,
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related statements of operations, shareholder's equity and cash flows, and
accompanied by a certificate of the chief financial officer or chairman,
president, treasurer or any executive vice president of the Transferor, stating
that no Termination Event or Potential Termination Event exists, or if any
Termination Event or Potential Termination Event exists, stating the nature and
status thereof.
(ii) Quarterly Reporting. Within sixty (60) days after the
close of the first three quarterly periods of the Transferor's fiscal years,
unaudited balance sheets, excluding financial footnotes, as at the close of each
such period and related statements of operations, shareholder's equity and cash
flows for the period from the beginning of such fiscal year to the end of such
quarter, all certified by its chief financial officer.
(iii) Compliance Certificate. Together with the financial
statements required hereunder, a compliance certificate signed by the
Transferor's chief financial officer stating that (x) the attached financial
statements (except for the financial footnotes excluded as described above) have
been prepared in accordance with GAAP and, to the best of such Person's
knowledge, accurately reflect the financial condition of the Transferor and (y)
to the best of such Person's knowledge, no Termination Event or Potential
Termination Event exists, or if any Termination Event or Potential Termination
Event exists, stating the nature and status thereof.
(iv) Shareholders Statements and Reports. Promptly upon the
furnishing thereof to the shareholders of the Transferor, copies of all
financial statements, reports and proxy statements so furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof, copies
of all registration statements and annual, quarterly, monthly or other regular
reports which the Transferor files with the Securities Exchange Commission.
(vi) Notice of Termination Events or Potential Termination
Events. As soon as possible and in any event within two (2) days after the
occurrence of each Termination Event or each Potential Termination Event, a
statement of the chief financial officer or chief accounting officer of the
Transferor setting forth details of such Termination Event or Potential
Termination Event and the action which the Transferor proposes to take with
respect thereto.
(vii) ERISA. Promptly after the filing or receiving thereof,
copies of all reports and notices with respect to any Reportable Event (as
defined in Article IV of ERISA) which the Transferor or any ERISA Affiliate
thereof, files under ERISA with the Internal Revenue Service, the PBGC or the
U.S. Department of Labor or which the Transferor or any ERISA Affiliates
thereof, receive from the Internal Revenue Service, the PGBC or the U.S.
Department of Labor.
(viii) Notices under Transaction Documents. Promptly after its
receipt thereof, copies of all notices, amendments and waivers given to the
Transferor
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by CB&T, CompuCredit or CAC under or pursuant to any of the Transaction
Documents.
(ix) Other Information. Such other information (including
non-financial information) as the Agent may from time to time reasonably request
(as can reasonably be obtained by the Transferor).
(b) Conduct of Business. The Transferor will carry on and conduct its
business in substantially the same manner and in substantially the same fields
of enterprise as it is presently conducted and do all things necessary to remain
duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted.
(c) Compliance with Laws. The Transferor will comply with all laws,
rules, regulations, orders, writs, judgments, injunctions, decrees or awards to
which it or its respective properties may be subject.
(d) Furnishing of Information and Inspection of Records. The Transferor
will furnish to the Agent from time to time such information with respect to the
Receivables as the Agent may reasonably request, including, without limitation,
listings identifying the Principal Receivables for each Receivable. The
Transferor will, at any time and from time to time during regular business hours
permit the Agent, or its agents or representatives, at the Transferor's expense
(i) to examine and make copies of and take abstracts from all Records and (ii)
to visit the offices and properties of the Transferor for the purpose of
examining such Records, and to discuss matters relating to Receivables or the
Transferor's performance hereunder and under the other Transaction Documents to
which such Person is a party with any of the officers, directors, employees or
independent public accountants of the Transferor having knowledge of such
matters. In addition, the Transferor shall (x) use its best efforts to permit
the Agent to have access to the premises and employees of Novus Services, Inc.,
as servicer under the Interim Servicing Agreement, for the purpose of obtaining
such information with respect to the Receivables as the Agent shall reasonably
request and (y) if access cannot be obtained, as referred to in clause (x)
above, if requested by the Agent, the Transferor shall exercise its rights under
the Receivables Purchase Agreement to cause CAC to visit the premises of Novus
Services, Inc. in order to obtain all such information as is reasonably
requested by the Agent. Notwithstanding the foregoing, the Agent or its agents
and representatives shall not visit the offices and properties as described in
clause (ii) above more frequently than (a) once a month for the first six months
after the Closing Date and two times thereafter until the first anniversary of
the Closing Date and (b) four times per year after the first anniversary of the
Closing Date; provided that, neither of the limitations set forth in (a) or (b)
above shall apply upon the occurrence and during the continuance of a
Termination Event or Potential Termination Event.
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(e) Keeping of Records and Books of Account. The Transferor will
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable). The Transferor
will give the Agent notice of any material change in the administrative and
operating procedures of the Transferor referred to in the previous sentence.
(f) Treatment. The Transferor will not (i) account for (including for
accounting and tax purposes), or otherwise treat, the transactions contemplated
by the Receivables Purchase Agreement in any manner other than as a sale of
Receivables by CAC to the Transferor or (ii) account for or otherwise treat the
transactions contemplated hereby in any manner other than as a pledge of
Receivables by the Transferor to the Agent for the benefit of the Buyer and the
other Owners, as applicable. In addition, the Transferor shall disclose (in a
footnote or otherwise) in all of its respective financial statements (including
any such financial statements consolidated with any other Persons' financial
statements) the existence and nature of the transaction contemplated hereby and
by the Receivables Purchase Agreement and the interest of the Transferor and the
Agent, on behalf of the Buyer and the other Owners, as owner and pledgee,
respectively, in the Affected Assets.
(g) Separate Business. The Transferor shall:
(i) Maintain in full effect its existence, rights and
franchises as a corporation or (after 10 days' prior notice given to
the Agent and the execution and delivery by the Transferor of all
documents and opinions of counsel as the Agent shall request, together
with the Agent's approval of any organizational documents therefor) a
limited liability corporation, under the laws of the state of its
organization or incorporation and will obtain and preserve its
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement and the Receivables Purchase Agreement
and each other instrument or agreement necessary or appropriate to the
proper administration hereof and to permit and effectuate the
transactions contemplated hereby.
(ii) Maintain its own deposit account or accounts, separate
from those of any Affiliate of such Transferor, with commercial banking
institutions. The funds of such Transferor will not be diverted to any
other Person or for other than the corporate use of such Transferor,
and, except as may be expressly permitted by this Agreement or the
Receivables
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Purchase Agreement, the funds of such Transferor shall not be
commingled with those of any Affiliate of such Transferor.
(iii) Ensure that, to the extent that it shares the same
officers or other employees as any of its partners, members, managers,
stockholders or Affiliates, the salaries of and the expenses related to
providing benefits to such officers and other employees shall be fairly
allocated among such entities, and each such entity shall bear its fair
share of the salary and benefit costs associated with all such common
officers and employees.
(iv) Ensure that, to the extent that it jointly contracts with
any of its partners, members, managers, stockholders or Affiliates to
do business with vendors or service providers or to share overhead
expenses, the costs incurred in so doing shall be allocated fairly
among such entities, and each such entity shall bear its fair share of
such costs. To the extent that such Transferor contracts or does
business with vendors or service providers where the goods and services
provided are partially for the benefit of any other Person, the costs
incurred in so doing shall be fairly allocated to or among such
entities for whose benefit the goods and services are provided, and
each such entity shall bear its fair share of such costs. All material
transactions between such Transferor and any of its partners, members,
managers, stockholders or Affiliates shall be only on an arm's-length
basis and shall receive the approval of such Transferor's Board of
Directors, partners, members, managers or other governing body
including at least one Independent Director (defined below).
(v) Maintain a principal executive and administrative office
through which its business is conducted and a telephone number separate
from those of its members or stockholders and Affiliates. To the extent
that such Transferor and any of its members or stockholders or
Affiliates have offices in contiguous space, there shall be fair and
appropriate allocation of overhead costs among them, and each such
entity shall bear its fair share of such expenses.
(vi) Conduct its affairs strictly in accordance with its
Certificate of Incorporation or other certificate of formation, as the
case may be, and observe all necessary, appropriate and customary
corporate formalities (or such formalities appropriate to the entity),
including, but not limited to, holding all regular and special
stockholders' and directors', or partners', members' or managers', as
the case may be, meetings appropriate to authorize all entity action,
keeping separate and accurate minutes of such meetings, passing all
resolutions or consents necessary to authorize actions taken or to be
taken, and maintaining accurate and separate books, records, accounts
and other corporate documents and records,
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including, but not limited to, payroll and intercompany transaction
accounts. Regular stockholders' or other owners' and directors',
partners', members' or managers', as the case may be, meetings shall be
held at least annually. The Transferor shall not engage in any business
not permitted by its Certificate of Incorporation, as in effect on the
Closing Date.
(vii) Ensure that its Board of Directors shall at all times
include at least one Independent Director (for purposes hereof,
"Independent Director" shall mean any member of the Board of Directors,
or partner, member or manager, as the case may be, of such Transferor
that is not and has not at any time been (x) a director, partner,
member, manager, officer, agent, employee or shareholder of any
Affiliate of such Transferor (other than any director of the Transferor
who is also a similarly unaffiliated director and/or officer of a
special purpose corporation which has been established by CAC or any of
its Affiliates in conjunction with the securitization by CAC or such
Affiliate of its credit card receivables) or (y) a member of the
immediate family of any of the foregoing); provided, that, within 90
days after the Closing Date, the Transferor shall appoint an
Independent Director reasonably satisfactory to the Agent, the consent
of the Agent not to be unreasonably withheld.
(viii) Ensure that decisions with respect to its business and
daily operations shall be independently made by such Transferor
(although the officer making any particular decision may also be an
officer, partner, member, manager or director of an Affiliate of such
Transferor) and shall not be dictated by an Affiliate of such
Transferor.
(ix) Act solely in its own corporate or entity name and
through its own authorized officers, members, managers and agents, and
no Affiliate of such Transferor shall be appointed to act as agent of
such Transferor, except as expressly contemplated by this Agreement or
the Receivables Purchase Agreement. The Transferor shall at all times
use its own stationery.
(x) Ensure that no Affiliate of such Transferor shall advance
funds to such Transferor, and no Affiliate of such Transferor will
otherwise guaranty debts of, such Transferor, except for the guaranty
of CompuCredit contained in this Agreement; provided, however, that (i)
an Affiliate of such Transferor may provide funds to such Transferor in
connection with the capitalization of such Transferor, including
capital necessary to assure that such Transferor has "substantial
assets" as described in Treasury Regulation Section 301.7701-2(d)(2) as
in effect prior to amendment by Treasury Decision 8697 on December 17,
1996.
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(xi) Other than organizational expenses and as expressly
provided herein, pay all expenses, indebtedness and other obligations
incurred by it from Transferor's own separate assets.
(xii) Not enter into any guaranty, or otherwise become liable,
with respect to any obligation of any Affiliate of such Transferor nor
shall the Transferor make any loans to any Person.
(xiii) Ensure that any financial reports required of such
Transferor shall comply with generally accepted accounting principles
and shall be issued separately from, but may be consolidated with, any
reports prepared for any of its Affiliates, provided that any such
consolidated reports shall indicate that the assets of the Transferor
are not available to the creditors of any Affiliate of the Transferor.
(xiv) Ensure that at all times it is adequately capitalized to
engage in the transactions contemplated in its Certificate of
Incorporation or other organization documents.
(xv) Not commingle its assets with any Affiliate of the
Transferor, except as provided in the Transaction Documents.
(xvi) Make investments directly or by brokers engaged and paid
by Transferor or its agents (provided that if any such agent is an
Affiliate of the Transferor it shall be compensated at a fair market
rate for its services).
(h) Corporate Documents. The Transferor shall not amend, alter, change
or repeal Articles II, IV(b), IX, X, XI or XII of its Articles of Incorporation
or Articles II, Article IV Section 4(b) or Article VII Section 2(a) of its
bylaws without the prior written consent of the Agent.
(i) Receivables Purchase Agreement. The Transferor, in its capacity as
purchaser of the Receivables from CAC (as purchaser of the Receivables from
CB&T) pursuant to the Receivables Purchase Agreement, will at all times enforce
the covenants and agreements of CAC in the Receivables Purchase Agreement and
vigorously pursue all its rights and remedies thereunder, including, without
limitation, its rights and remedies with respect to the Sale and Purchase
Agreement and Initial Purchase Agreement. With respect to any Receivable sold by
CAC, the Transferor shall, and shall cause CAC to, effect such sale under, and
pursuant to the terms of, a Receivables Purchase Agreement, including, without
limitation, the payment by the Transferor in cash to CAC of an amount equal to
the purchase price for such Receivable as required or permitted by the terms of
such Receivables Purchase Agreement.
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(j) Security Interests. Except for the conveyance hereunder and under
the Purchase Agreement, the Transferor will not sell, pledge, assign or transfer
to any other Person, or grant, create, incur, assume or suffer to exist any
Adverse Claim on, any Receivable (or any underlying receivable) conveyed by it
to the Agent, on behalf of the Buyer and the other Owners, whether now existing
or hereafter created, or any interest therein, and the Transferor shall defend
the right, title and interest of the Agent, on behalf of the Buyer and the other
Owners in, to and under the Receivables, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Transferor; provided, however, the Transferor may sell, pledge, transfer,
convey, hypothecate or otherwise grant a security interest in the Transferor's
Interest to any Person so long as (i) any claim of any such Person in the
Affected Assets pursuant to any such sale, pledge, transfer, conveyance,
hypothecation or grant of a security interest in the Transferor's Interest is in
all respects subordinate to the claims of the Agent, the Buyer and the other
Owners, and the Agent shall be satisfied with the terms of such subordination,
(ii) such person shall agree in writing to be bound by the provisions of this
Agreement relating to the Transferor's Interest and to Sections 11.9 and 11.10
hereof and (iii) such Person shall execute any documents, or deliver any
opinions, reasonably requested by the Agent in order to ensure that the rights
and remedies of the Agent, the Buyer and the other Owners with respect to the
Transferred Interest are not impaired as a result of any such sale, pledge,
transfer, conveyance, hypothecation or security interest.
(k) Delivery of Collections or Recoveries. In the event that the
Transferor receives Collections or Recoveries, the Transferor agrees to pay to
the Servicer all such Collections and Recoveries as soon as practicable after
receipt thereof but in no event later than two Business Days after receipt.
(l) Notice of Liens. The Transferor shall notify the Agent in writing
promptly after becoming aware of any Adverse Claim on any Receivable conveyed by
it to the Agent, the Buyer or any Owner other than the conveyances hereunder,
under the Purchase Agreement and under the receivables purchase agreements.
(m) Amounts. The Transferor agrees to remit, or cause to be remitted,
to the Collection Account, all amounts paid as adjustments after the Closing
Date with respect to the purchase price paid for the Receivables under the Sale
and Purchase Agreement, and all amounts required to be paid by CB&T to the
Agent, Buyer, any other Owner or Transferor pursuant to the CB&T Agreement and
received by the Transferor, all of the foregoing to be deemed part of
"Collections."
(n) Receivables Purchase Agreement. The Transferor further covenants
that it will not amend, modify or supplement the Receivables Purchase Agreement
or enter into a new receivables purchase agreement without the prior written
consent of the Agent and will not take any other action under any other
Transaction Documents to which it is a party that would have a material adverse
effect on the
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Agent, the Buyer, or any other Owner or which is inconsistent with the terms of
any other Transaction Document.
SECTION 5.2. Negative Covenants of the Transferor. At all times from
the date hereof to the later to occur of (i) the Termination Date or (ii) the
date on which the Buyer's Net Investment has been reduced to zero, all Carrying
Costs and all other Aggregate Unpaids shall have been paid in full, in cash,
unless the Agent shall otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as otherwise provided herein and in
the Receivables Purchase Agreement, the Transferor will not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or suffer to
exist any Adverse Claim upon (or the filing of any financing statement) or with
respect to any of the Affected Assets.
(b) No Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.2 hereof or the Credit Card Guidelines, the Transferor
will not extend, amend or otherwise modify the terms of any Receivable, or
amend, modify or waive any term or condition of any Account related thereto.
(c) Change of Name, Etc. The Transferor will not change its name,
identity or structure or the location of its chief executive office, unless at
least 10 days prior to the effective date of any such change the Transferor
delivers to the Agent such documents, instruments or agreements, executed by the
Transferor, as are necessary to reflect such change and to continue the
perfection of the Agent's security interests in the Affected Assets.
(d) Other Debt. Except as provided for herein, the Transferor will not
create, incur, assume or suffer to exist any Indebtedness whether current or
funded, or any other liability other than (i) indebtedness of the Transferor
under the Transaction Documents and (ii) other Indebtedness incurred in the
ordinary course of its business in an amount not to exceed $100,000 at any time
outstanding.
(e) ERISA Matters. The Transferor will not (i) engage or permit any of
its respective ERISA Affiliates to engage in any prohibited transaction (as
defined in Section 4975 of the Code and Section 406 of ERISA) for which an
exemption is not available or has not previously been obtained from the U.S.
Department of Labor; (ii) permit to exist any accumulated funding deficiency (as
defined in Section 302(a) of ERISA and Section 412(a) of the Code) or funding
deficiency with respect to any Benefit Plan other than a Multiemployer Plan;
(iii) fail to make any payments to any Multiemployer Plan that the Transferor or
any ERISA Affiliate thereof is required to make under the agreement relating to
such Multiemployer Plan or any law pertaining thereto; (iv) terminate any
Benefit Plan so as to result in any liability; or (v) permit to exist any
occurrence of any reportable event described in Title IV of ERISA which
represents a material risk of a liability to the Transferor or any ERISA
Affiliate under ERISA or the Code.
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(f) Changes to Credit Card Agreements. The Transferor shall not change
(or consent to change) the terms and provisions of the Credit Card Agreements or
the Credit Card Guidelines in any respect (including, without limitation, the
calculation of the amount, and the timing, of uncollectible Receivables) except
to the extent (a) such change is made applicable to the comparable segment of
the consumer revolving credit accounts owned or serviced by the Transferor, that
have characteristics the same as, or substantially similar to, the Accounts that
are the subject of such change or (b) if it does not own or service such a
comparable segment, it will not make any such change with the intent to
materially benefit itself over the Agent, the Buyer or any other Owner, and such
change does not materially and adversely affect the rights of the Agent, the
Buyer or any other Owner in the Receivables or the collectibility of the
Receivables. References to the Receivables in this paragraph shall be deemed to
refer to the Receivables in the aggregate.
(g) No Assignment. The Transferor shall not assign any of its rights
(other than as permitted pursuant to Section 5.1(j)) or delegate any of its
duties hereunder or under any of the other Transaction Documents to which it is
a party without the prior written consent of the Agent.
(h) No Designation. The Transferor shall not designate or permit to be
designated an Account Owner other than CB&T without the prior written consent of
the Agent and the execution and delivery of all financing statements and
agreements required by the Agent to perfect and protect the interests of the
Agent, the Buyer and the other Owners herein, which shall be satisfactory to the
Agent.
(i) Receivables Not To Be Evidenced by Promissory Notes. Except in
connection with its enforcement or collection of an Account, the Transferor will
take no action to cause any Receivable in which an undivided interest is
conveyed by it hereunder to be evidenced by any instrument (as defined in the
UCC) and if any such Receivable is so evidenced, it shall be treated as a
Receivable which is subject to Section 2.9 (b) hereof.
SECTION 5.3. Affirmative Covenants of the Servicer. At all times from
the date hereof to the later to occur of (i) the Termination Date or (ii) the
date on which the Net Investment has been reduced to zero, all Carrying Costs
shall have been paid in full and all other Aggregate Unpaids shall have been
paid in full, in cash, unless the Agent shall otherwise consent in writing:
(a) Conduct of Business. The Servicer will carry on and conduct its
business in substantially the same manner and in substantially the same fields
of enterprise as it is presently conducted and do all things necessary to remain
duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted.
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(b) Compliance with Laws. The Servicer shall duly satisfy all
obligations on its part to be fulfilled under or in connection with each
Receivable and the related Account, if any, will maintain in effect all
qualifications required under Requirements of Law in order to service properly
each Receivable and the related Account, if any, and will comply in all material
respects with all other Requirements of Law in connection with servicing each
Receivable and the related Account the failure to comply with which would have a
material adverse effect on the Agent's, the Buyer's or any other Owner's
interest in the Receivables or the collectibility thereof.
(c) Furnishing of Information and Inspection of Records. The Servicer
will furnish to the Agent from time to time such information with respect to the
Accounts and the Receivables as the Agent may reasonably request, including,
without limitation, listings identifying the Obligor and the related Principal
Receivables. The Servicer will, at any time and from time to time during regular
business hours permit the Agent, or its agents or representatives, at the
Servicer's expense (i) to examine and make copies of and take abstracts from all
Records and (ii) subject to the same limitations as the last sentence of Section
5.1(d) with respect to the Servicer, to visit the offices and properties of the
Servicer for the purpose of examining such Records, and to discuss matters
relating to Receivables or the Servicer's performance hereunder and under the
other Transaction Documents to which such Person is a party with any of the
officers, directors, employees or independent public accountants of the Servicer
having knowledge of such matters.
(d) Keeping of Records and Books of Account. The Servicer will maintain
and implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables in the event
of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable). The Servicer
will give the Agent notice of any material change in the administrative and
operating procedures of the Servicer referred to in the previous sentence.
(e) Credit Card Guidelines. The Servicer will comply in all material
respects with the Credit Card Guidelines in regard to each Receivable and the
related Account.
(f) Collections Received. The Servicer shall hold in trust, and
deposit, immediately, but in any event not later than two Business Days after
its receipt thereof, to the Collection Account any Collections received from
time to time by the Servicer.
(g) FICO Risk Scores. The Servicer will, once every three months,
update the Fair, Isaacs & Co. credit risk score with respect to each Account the
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Receivables of which have not become Defaulted Receivables and append the
Account Schedule to reflect such updated scores.
(h) Status Reports. The Servicer shall provide the Agent with a copy of
the "monthly status report" received by the Servicer referenced in Section 2.17
of the Affinity Card Agreement or Section 1 of the Facilities Management
Agreement.
(i) Facilities Management Agreement. The Servicer shall deliver to the
Agent an execution copy of the Facilities Management Agreement, if and when
executed.
(j) Notices. The Servicer shall promptly notify the Agent of CB&T's
failure to observe, keep or perform any material term, condition, covenant,
representation or warranty of the Facilities Management Agreement, Affinity Card
Agreement or Initial Purchase Agreement. Promptly after its receipt thereof, the
Servicer shall deliver to the Agent copies of all notices, amendments and
waivers delivered by or to the Servicer under or pursuant to any of the
Transaction Documents. The Servicer shall deliver to the Agent (a) on or as soon
as practicable after the Closing Date, the Valuation Date Statement (as defined
in the Sale and Purchase Agreement) and (b) when delivered pursuant to the Sale
and Purchase Agreement, copies of all other reports relating to the valuation of
the Accounts or Receivables on the Closing Date.
(k) New Credit Card Agreement. Promptly after the date of the
Conversion, deliver to the Agent any new form of Credit Card Agreement to be
used by the Servicer.
(l) Amounts. The Servicer agrees to remit, or cause to be remitted, to
the Collection Account, all amounts paid as adjustments after the Closing Date
with respect to the purchase price paid for the Receivables under the Sale and
Purchase Agreement, and all amounts required to be paid by CB&T to the Agent, or
Transferor pursuant to the CB&T Agreement and received by the Servicer, all of
the foregoing to be deemed part of "Collections."
SECTION 5.4. Negative Convenants of the Servicer. At all times from the
date hereof to the later to occur of (i) the Termination Date or (ii) the date
on which the Buyer's Net Investment has been reduced to zero, all Carrying Costs
and all other Aggregate Unpaids shall have been paid in full, in cash, unless
the Agent shall otherwise consent in writing:
(a) No Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.2 hereof and the Credit Card Guidelines, the Servicer
will not extend, amend or otherwise modify the terms of any Receivable, or
amend, modify or waive any term or condition of any Account related thereto.
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(b) No Change in Business or Credit Card Guidelines. The Servicer will
not make any change in the character of its business or in the Credit Card
Guidelines, which change would, in either case, impair the collectibility of any
substantial portion of the Receivables or otherwise result in a material adverse
effect on the Agent's, [Liquidity Banks]' or Buyer's interest in the Receivables
or the collectibility thereof.
(c) Marketing or Sale of Accounts. The Servicer will not, and will not
permit any of its Affiliates to, market for balance transfers any Accounts with
respect to which Transferred Interests in Receivables have been conveyed
hereunder, except for Accounts with Defaulted Receivables and other credit card
accounts, provided, that, such credit card accounts shall constitute Accounts
hereunder and the receivables created thereunder shall constitute Receivables
hereunder.
(d) Amendment to Transaction Documents. The Servicer will not amend,
modify, or supplement any Transaction Document to which it is a party or waive
any provisions thereof, in each case except with the prior written consent of
the Agent, except that no such consent shall be required with respect to any
amendment to the Affinity Card Agreement or Facilities Management Agreement;
provided, however, that each of the Buyer, each other Owner (by acceptance of
its interest in the Transferred Interest) and the Agent agrees that any
termination or revocation of, or reduction in, the Letter of Credit (as such
term is defined in the Affinity Card Agreement) with the consent of CB&T shall
be deemed not to have a material adverse effect on the interests of the Agent,
the Buyer or any of the other Owners and shall not require any consent of the
Agent or the Administrative Agent (but notice thereof shall be provided to the
Agent); nor shall the Servicer take any other action under such Transaction
Documents that shall have a material adverse effect on the interests of the
Agent, the Buyer, or any of the other Owners or which is inconsistent with the
terms of such Transaction Document. The Servicer shall deliver to the Agent
promptly copies of all changes or amendments to the Affinity Card Agreement and
the Facilities Management Agreement.
(e) No Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of any Receivable except in accordance with the
Credit Card Guidelines or as ordered by a court of competent jurisdiction or
other Governmental Authority.
(f) Protection of Rights. The Servicer shall take no action which, nor
omit to take any action the omission of which, would impair the rights of the
Agent, the Buyer or any other Owner, as the case may be, in any Receivable or
the related Account, if any, nor shall it reschedule, revise or defer payments
due on any Receivable except in accordance with the Credit Card Guidelines.
(g) Receivable Not To Be Evidenced by Promissory Notes. Except in
connection with its enforcement or collection of an Account, the Servicer will
take no action to cause any Receivable to be evidenced by any instrument (as
defined in the
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UCC) and if any Receivable is so evidenced as a result of the Servicer's actions
it shall be treated as a Receivable which is subject to Section 2.9(b) hereof.
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1 Appointment of Servicer. The servicing, administering and
collection of the Receivables shall be conducted by such Person (the "Servicer")
so designated from time to time in accordance with this Section 6.1. CompuCredit
is hereby designated as, and hereby agrees to perform the duties and obligations
of, the Servicer pursuant to the terms hereof. The Servicer may not, except
pursuant to the Affinity Card Agreement, the Facilities Management Agreement or
the CB&T Agreement, delegate any of its rights, duties or obligations hereunder,
or designate a substitute Servicer, without the prior written consent of the
Agent, and provided that the Servicer shall continue to remain solely liable for
the performance of the duties as Servicer hereunder notwithstanding any such
delegation hereunder. The Agent may, and upon the direction of the Majority
Investors the Agent shall, after the occurrence of a Servicer Default designate
as Servicer any Person (including itself) to succeed CompuCredit or any
successor Servicer, on the condition in each case that any such Person so
designated shall agree to perform the duties and obligations of the Servicer
pursuant to the terms hereof. The Agent may notify any Obligor of the
Transferred Interest.
SECTION 6.2. Duties of Servicer
(a) The Servicer shall take or cause to be taken all such action as may
be necessary or advisable to collect each Receivable from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care and
diligence, and in accordance with the Credit Card Guidelines. Each of the
Transferor, the Buyer, the Agent and any other Owners hereby appoints as its
agent the Servicer, from time to time designated pursuant to Section 6.1 hereof,
to enforce its respective rights and interests in and under the Affected Assets.
To the extent permitted by applicable law, each of the Transferor and the
existing Servicer hereby grants to any Servicer appointed hereunder an
irrevocable power of attorney to take any and all steps in the Transferor's
and/or the existing Servicer's name and on behalf of the Transferor or the
existing Servicer necessary or desirable, in the reasonable determination of the
Servicer, to collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Transferor's and/or the existing Servicer's
name on checks and other instruments representing Collections and enforcing such
Receivables and the related Accounts. The Servicer shall set aside for the
account of the Transferor and the Agent their respective allocable shares of the
Collections of Receivables in accordance with Section 2.5 hereof. The Servicer
shall segregate and deposit to the Agent's account the Agent's allocable share
of Collections of Receivables when required
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pursuant to Article II hereof. The Transferor shall deliver to the Servicer and
the Servicer shall hold in trust for the Transferor and the Agent, on behalf of
the Buyer and any other Owner, in accordance with their respective interests,
all Records which evidence or relate to Receivables or Related Security. The
Servicer shall not make the Agent, the Buyer or any other Owner a party to any
litigation without the prior written consent of such Person.
(b) The Servicer shall, as soon as practicable following receipt
thereof, turn over to the Transferor any collections of any indebtedness of any
Person which is not on account of a Receivable. The Servicer, if other than the
Transferor or CompuCredit or an Affiliate of the Transferor or CompuCredit,
shall as soon as practicable upon demand, deliver to CompuCredit all Records in
its possession which evidence or relate to indebtedness of an Obligor which is
not a Receivable.
(c) Notwithstanding anything to the contrary contained in this Article
VI, the Servicer, if not the Transferor, CompuCredit or any Affiliate of the
Transferor or CompuCredit, shall have no obligation to collect, enforce or take
any other action described in this Article VI with respect to any indebtedness
that is not included in the Transferred Interest other than to deliver to the
Transferor the collections and documents with respect to any such indebtedness
as described in Section 6.2(b) hereof.
SECTION 6.3. Rights After Designation of New Servicer. At any time
following the designation of a Servicer (other than the Transferor, CompuCredit
or any Affiliate of the Transferor or CompuCredit) pursuant to Section 6.1
hereof:
(i) The Agent may direct that payment of all amounts payable
under any Receivable be made directly to the Agent or its designee.
(ii) The Transferor shall, at the Agent's request and at the
Transferor's expense, give notice of the Agent's, the Transferor's,
Buyer's and/or any other Owners' respective undivided interests in the
Receivables to each Obligor and direct that payments be made directly
to the Agent or its designee.
(iii) The Transferor shall, at the Agent's request, (A)
assemble all of the Records, and shall make the same available to the
Agent or its designee at a place selected by the Agent or its designee,
and (B) segregate all cash, checks and other instruments received by it
from time to time constituting Collections of Receivables in a manner
acceptable to the Agent and shall, promptly upon receipt, remit all
such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to the Agent or its designee.
(iv) The Transferor and the existing Servicer hereby authorize
the Agent to take any and all steps in the Transferor's or the existing
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Servicer's name and on behalf of the Transferor and the existing
Servicer necessary or desirable, in the determination of the Agent, to
collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Transferor's or the existing
Servicer's name on checks and other instruments representing
Collections and enforcing such Receivables and the related Accounts.
SECTION 6.4. Servicer Default. The occurrence of any one or more of the
following events shall constitute a Servicer Default:
(a) the Servicer shall fail to make any payment, transfer or deposit
required to be made by it hereunder within five Business Days after the date on
which it was required to be made hereunder; or
(b) the Servicer shall fail duly to observe or perform in any material
respect any other covenants or agreements of the Servicer set forth in this
Agreement, which continues unremedied for a period of 10 days; or the Servicer
shall assign or delegate its duties under this Agreement, except as permitted by
Section 6.1 hereof; or
(c) any representation, warranty, certification or statement made by
the Servicer in this Agreement or in any of the other Transaction Documents or
in any certificate or report delivered by it pursuant to any of the foregoing
shall prove to have been incorrect when made or deemed made, which has a
material adverse effect on the rights of the Agent, the Buyer or any other Owner
and which continues for a period of 10 days; or
(d) any Event of Bankruptcy shall occur with respect to the Servicer.
SECTION 6.5. Responsibilities of the Transferor. Anything herein to the
contrary notwithstanding, the Transferor shall (i) perform all of its
obligations under the Accounts related to the Receivables to the same extent as
if interests in such Receivables had not been transferred hereunder and the
exercise by the Agent, the Buyer and any other Owner of their rights hereunder
and under the Receivables Purchase Agreement shall not relieve the Transferor
from such obligations and (ii) pay when due any taxes, including without
limitation, any sales taxes payable in connection with the Receivables and their
creation and satisfaction. Neither the Agent, the Buyer nor any other Owner
shall have any obligation or liability with respect to any Receivable or related
Accounts, nor shall it be obligated to perform any of the obligations of CAC or
the Transferor thereunder.
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ARTICLE VII
TERMINATION EVENTS
SECTION 7.1 Termination Events. The occurrence of any one or more of
the following events shall constitute a Termination Event:
(a) any representation or warranty made by the Transferor in any
Transaction Document shall prove to have been incorrect when made, and as a
result of which the interests of the Agent, the Buyer or any other Owner
hereunder are materially and adversely affected;
(b) any failure by the Transferor to make any payment, transfer or
deposit on or before the date such payment, transfer or deposit is required to
be made under the terms of this Agreement which continues unremedied for a
period of five Business Days;
(c) failure on the part of the Transferor duly to observe or perform in
any material respect any other covenants or agreements of the Transferor set
forth in any Transaction Document and which continues unremedied for a period of
10 days;
(d) a failure by the Transferor, CompuCredit or any direct Affiliate
thereof to perform any term, provision or condition contained in any agreement
to which any such Person is a party and under which any Indebtedness owing by
the Transferor, CompuCredit or any direct Affiliate thereof greater than
$5,000,000 was created or is governed, regardless of whether such failure
constitutes an "event of default" or "default" under any such agreement; or any
Indebtedness owing by the Transferor, CompuCredit or any direct affiliate
thereof (other than Indebtedness of CompuCredit of the type described in clause
(vi) of the definition of "Indebtedness") greater than $5,000,000 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;
(e) any Event of Bankruptcy shall occur with respect to the Transferor,
CAC, the Account Owner, the Servicer or the Sub-Servicer;
(f) the Agent, on behalf of the Buyer and the other Owners, shall, for
any reason, fail or cease to have a valid and perfected first priority security
interest in the Receivables;
(g) a Servicer Default shall have occurred, and as a result of which
the interests of the Agent, the Buyer or any other Owner are materially and
adversely affected;
(h) there shall have occurred any material adverse change in the
operations of the Transferor, Servicer or Sub-Servicer, or any other event,
which materially adversely affects the Transferor's, Servicer's or
Sub-Servicer's ability either to
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collect upon the Receivables or to perform its obligations under the Transaction
Documents;
(i) (a) the Liquidity Provider or the Credit Support Provider shall
have given notice that an event of default has occurred and is continuing under
any of its respective agreements with Buyer; or (b) the Transferor, CAC or any
Account Owner is unable for any reason to transfer Receivables in accordance
with the provisions of the applicable Transaction Documents; or (c) the
Transferor, CAC or any Account Owner for any reason ceases to transfer the
Receivables in accordance with the provisions of the applicable Transaction
Documents; or (d) a regulatory, tax or accounting body has ordered that the
activities of the Buyer, any Liquidity Provider or Credit Support Provider
contemplated hereby be terminated or, as a result of any other event or
circumstance, the activities of the Buyer, any Liquidity Provider or Credit
Support Provider contemplated hereby may reasonably be expected to cause the
Buyer, such Liquidity Provider or such Credit Support Provider, the Person then
acting as the administrator or the manager for the Buyer, or any of their
respective Affiliates, as applicable, to suffer materially adverse regulatory,
accounting or tax consequences.
(j) the Subordinate Percentage is less than the Required Subordinate
Percentage;
(k) CB&T or CAC shall default in the performance of any payment or
undertaking to be performed or observed by it under the CB&T Agreement, Affinity
Card Agreement or the Facilities Management Agreement and such default shall
continue beyond any applicable grace period and shall have a material adverse
effect on the interests of the Agent, the Buyer or any other Owner;
(l) for so long as the Affinity Card Agreement is in effect, the Letter
of Credit (as such term is defined in the Affinity Card Agreement) maintained by
CompuCredit in favor of CB&T pursuant to Section 3.3 of the Affinity Card
Agreement shall, without the consent of CB&T, be terminated, revoked or reduced,
or shall be drawn on, and such termination, revocation or reduction shall not
have been remedied within five days and, in the case of a drawing, such drawing
shall not have been reimbursed within five days;
(m) if CB&T is acting as Servicer or Sub-Servicer with respect to the
Receivables or the Accounts in any material respect, the rating of the senior
unsecured debt of CB&T is downgraded below Baa2 by Moody's or BBB by Standard &
Poor's, respectively;
(n) CompuCredit Corporation shall at any time fail to own more than 50%
of the outstanding voting stock of CompuCredit Acquisition Corporation or
CompuCredit Acquisition Corporation shall at any time fail to own more than 50%
of the outstanding voting stock of the Transferor;
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(o) any of Messrs. David G. Hanna, Brett M. Samsky or Richard Gilbert
shall cease to be employed by CompuCredit, its Affiliates or agents, and such
individual's position shall not be filled within 60 days of such individual's
termination of employment or status as an agent by an individual approved by the
Agent;
(p) the Payment Rate for any of the months ending after the Closing
Date set forth below shall be equal to or less than the percentage set forth
opposite such month below:
<TABLE>
<CAPTION>
Month After Closing Date Percentage
------------------------ ----------
<S> <C>
Months 7 through 9 2.3%
Months 10 through 15 2.5%
Months 16 through 20 2.7%
Months 21 through 25 2.9%
Month 26 and thereafter 3.0%;
</TABLE>
(q) the Charge-Off Rate for any of the months ending after the Closing
Date set forth below shall equal or exceed the percentage set forth opposite
such month below:
<TABLE>
<CAPTION>
Month After Closing Date Percentage
------------------------ ----------
<S> <C>
Month 7 42%
Month 8 41%
Month 9 40%
Month 10 39%
Month 11 38%;
</TABLE>
(r) the Three-Month Average Charge-Off Rate for any of the months
ending after the Closing Date set forth below shall equal or exceed the
percentage set forth opposite such month below:
<TABLE>
<CAPTION>
Month After Closing Date Percentage
------------------------ ----------
<S> <C>
Months 12 through 17 38%
Months 18 through 24 35%
Month 25 and thereafter 28%;
</TABLE>
(s) the Transferor consolidates or merges with or into any other
Person, except that the Transferor may merge with or into another Person so long
as (a) the surviving entity is either the Transferor or a Subsidiary of
CompuCredit, (b) no Termination Event would occur as a result of such merger and
(c) where a Subsidiary of CompuCredit is the surviving entity, such Subsidiary
assumes in writing all obligations of the Transferor under the Transaction
Documents;
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(t) CompuCredit consolidates or merges with or into any other Person,
except that CompuCredit may merge with or into another Person so long as (a) the
surviving entity is either the Servicer or a Subsidiary of CompuCredit, (b) no
Termination Event would occur as a result of such merger and (c) where a
Subsidiary of CompuCredit is the surviving entity, such Subsidiary assumes in
writing all obligations of CompuCredit under the Transaction Documents;
(u) any failure by CompuCredit to perform any term, provision or
condition of the Guaranty and, in the case of its failure to make a payment
under the Guaranty, such payment equals or exceeds $500,000 individually or in
the aggregate; or
(v) an Event of Default (as such term is defined in the Purchase
Agreement) under Section 7.1(a) of the Purchase Agreement shall have occurred
and be continuing if at such time the Senior Amounts (as such term is defined in
the Purchase Agreement) have been paid in full and the Termination Date has not
occurred.
SECTION 7.2. Termination
(a) Upon the occurrence of any Termination Event, the Agent may, or at
the direction of the Majority Owners shall, by notice to the Transferor and the
Servicer declare the Termination Date to have occurred; provided, however, that
in the case of any event described in Section 7.1(e), 7.1(f), or 7.1(v) above,
the Termination Date shall be deemed to have occurred automatically upon the
occurrence of such event unless such Termination Event shall have been waived by
the Majority Investors. Upon any such declaration or automatic occurrence, the
Agent shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided under the UCC of
the applicable jurisdiction and other applicable laws, all of which rights shall
be cumulative.
(b) At all times after the declaration or automatic occurrence of the
Termination Date pursuant to Section 7.2(a), the Base Rate plus 2.00% shall be
the Applicable Rate applicable to the Net Investment.
(c) Upon the occurrence of a Termination Event, unless waived by the
Agent, the Transferor shall have the option of repurchasing the Transferred
Interest by payment to the Agent of the sum of (a) the Net Investment and (b)
(without duplication) all other Aggregate Unpaids as of the date of any such
repurchase.
(d) Any waiver of a Termination Event under this Section (or any other
waiver under this Agreement) may be made upon written notice to the Transferor
for any period of time specified by the Agent, or may be a permanent waiver. In
the event that any such period is specified, the Agent may, in its sole
discretion upon written notice to the Transferor, extend such waiver for a
further period or periods, or upon written notice to the Transferor may declare
a Termination Event after any such period
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has expired, all without prejudice to its further rights and remedies hereunder.
SECTION 7.3. Optional Repurchase
(a) On any day occurring on or after the date on which the Net
Investment is reduced to 10% or less of the Initial Net Investment at any time
on or after the Closing Date, the Transferor may, at its option, purchase the
Net Investment at a purchase price equal to (i) if such day is a Remittance
Date, the applicable Reassignment Amount for such Remittance Date or (ii) if
such day is not a Remittance Date, the applicable Reassignment Amount for the
Remittance Date following such day.
(b) The Transferor shall give the Servicer and the Agent at least 30
days prior written notice of the date on which the Transferor intends to
exercise such purchase option. Not later than 11:00 a.m., New York City time, on
such day the Transferor shall deposit the applicable Reassignment Amount into
the Collection Account in immediately available funds. Such purchase option is
subject to payment in full of the applicable Reassignment Amount. Following the
deposit of the applicable Reassignment Amount into the Collection Account in
accordance with the foregoing, the Net Investment shall be reduced to zero and
the Buyer shall have no further interest in the Receivables. The Reassignment
Amount shall be distributed as set forth in accordance with the priorities set
forth in Section 2.5.
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. Indemnities by the Transferor (a) Without limiting any
other rights which the Agent, the Buyer or any other Owner may have hereunder or
under applicable law, the Transferor hereby agrees to indemnify the Buyer, each
other Owner, the Agent, the Administrative Agent, the Liquidity Provider and the
Credit Support Provider and any successors and permitted assigns and any of
their respective officers, directors and employees (collectively, "Indemnified
Parties") from and against any and all damages, losses, claims, liabilities,
costs and expenses, including, without limitation, reasonable and actual
attorneys' fees (which such attorneys may be employees of the Liquidity
Provider, the Credit Support Provider, the Agent or the Administrative Agent, as
applicable) and disbursements (all of the foregoing being collectively referred
to as "Indemnified Amounts") awarded against or incurred by any of them in any
action or proceeding between the Transferor or CompuCredit (including, in its
capacity as the Servicer) and any of the Indemnified Parties or between any of
the Indemnified Parties and any third party or otherwise arising out of or as a
result of this Agreement, the other Transaction Documents, the ownership or
maintenance, either directly or indirectly, by the Agent, the Buyer or any other
Owner of the Transferred Interest or any of the other transactions contemplated
hereby or thereby, excluding, however, (i) Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of an
Indemnified Party, (ii) recourse (except as otherwise
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specifically provided in this Agreement) for uncollectible Receivables, (iii)
Indemnified Amounts specifically excluded from coverage under Sections 8.2, 8.3
and 8.4 and (iv) Taxes and Excluded Taxes. Without limiting the generality of
the foregoing, the Transferor shall indemnify each Indemnified Party for
Indemnified Amounts relating to or resulting from:
(i) any representation or warranty made by the Transferor or any
officers of the Transferor under or in connection with this Agreement, the
Receivable Purchase Agreement, any of the other Transaction Documents, any
Monthly Servicer Report or any other information or report delivered by the
Transferor or the Servicer pursuant hereto, which shall have been false or
incorrect in any material respect when made or deemed made;
(ii) the failure by the Transferor to comply with any applicable law,
rule or regulation with respect to any Receivable or the related Account, or the
nonconformity of any Receivable or the related Account with any such applicable
law, rule or regulation;
(iii) the failure to vest and maintain vested in the Agent, on behalf
of the Buyer and the other Owners, an undivided first priority, perfected
security interest (to the extent of the Transferred Interest) in the Affected
Assets free and clear of any Adverse Claim (except as may be expressly permitted
under the Transaction Documents);
(iv) the failure to file, or any delay in filing, financing statements,
continuation statements, or other similar instruments or documents under the UCC
of any applicable jurisdiction or other applicable laws with respect to any of
the Affected Assets;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable (including, without
limitation, a defense based on such Receivable or the related Account not being
the legal, valid and binding obligation of such Obligor enforceable against it
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting the enforcement of creditors' rights
in general and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity)), or any
other claim resulting from the sale of merchandise or services related to such
Receivable or the furnishing or failure to furnish such merchandise or services;
(vi) any products liability claim or personal injury or property damage
suit or other similar or related claim or action of whatever sort arising out of
or in connection with merchandise or services which are the subject of any
Receivable;
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(vii) the failure by the Transferor to comply with any term, provision
or covenant contained in this Agreement or any of the other Transaction
Documents to which it is a party or to perform any of its respective duties
under the Accounts;
(viii) any repayment by any Indemnified Party of any amount previously
distributed in reduction of the Net Investment which such Indemnified Party
believes in good faith is required to be made;
(ix) the commingling by the Transferor or the Servicer of Collections
of Receivables at any time with other funds;
(x) any investigation, litigation or proceeding related to this
Agreement, any of the other Transaction Documents, the use of proceeds of
Transfers by the Transferor, the interests in the Transferred Interests, or any
Receivable or Related Security;
(xi) any inability to obtain any judgment in or utilize the court or
other adjudication system of, any state in which an Obligor may be located as a
result of the failure of the Transferor to qualify to do business or file any
notice of business activity report or any similar report;
(xii) any failure of the Transferor to give reasonably equivalent value
to CAC in consideration of the purchase by the Transferor from CAC of any
Receivable, or any attempt by any Person to void, rescind or set-aside any such
transfer under statutory provisions or common law or equitable action,
including, without limitation, any provision of the Bankruptcy Code; or
(xiii) any action taken by the Transferor in the enforcement or
collection of any Receivable.
provided, however, that if the Buyer enters into agreements for the
purchase of interests in receivables from one or more Other Transferors, Buyer
shall allocate such Indemnified Amounts which are in connection with the
[Liquidity Provider Agreement, the Credit Support Agreement or the credit
support furnished by the Credit Support Provider] to the Transferor and each
Other Transferor; and provided, further, that if such Indemnified Amounts are
attributable to the Transferor or the Servicer and not attributable to any Other
Transferor, the Transferor shall be solely liable for such Indemnified Amounts
or if such Indemnified Amounts are attributable to Other Transferors and not
attributable to the Transferor or the Servicer, such Other Transferors shall be
solely liable for such Indemnified Amounts.
(b) Procedures. Promptly after receipt by an Indemnified Party under
Section 8.1 of written notice of any damage, loss or expense in respect of which
indemnity may be sought hereunder by it, such Indemnified Party will, if a claim
is to be made against the Transferor, notify the Transferor thereof in writing;
but the omission so to notify the Transferor will not relieve the Transferor
from any liability (otherwise than
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under this Section 8.1) which it may have to any Indemnified Party except as may
be required or provided otherwise than under this Section 8.1. Thereafter, the
Indemnified Party and the Transferor shall consult, to the extent appropriate,
with a view to minimizing the cost to the Transferor of its obligations
hereunder. In case any Indemnified Party receives written notice of any damage,
loss or expense in respect of which indemnity may be sought hereunder by it and
it notifies the Transferor thereof, the Transferor will be entitled to
participate therein, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid notice
from such Indemnified Party, to assume the defense thereof, with counsel
reasonably satisfactory at all times to such Indemnified Party; provided,
however, that if the parties against which any damage, loss or expense arises
include both the Indemnified Party and the Transferor and the Indemnified Party
shall have reasonably concluded that there may be legal defenses available to it
or other Indemnified Parties which are different from or additional to those
available to the Transferor and may conflict therewith, the Indemnified Party or
Parties shall have the right to select one separate counsel for such Indemnified
Party or Parties to assume such legal defenses and otherwise to participate in
the defense of such damage, loss or expenses on behalf of such Indemnified Party
or Parties. Upon receipt of notice from the Transferor to such Indemnified Party
of its election to assume the defense of such damage, loss or expense and
approval by the Indemnified Party of counsel, the Transferor shall not be liable
to such Indemnified Party under this Section 8.1 for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof unless (i) the Indemnified Party shall have employed such counsel in
connection with assumption of legal defenses in accordance with the proviso to
the next preceding sentence, (ii) the Transferor shall not have employed and
continued to employ counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party within a reasonable time after notice of
commencement of the action or (iii) the Transferor shall have authorized the
employment of counsel for the Indemnified Party at the expense of the
Transferor.
(c) Notwithstanding any other provisions contained in this Section 8.1,
(i) the Transferor shall not be liable for any settlement, compromise or consent
to the entry of any order adjudicating or otherwise disposing of any damage,
loss, or expense effected without its consent and (ii) after the Transferor has
assumed the defense of any damage, loss or expense under Section 8.1 with
respect to any Indemnified Party, it will not settle, compromise or consent to
entry of any order adjudicating or otherwise disposing thereof (1) if such
settlement, compromise or order involved the payment of money damages except if
the Transferor agrees with such Indemnified Party to pay such money damages and,
if not simultaneously paid, to furnish such Indemnified Party with satisfactory
evidence of its ability to pay such money damages, (2) if such settlement,
compromise or order involves any relief against such Indemnified Party, other
than the payment of money damages, except with the prior written consent of such
Indemnified Party and (3) if such settlement, compromise or order does not
provide a full release of the Indemnified Party, without the prior written
consent of such Indemnified Party.
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(d) Each Indemnified Party shall use its good faith efforts to
mitigate, reduce or eliminate any losses, expenses or claims for indemnification
pursuant to this Section 8.1.
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses. (a) if
after the date hereof, the adoption of any Law or bank regulatory guideline
or any amendment or change in the interpretation of any existing or future
Law or bank regulatory guideline by any Governmental Authority charged with
the administration, interpretation or application thereof, or the compliance
with any directive of any Governmental Authority (in the case of any bank
regulatory guideline, whether or not having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty or other
charge (other than Excluded Taxes) with respect to this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest, the Receivables or payments of amounts due hereunder, or
shall change the basis of taxation of payments to any Indemnified Party of
amounts payable in respect of this Agreement, the other Transaction Documents,
the ownership, maintenance or financing of the Transferred Interest, the
Receivables or payments of amounts due hereunder or its obligation to advance
funds hereunder, under the Liquidity Provider Agreement, the Credit Support
Agreement or the credit support furnished by the Credit Support Provider or
otherwise in respect of this Agreement, the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interest or the
Receivables (except for changes in the rate of general corporate, franchise, net
income or other income tax imposed on such Indemnified Party;
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System)
against assets of, deposits with or for the account of, or credit extended by,
any Indemnified Party or shall impose on any Indemnified Party or on the United
States market for certificates of deposit or the London interbank market any
other condition affecting this Agreement, the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interest, the Receivables
or payments of amounts due hereunder or its obligation to advance funds
hereunder, under the Liquidity Provider Agreement, the Credit Support Agreement
or the credit support provided by the Credit Support Provider or otherwise in
respect of this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest or the Receivables; or
(iii) other than Taxes or Excluded Taxes, imposes upon any Indemnified
Party any other expense (including, without limitation, reasonable attorneys'
fees and expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest, the Receivables or payments of amounts due hereunder or
its obligation to advance funds
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hereunder under the Liquidity Provider Agreement, the Credit Support Agreement
or the credit support furnished by the Credit Support Provider or otherwise in
respect of this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interests or the Receivables; and
the result of any of the foregoing is to increase the cost to such Indemnified
Party with respect to this Agreement, the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interest, the
Receivables, the obligations hereunder, the funding of any purchases hereunder,
the Liquidity Provider Agreement, the Credit Support Agreement, or the credit
support provided by the Credit Support Provider by an amount deemed by such
Indemnified Party to be material, then, within ten (10) days after demand by
such Indemnified Party through the Agent, the Transferor shall pay to the Agent,
for the benefit of such Indemnified Party, such additional amount or amounts as
will compensate such Indemnified Party for such increased cost or reduction.
(b) If any Indemnified Party shall have determined that after the date
hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Governmental Authority, or any directive regarding
capital adequacy (in the case of any bank regulatory guideline, whether or not
having the force of law) of any such Governmental Authority, has or would have
the effect of reducing the rate of return on capital of such Indemnified Party
as a consequence of such Indemnified Party's obligations hereunder or with
respect hereto to a level below that which such Indemnified Party (or its
parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Indemnified Party to be material, then from time to time,
within ten (10) days after demand by such Indemnified Party through the Agent,
the Transferor shall pay to the Agent, for the benefit of such Indemnified
Party, such additional amount or amounts as will compensate such Indemnified
Party (or its parent) for such reduction.
(c) The Buyer and each other Owner will promptly notify the Agent and
the Agent will promptly notify the Transferor of any event of which it has
knowledge, occurring after the date hereof, which will entitle an Indemnified
Party to compensation pursuant to this Section 8.2, provided, that any failure
by any such Person to deliver any such notice shall not impair or affect in any
manner the Transferor's obligations under this Section. A notice by the Agent or
the applicable Indemnified Party claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error, provided that such
determinations and allocations are made in good faith and on a reasonable basis,
reasonable written evidence (including an explanation of the applicable
regulatory change and a reasonably detailed computation of an accounting for any
amounts demanded) of which shall be provided to the Transferor upon request. In
determining such amount, the Agent or any applicable Indemnified Party may use
any reasonable averaging and attributing methods.
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(d) Each Indemnified Party agrees that it will use reasonable efforts
to reduce or eliminate any claim for indemnity pursuant to this Section 8.2
including, subject to applicable law, a change in the funding office of such
Indemnified Party; provided, however, that nothing contained herein shall
obligate any Indemnified Party to take any action that imposes on such
Indemnified Party any additional costs or legal or regulatory burdens which such
Indemnified Party reasonably considers material, nor which, in such Indemnified
Party's reasonable opinion, would have an adverse effect on its business,
operations or financial condition.
(e) In determining amounts indemnified against under this Section 8.2,
the parties shall take into account any Tax benefits to the Indemnified Party of
the payment of Tax and the receipt of the indemnity provided for this Section
8.2.
(f) Anything in this Section 8.2 to the contrary notwithstanding, if
Buyer enters into agreements for the acquisition of interests in receivables
from one or more Other Transferors, Buyer shall allocate the liability for any
amounts under this Section 8.2 which are in connection with the Liquidity
Provider Agreement, the Credit Support Agreement or the credit support provided
by the Credit Support Provider ("Section 8.2 Costs") to the Transferor and each
Other Transferor; provided, however, that if such Section 8.2 Costs are
attributable to the Transferor, CAC or the Servicer and not attributable to any
Other Transferor, the Transferor shall be solely liable for such Section 8.2
Costs or if such Section 8.2 Costs are attributable to Other Transferors and not
attributable to the Transferor, CAC or the Servicer, such Other Transferors
shall be solely liable for such Section 8.2 Costs.
(g) Each Indemnified Party agrees to promptly notify the Transferor if
such Person receives notice of any potential tax assessment by any federal,
state or local tax authority for which the Transferor may be liable pursuant to
Section 8.2 or 8.3 hereof. Each Indemnified Party further agrees that the
Transferor shall bear no cost (including costs relating to penalties and
interest) relating to the failure of such Person to file in a timely manner any
tax returns required to be filed by such Person in accordance with applicable
statutes and regulations.
SECTION 8.3. Taxes. All payments made hereunder by the Transferor,
CompuCredit or the Servicer (each, a "payor") to the Buyer, any Owner or the
Agent (each, a "recipient") shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
any other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority on any recipient (or any assignee of
such parties), but excluding (i) income and withholding taxes (including,
without limitation, branch profits taxes, minimum taxes and taxes computed under
alternative methods, at least one of which is based on net income) and franchise
taxes that are based on net income or any other tax upon or measured by income
or gross receipts imposed on a recipient, in each case as a result of a present
or former connection between the jurisdiction of the government or taxing
authority imposing such tax and such recipient (including, without limitation,
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withholding taxes attributable to the treatment of the recipient as having
"effectively connected taxable income" within the meaning of Section 1446(c) of
the Code); (ii) any taxes, levies, imposts, duties, charges, or fees that would
not have been imposed but for the failure by such recipient to provide and keep
current certification or other documentation required to qualify for an
exemption from or reduced rate thereof; and (iii) any taxes, levies, imposts,
duties, charges, or fees imposed as a result of change by any recipient of the
office in which any purchase hereunder is made, accounted for or booked other
than those Taxes that would have been applicable if such office had not been
changed, including any such change pursuant to any Requirement of Law and any
change in circumstances which, in the good faith judgment of the recipient and
the Transferor leaves such recipient no practicable alternative except to change
such office or as a result of the sale, transfer or assignment by any recipient
of its interest hereunder (all such exclusions being herein called "Excluded
Taxes" and all such non-excluded taxes, levies, imposts, duties, charges, or
fees being hereinafter called "Taxes"). In the event that any withholding or
deduction from any payment made by the payor hereunder is required in respect of
any Taxes then such payor shall:
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the recipient such additional amount or amounts as is
necessary to ensure that the net amount actually received by the recipient will
equal the full amount such recipient would have received had no such withholding
or deduction been required.
Moreover, if any Taxes are directly asserted against any recipient with respect
to any payment received by such recipient hereunder, the recipient may pay such
Taxes and the payor will promptly pay such additional amounts (including any
penalties, interest or expenses) as shall be necessary in order that the net
amount received by the recipient after the payment of such Taxes (including any
Taxes on such additional amount) shall equal the amount such recipient would
have received had such Taxes not been asserted.
If the payor fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the recipient the required receipts or other
required documentary evidence, the payor shall indemnify the recipient for any
incremental Taxes, interest, or penalties that may become payable by any
recipient as a result of any such failure.
SECTION 8.4. Other Costs, Expenses and Related Matters. (a) The
Transferor agrees, upon receipt of a written invoice, to pay or cause to be
paid, and to save the Buyer, any other Owner and the Agent harmless against
liability
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for the payment of, all reasonable out-of-pocket expenses (including, without
limitation, attorneys', accountants' and other third parties' fees and expenses,
any filing fees and expenses incurred by officers or employees of the Buyer, any
other Owner and/or the Agent or intangible, documentary or recording taxes
incurred by or on behalf of the Buyer, any other Owner and the Agent) (i) in
connection with the negotiation, execution, delivery and preparation of this
Agreement, the other Transaction Documents and any documents or instruments
delivered pursuant hereto and thereto and the transactions contemplated hereby
or thereby (including, without limitation, the perfection or protection of the
Transferred Interest), and (ii) from time to time (a) relating to any
amendments, waivers or consents under this Agreement and the other Transaction
Documents, (b) arising in connection with the Buyer's, any other Owner's, the
Agent's or the enforcement or preservation of rights (including, without
limitation, the perfection and protection of the Transferred Interest under this
Agreement), or (c) arising in connection with any audit, dispute, disagreement,
litigation or preparation for litigation involving this Agreement or any of the
other Transaction Documents (all of such amounts, collectively, "Transaction
Costs").
(b) The Transferor shall pay the Agent, for the account of Buyer and
the other Owner, as applicable, on demand any Early Collection Fee due on
account of the reduction of the Net Investment on a day other than the last day
of a funding period.
SECTION 8.5. Amounts Limited to Available Funds. Notwithstanding
anything else in this Agreement to the contrary, the obligations of the
Transferor under this Article VIII shall be payable hereunder solely to the
extent funds are available therefor and, to the extent such funds are
insufficient or unavailable to pay any amounts owing by the Transferor pursuant
to this Article VIII, it shall not constitute a claim against the Transferor.
SECTION 8.6. Indemnification by Servicer. (a) The Servicer shall
indemnify and hold harmless the Indemnified Parties from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of willful
misfeasance, bad faith, or negligence in the performance of the duties of the
Servicer or by reason of reckless disregard of obligations and duties of the
Servicer hereunder or by reason of any acts, omissions or alleged acts or
omissions of the Servicer pursuant to this Agreement; provided, however, that
the Servicer shall not indemnify any such Indemnified Party for any such loss,
liability, expense, damage or injury suffered or sustained by reason of any
action taken or omitted at the written request of such Indemnified Party; and
provided, further, that the Servicer shall not indemnify any such Indemnified
Party for any such loss, liability, expense, damage or injury incurred with
respect to any action taken by such Indemnified Party constituting fraud, gross
negligence, breach of fiduciary duty or willful misconduct, with respect to the
uncollectibility of the Receivables or with respect to any federal, state or
local income or franchise taxes (or any interest or penalties with respect
thereto) required to be paid by any such Indemnified Party in connection
herewith to any taxing authority. The Servicer shall not be liable for acts or
omissions of any successor Servicer. The provisions of
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this indemnity shall run directly to and be enforceable by an injured party
subject to the limitations hereof.
(b) Promptly after receipt by an Indemnified Party under Section 8.6 of
written notice of any damage, loss or expense in respect of which indemnity may
by sought hereunder by it, such Indemnified Party will, if a claim is to be made
against the Servicer, notify the Servicer thereof in writing; but the omission
so to notify the Servicer will not relieve the Servicer from any liability
(otherwise than under this Section 8.6) which it may have to any Indemnified
Party except as may be required or provided otherwise than under this Section
8.6. Thereafter, the Indemnified Party and the Servicer shall consult, to the
extent appropriate, with a view to minimizing the cost to the Servicer of its
obligations hereunder. In case any Indemnified Party receives written notice of
any damage, loss or expense in respect of which indemnity may be sought
hereunder by it and it notifies the Servicer thereof, the Servicer will be
entitled to participate therein, and to the extent that it may elect by written
notice delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, to assume the defense thereof, with counsel
reasonably satisfactory at all times to such Indemnified Party; provided,
however, that if the parties against which any damage, loss or expense arises
include both the Indemnified Party and the Servicer and the Indemnified Party
shall have reasonably concluded that there may be legal defenses available to it
or other Indemnified Parties which are different from or additional to those
available to the Servicer and may conflict therewith, the Indemnified Party or
parties shall have the right to select one separate counsel for such Indemnified
Party or parties to assume such legal defenses and otherwise to participate in
the defense of such damage, loss or expenses on behalf of such Indemnified Party
or parties. Upon receipt of notice from the Servicer to such Indemnified Party
of its election as to assume the defense of such damage, loss, or expense and
approval by the Indemnified Party of counsel, the Servicer shall not be liable
to such Indemnified Party under this Section 8.6 for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof unless (i) the Indemnified Party shall have employed such counsel in
connection with assumption of legal defenses in accordance with the proviso to
the next preceding sentence, (ii) the Servicer shall not have employed and
continued to employ counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party within a reasonable time after notice of
commencement of the action or (iii) the Servicer shall have authorized the
employment of counsel for the Indemnified Party at the expense of the Servicer.
(c) Notwithstanding any other provisions contained in this Section 8.6,
(i) the Servicer shall not be liable for any settlement, compromise or consent
to the entry of any order adjudicating or otherwise disposing of any damage,
loss, or expense effected without its consent and (ii) after the Servicer has
assumed the defense of any damage, loss or expense under Section 8.6(b) with
respect to any Indemnified Party, it will not settle, compromise or consent to
entry of any order adjudicating or otherwise disposing thereof (1) if such
settlement, compromise or order involved the payment of
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money damages except if the Servicer agrees with such Indemnified Party to pay
such money damages and, if not simultaneously paid, to furnish such Indemnified
Party with satisfactory evidence of its ability to pay such money damages, (2)
if such settlement, compromise or order involves any relief against such
Indemnified Party, other than the payment of money damages, except with the
prior written consent of such Indemnified Party and (3) if such settlement,
compromise or order does not provide a full release of the Indemnified Party,
without the prior written consent of such Indemnified Party.
ARTICLE IX
THE AGENT
SECTION 9.1. Authorization and Action. The Buyer and each other Owner
hereby irrevocably appoints and authorizes the Agent to act as its agent under
this Agreement and the other Transaction Documents with such powers and
discretion as are specifically delegated to the Agent by the terms of this
Agreement and the other Transaction Documents, together with such other powers
as are reasonably incidental thereto. The Agent (which term as used in this
sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall
include its affiliates and its own and its affiliates' officers, directors,
employees, and agents): (a) shall not have any duties or responsibilities except
those expressly set forth in this Agreement and shall not be a trustee or
fiduciary for the Buyer or any other Owner; (b) shall not be responsible to the
Buyer or any other Owner for any recital, statement, representation or warranty
(whether written or oral) made in or in connection with any Transaction Document
or any certificate or other document referred to or provided for in, or received
by any of them under, any Transaction Document, or for the value, validity,
effectiveness, genuineness, enforceability, or sufficiency of any Transaction
Document, or any other document referred to or provided for therein or for any
failure by any of the Transferor, CAC, CompuCredit or any other Person to
perform any of its obligations thereunder; (c) shall not be responsible for or
have any duty to ascertain, inquire into, or verify the performance or
observance of any covenants or agreements by any of the Transferor, CAC or the
Servicer or the satisfaction of any condition or to inspect the property
(including the books and records) of any of the Transferor, CAC or the Servicer
or any of their Subsidiaries or Affiliates; (d) shall not be required to
initiate or conduct any litigation or collection proceedings under any
Transaction Document; and (e) shall not be responsible for any action taken or
omitted to be taken by it under or in connection with any Transaction Document,
except for its own gross negligence or willful misconduct. The Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.
SECTION 9.2. Agent's Reliance, Etc. The Agent shall be entitled to rely
upon any certification, notice, instrument, writing, or other communication
(including, without limitation, any thereof by telephone or telecopy) believed
by it to be
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genuine and correct and to have been signed, sent or made by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel for any of the Transferor, CAC or CompuCredit), independent
accountants, and other experts selected by the Agent. As to any matters not
expressly provided for by this Agreement, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Investors, and such
instructions shall be binding on the Buyer and all of the other Owners;
provided, however, that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to any Transaction
Document or applicable law or unless it shall first be indemnified to its
satisfaction by the other Owners against any and all liability and expense which
may be incurred by it by reason of taking any such action.
SECTION 9.3. Termination Events. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Potential Termination Event or a
Termination Event unless the Agent has received written notice from a Buyer, any
other Owner or the Transferor specifying such Potential Termination Event or
Termination Event and stating that such notice is a "Notice of Termination
Event". In the event that the Agent receives such a notice of the occurrence of
a Potential Termination Event or Termination Event, the Agent shall give prompt
notice thereof to the Buyer and any other Owners. The Agent shall (subject to
Section 9.2 hereof) take such action with respect to such Potential Termination
Event or Termination Event as shall reasonably be directed by the Majority
Investors, provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Potential Termination
Event or Termination Event as it shall deem advisable in the best interest of
the Buyer and any other Owners.
SECTION 9.4. Agents and Affiliates. To the extent that the Agent or any
of its Affiliates shall become an Owner hereunder, the Agent or such Affiliate,
in such capacity, shall have the same rights and powers under this Agreement as
would any Owner hereunder and may exercise the same as though it were not the
Agent. The Agent and its Affiliates may generally engage in any kind of business
with the Transferor or any Obligor, any of their respective Affiliates and any
Person who may do business with or own securities of the Transferor or any
Obligor or any of their respective Affiliates, all as if it were not the Agent
hereunder and without any duty to account therefor to the Owners.
SECTION 9.5. Indemnification of the Agent. The Owners agree to
indemnify the Agent (to the extent not reimbursed by the Transferor), ratably in
accordance with their Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees), or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
(including by the Buyer
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or any other Owner) in any way relating to or arising out of this Agreement or
any other Transaction Document or the transactions contemplated thereby or any
action taken or omitted by the Agent under this Agreement or any other
Transaction Document, provided that no other Owners shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the Person indemnified. Without limitation of the foregoing, the
other Owners agree to reimburse the Agent, ratably in accordance with their Pro
Rata Shares, promptly upon demand for any out-of-pocket expenses (including
attorneys' fees) incurred by the Agent in connection with the administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and the other Transaction Documents, to
the extent that such expenses are incurred in the interests of or otherwise in
respect of the other Owners hereunder and/or thereunder and to the extent that
the Agent is not reimbursed for such expenses by the Transferor. The agreements
contained in this Section shall survive payment in full of the Buyer's Net
Investment and all other amounts payable under this Agreement.
SECTION 9.6. Non-Reliance. Each of the Buyer and each other Owner
agrees that it has, independently and without reliance on the Agent or the Buyer
or any other Owner, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Transferor, CAC, CompuCredit,
CB&T and their Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Agent, the Buyer or any
other Owner, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under the Transaction Documents. Except for notices,
reports, and other documents and information expressly required to be furnished
to the Buyer and the other Owners by the Agent hereunder, the Agent shall not
have any duty or responsibility to provide any party hereunder with any credit
or other information concerning the affairs, financial condition, or business of
any of the Transferor, CAC, CompuCredit, CB&T or any of their Subsidiaries or
Affiliates that may come into the possession of the Agent or any of its
Affiliates.
SECTION 9.7. Resignation of Agent. The Agent may resign at any time by
giving notice thereof to the Buyer, any other Owners and the Transferor. Upon
any such resignation, the Majority Investors shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Investors and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Buyer and any other Owner, appoint a
successor Agent which shall be a commercial bank organized under the laws of the
United States of America having combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor, such successor shall thereupon succeed to and become vested with all
the rights, powers, discretion, privileges, and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
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hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article IX shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
SECTION 9.8. Payments by the Agent. Unless specifically allocated to an
Owner, pursuant to the terms of this Agreement, all amounts received by the
Agent on behalf of the Owners shall be paid by the Agent to the Owners (at their
respective accounts specified in writing to the Agent) in accordance with their
respective related interests in the Net Investment on the Business Day received
by the Agent, unless such amounts are received after 12:00 noon on such Business
Day, in which case the Agent shall use its reasonable efforts to pay such
amounts to the Owners on such Business Day, but, in any event, shall pay such
amounts to the Owners in accordance with their respective related pro rata
interests in the Net Investment not later than the following Business Day.
SECTION 9.9. UCC Filings. The Owners and the Transferor expressly
recognize and agree that the Agent may be listed as the assignee or secured
party of record on the various UCC filings required to be made hereunder in
order to perfect the transfer of the Transferred Interest from the Transferor to
the Owners, that such listing shall be for administrative convenience only in
creating a record or nominee owner to take certain actions hereunder on behalf
of the Owners and that such listing will not affect in any way the status of the
Owners as the beneficial owners of their respective interests in the Transferred
Interest. In addition, such listing shall impose no duties on the Agent other
than those expressly and specifically undertaken in accordance with this Article
IX.
ARTICLE X
GUARANTY AND GUARANTOR COVENANTS
SECTION 10.1 Guaranty. In consideration of, and in order to induce the
Buyer, any other Owner and the Agent to enter into this Agreement and to accept
the Transfers hereunder, the Guarantor hereby unconditionally and irrevocably
guarantees to the Buyer, any other Owner, the Agent, Liquidity Provider and
Credit Support Provider and their respective successors and assigns, the due and
punctual performance and payment by the Transferor, of all representations and
warranties, covenants, agreements, terms, conditions and indemnities to be
performed and observed by the Transferor under this Agreement, including,
without limitation, the due and punctual payment of all sums which are or may
become due and owing by the Transferor under the terms and provisions of this
Agreement; provided, however, that the Guarantor shall not bear any recourse for
losses on Receivables with respect to which the Obligors have failed to make
payments and, notwithstanding any other provision of this Section 10.1, if the
Transferor is unable to pay, as a result of Obligors' failing to make payment on
Receivables, any amount of the Buyer's Net Investment or
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any amount constituting Carrying Costs, then CompuCredit shall not be liable for
such amounts (except for amounts with respect to the breach of any of the
Transferor's obligations under Article VIII hereunder or of any of its
representations or warranties or other covenants and indemnifications
hereunder). In no event shall CompuCredit be liable for the nonperformance,
nonobservance or failure to pay by any Person other than the Transferor.
SECTION 10.2. Waivers. (a) The Guarantor hereby waives promptness,
diligence and notice of acceptance of the guaranty made in Section 10.1 (the
"Guaranty") of any action taken or omitted in reliance hereon or of any default
in the payment of any such sums or in the performance of any covenants,
agreements, terms, conditions and any demand, protest or other notice of any
kind. The Guarantor expressly waives the right to require any party to protect,
secure, perfect, insure, proceed against or exhaust any collateral in which a
security interest, lien, mortgage or like encumbrance has been granted by the
Transferor as security for the payment of any sums due hereunder or to exhaust
any right or take any action against the Transferor or any other Person or any
collateral.
(b) The obligations of the Guarantor under this Guaranty constitute a
present and continuing guaranty of payment and not of collectibility and all
payments made by the Guarantor hereunder will be made without set-off,
counterclaim or other defense. The obligations of the Guarantor under this
Guaranty shall be absolute and unconditional and shall not be subject to any
counterclaim, set-off, deduction or defense. This Guaranty shall remain in full
force and effect without regard to and shall not be released, discharged or in
any way affected or impaired by any thing, event, happening, matter,
circumstance or condition whatsoever, whether or not the Guarantor shall have
any knowledge or notice thereof or consent thereto, including, without
limitation: (i) any amendment or modification of or supplement to any
Transaction Documents, assignment or transfer of any interest of the Buyer, any
other Owner or Agent therein, including, without limitation, any renewal or
extension of the terms of payment of any sums due or contingently due hereunder
or the granting of time in respect of any payment, any furnishing or acceptance
of security or any release of any security so furnished or accepted for any sum
due or contingently due hereunder; (ii) any waiver, consent, extension, granting
of time, forbearance, indulgence or other action or inaction under or in respect
of any Transaction Document or any exercise or no exercise of any right, remedy
or power in respect thereof; (iii) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceedings with
respect to the Guarantor, Transferor or any other Person, or the properties or
creditors thereof; (iv) the occurrence of any Termination Event under this
Agreement, or any invalidity, illegality or any unenforceability of, or any
misrepresentation, irregularity or other defect in, any provision of any
Transaction Document; (v) any transfer or purported transfer, any consolidation
or merger of the Transferor or any other Person with or into any other
corporation or entity, or any change whatsoever in the objects, capital
structure, constitution or business of the Transferor or any other Person; (vi)
any failure on the part of the Transferor or any other
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Person to perform or comply with any term of any Transaction Document; (vii) any
suit or other action brought by any creditors of the Transferor for any reason
whatsoever, including, without limitation, any suit or action in any way
attacking or involving any Transaction Document or (viii) any limitation
contained in Section 8.5 hereof.
SECTION 10.3. Reinstatement. The obligations of the Guarantor in
respect of this Guaranty shall continue to be effective or shall be reinstated,
as the case may be, if at any time any payment in respect of any obligations
guaranteed hereunder is rescinded or must otherwise be returned by any of the
parties in whose favor this Guaranty is being made upon the insolvency,
bankruptcy or reorganization of the Transferor or otherwise, all as though such
payment had not been made.
SECTION 10.4. Subrogation. If the Guarantor shall make any payment due
in respect of this Guaranty, it shall to the extent permitted by applicable law,
be subrogated to the rights of the party in respect of which such payment was
made; provided however, that such rights of subrogation and all indebtedness and
claims arising therefrom shall be, and the Guarantor hereby declares that they
are, and shall at all times be, in all respects subordinate and junior to all
sums due or contingently due under the Transaction Documents. The Guarantor
hereby agrees that the foregoing right of subrogation shall not be effective
until, and that it shall not be entitled to receive any payment, under any
condition, in respect of any such subrogated claim unless and until, all sums
which may become due, or are stated in the Transaction Documents to become due,
shall have become due, shall have been paid in full or funds for their payment
shall have been duly and sufficiently provided.
SECTION 10.5. Net Worth Ratio. The Guarantor agrees that, at all times
during the period referred to in the first paragraph of Section 5.2 hereof, the
ratio of (a) its tangible net worth (equal to shareholders' equity according to
GAAP minus any write-up in the book value of assets resulting from the
revaluation thereof subsequent to the date hereof minus treasury stock minus
patents, copyrights, trademarks or goodwill and other like intangibles,
excluding capitalized software not in excess of $4,000,000) to (b) total assets
managed by the Guarantor (determined, with respect to the Receivables and other
credit card receivables acquired by the Guarantor or any Affiliate of the
Guarantor, based on the purchase price paid with respect to the Receivables
pursuant to the Sale and Purchase Agreement with respect to the Receivables and
any other similar purchase agreement with respect to any other credit card
receivables) shall not be less than .08:1.
SECTION 10.6. Financial Reporting. CompuCredit will maintain, a system
of accounting established and administered in accordance with GAAP, and will
furnish to the Agent:
(i) Annual Reporting. (A) Within one hundred five (105) days
after the close of CompuCredit's fiscal year, (beginning with the
fiscal year ending in 1998) audited financial statements, prepared in
accordance with GAAP
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on a consolidated basis for CompuCredit, including balance sheets as of
the end of such period, related statements of operations, shareholder's
equity and cash flows, accompanied by an unqualified audit report
certified by independent certified public accountants, which
accountants shall be acceptable to the Agent, prepared in accordance
with GAAP and, upon the Agent's request, any management letter prepared
by said accountants and accompanied by a certificate of said
accountants that CompuCredit is in compliance with its agreement set
forth in Section 10.5 or, if CompuCredit is not in compliance with such
agreement, stating the nature and status thereof and showing the
computation of the financial ratios and restrictions set forth in
Section 10.5.
(ii) Quarterly Reporting. Within sixty (60) days after the
close of the first three quarterly periods of CompuCredit's fiscal
year, for CompuCredit consolidated unaudited balance sheets (excluding
financial footnotes) as at the close of each such period and
consolidated related statements of operations, shareholder's equity and
cash flows for the period from the beginning of such fiscal year to the
end of such quarter, and showing the computation of each of the
financial ratios and restrictions set forth in Section 10.5 all
certified by its chief financial officer, chairman, president,
treasurer or any executive vice president.
(iii) Compliance Certificate. Together with the financial
statements required hereunder, a compliance certificate signed by the
chief financial officer, chairman, president, treasurer or any
executive vice president of CompuCredit stating that the attached
financial statements (except for the financial footnotes excluded in
clause (ii) above) have been prepared in accordance with GAAP and, to
the best of such person's knowledge, accurately reflect the financial
condition of CompuCredit, and showing compliance with, the financial
ratios and restrictions set forth in Section 10.5.
(iv) Shareholders Statements and Reports. Promptly upon the
furnishing thereof to the shareholders of CompuCredit, copies of all
financial statements, reports and proxy statements so furnished.
(v) S.E.C._Filings. Promptly upon the filing thereof, copies
of all registration statements and annual, quarterly, monthly or other
regular reports which CompuCredit files with the Securities and
Exchange Commission.
SECTION 10.7. Notices. CompuCredit shall promptly notify the Agent of
(i) a Termination Event or (ii) CB&T's failure to observe, keep or perform any
material term, condition, covenant, representation or warranty of the Facilities
Management Agreement or the Affinity Card Agreement, in each case, of which it
has knowledge.
SECTION 10.8. Sub Servicing Fee. On the last day of any Collection
Period, the Servicer shall pay to the Agent, for the benefit of the Buyer and
any other
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Owner, as applicable, the amount of any Sub-Servicing Fee retained by the
Sub-Servicer during such Collection Period in excess of one-twelfth of the
product of (i) 4% per annum and (ii) the average daily Principal Receivables
during such Collection Period. Such amount shall be paid by the Servicer in
immediately available funds to the Collection Account, to be distributed on the
next Remittance Date in accordance with Section 2.5 hereof.
SECTION 10.9. Co-Beneficiary Designations. By no later than 30 days
after the Closing Date, CompuCredit shall cause (and shall furnish the Agent
with evidence demonstrating) the Agent to be designated a (a) co-beneficiary of
the "Key Person" insurance obtained by CompuCredit with respect to the following
principals of CompuCredit: David G. Hanna, Brett M. Samsky, and Rick Gilbert,
and (b) co-insured party on the fidelity bond insurance policy obtained by
CompuCredit covering losses from employee, officer and director theft, fraud,
misappropriation, and embezzlement, for all employees, officers and directors of
CompuCredit, in the amount of at least $25 million.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Term of Agreement. This Agreement shall terminate on the
date following the Termination Date upon which the Buyer's Net Investment has
been reduced to zero, all Carrying Costs have been paid in full and all other
Aggregate Unpaids have been paid in full, in each case, in cash; provided,
however, that (i) the rights and remedies of the Agent, Buyer, other Owner and
the Administrative Agent with respect to any representation and warranty made or
deemed to be made by the Transferor pursuant to this Agreement, (ii) the
indemnification and payment provisions of Article VIII, and (iii) the agreement
set forth in Section 11.9 hereof, shall be continuing and shall survive any
termination of this Agreement.
SECTION 11.2. Waivers; Amendments. (a) No failure or delay on the part
of the Agent, Buyer, the Administrative Agent or any other Owner in exercising
any power, right or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
remedy preclude any other further exercise thereof or the exercise of any other
power, right or remedy. The rights and remedies herein provided shall be
cumulative and nonexclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement or any other Transaction Document may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Transferor, the Servicer, Buyer and the Majority Owner (and, if
Article IX or the rights or duties of the Agent are affected thereby, by the
Agent); provided that no such amendment or waiver shall, unless signed by each
other Owner directly affected thereby, (i) [increase the Commitment of any other
Owner, (ii) reduce the Buyer's Net
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Investment or rate of interest to accrue thereon or any fees or other amounts
payable hereunder, (iii) postpone any date fixed for the payment of any
scheduled distribution in respect of the Buyer's Net Investment or interest with
respect thereto or any fees or other amounts payable hereunder [or for
termination of any Commitment,] (iv) change the [percentage of the Commitments]
or the number of other Owners, which shall be required for the other Owners or
any of them to take any action under this Section or any other provision of this
Agreement, (v) release all or substantially all of the property with respect to
which a security interest therein has been granted hereunder to the Agent or the
other Owners or (vi) extend or permit the extension of the Commitment
Termination Date. In the event the Agent requests Buyer's or any other Owner's
consent pursuant to the foregoing provisions and the Agent does not receive a
consent (either positive or negative) from Buyer or such other Owner within 10
Business Days of Buyer's or other Owner's receipt of such request, then Buyer or
such other Owner (and its percentage interest hereunder) shall be disregarded in
determining whether the Agent shall have obtained sufficient consent hereunder.
SECTION 11.3. Notices. Except as provided below, all communications and
notices provided for hereunder shall be in writing (including telecopy or
electronic facsimile transmission or similar writing) and shall be given to the
other party at its address or telecopy number set forth below or at such other
address or telecopy number as such party may hereafter specify for the purposes
of notice to such party. Each such notice or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 11.3 and confirmation is received,
(ii) if given by mail, 3 Business Days following such posting, postage prepaid,
U.S. certified or registered, (iii) if given by overnight courier, one (1)
Business Day after deposit thereof with a national overnight courier service, or
(iv) if given by any other means, when received at the address specified in this
Section 11.3. However, anything in this Section to the contrary notwithstanding,
the Transferor hereby authorizes Buyer to effect Transfers and funding period
selections based on telephonic notices made by any Person which Buyer in good
faith believes to be acting on behalf of the Transferor. The Transferor agrees
to deliver promptly to Buyer a written confirmation of each telephonic notice
signed by an authorized officer of Transferor. However, the absence of such
confirmation shall not affect the validity of such notice. If the written
confirmation differs in any material respect from the action taken by Buyer, the
records of Buyer shall govern absent manifest error.
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If to the Buyer:
Sheffield Receivables Corporation
c/o Barclays Bank PLC
222 Broadway, 7th Floor
New York, New York 10030
Attention: Andrew Shuster
Telephone: (212) 412-7554
Telecopy: (212) 412-6846
(with a copy to the Agent)
If to the Transferor:
CompuCredit Acquisition Funding Corp. II
Two Ravinia Drive, Suite 650
Atlanta, GA 30346
Telephone: (770) 901-392-6001
Telecopy: (770) 901-392-6049
Payment Information:
NationsBank, N.A.
Atlanta, Georgia
ABA # 061000052
Account: CompuCredit Acquisition Funding Corp. II
Account No. 326-247-1651
If to CompuCredit Corporation:
CompuCredit Corporation
Two Ravinia Drive, Suite 1750
Atlanta, GA 30346
Telephone: (770) 901-5840
Telecopy: (770) 901-5815
If to the Agent:
Barclays Bank PLC,
222 Broadway, 7th Floor
New York, New York 10035
Attention: Mary Logan
Telephone: (212) 412-3266
Telecopy: (212) 412-6846
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SECTION 11.4. Governing Law; Submission to Jurisdiction; Integration
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each of the parties hereto
hereby irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 11.4 shall affect the right of the parties hereto to bring any
action or proceeding against any other party hereto or its property in the
courts of other jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR
THE OTHER TRANSACTION DOCUMENTS.
(c) This Agreement contains the final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire Agreement among the parties hereto with
respect to the subject matter hereof superseding all prior oral or written
understandings.
(d) The Transferor and CompuCredit each hereby appoint CT Corporation
located at 1633 Broadway, New York, New York 10019 as the authorized agent upon
whom process may be served in any action arising out of or based upon this
Agreement, the other Transaction Documents to which such Person is a party or
the transactions contemplated hereby or thereby that may be instituted in the
United States District Court for the Southern District of New York and of any
New York State court sitting in The City of New York by Buyer, the Agent, any
other Owner, or any assignee of any of them.
SECTION 11.5. Severability; Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto 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 Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction
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<PAGE>
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 11.6. Successors and Assigns. (a) This Agreement shall be
binding on the parties hereto and their respective successors and assigns;
provided, however, that (other than as permitted pursuant to Section 5.1(j) and
under the Purchase Agreement) neither the Transferor nor CompuCredit may assign
any of its rights or delegate any of its duties hereunder or under the
Receivables Purchase Agreement or under any of the other Transaction Documents
to which it is a party without the prior written consent of the Agent.
(b) Each of the Transferor and CompuCredit hereby agrees and consents
to the assignment by Buyer from time to time of all or any part of its rights
under, interest in and title to this Agreement and the Transferred Interest to
any Liquidity Provider; provided, however, that any such assignment shall be
made in accordance with the provisions of Section 11.11 hereof.
SECTION 11.7. Disclosure. Each of the Transferor and CompuCredit hereby
consents to the disclosure of any non-public information with respect to it
received by the Buyer, the Agent, any other Owner or the Administrative Agent to
any of the Buyer, the Agent, any nationally recognized rating agency rating
Buyer's Commercial Paper, the Agent, any other Owner, or, to the extent that it
is an Affiliate of the Agent, [the Liquidity Provider or the Credit Support
Provider] in relation to this Agreement.
SECTION 11.8. Confidentiality Agreement. Each of the Transferor and
CompuCredit hereby agrees that it will not disclose the contents of this
Agreement or any other proprietary or confidential information of the Buyer, the
Agent, any Liquidity Provider or any other Owner to any other Person except (i)
its auditors and attorneys, employees or financial advisors (other than any
commercial bank) and any nationally recognized rating agency, provided such
auditors, attorneys, employees, financial advisors or rating agencies are
informed of the highly confidential nature of such information, (ii) as
otherwise required by applicable law or order of a court of competent
jurisdiction, or (iii) required in response to any summons or subpoena or in
connection with any litigation; and provided, further, however, that the
Transferor and the Servicer shall have no obligation of confidentiality in
respect of any information which may be generally available to the public or
becomes available to the public through no fault of theirs. Such documents shall
include, but not be limited to, research studies, proprietary technology, trade
secrets, know-how, market studies and forecasts, competitive analyses, pricing
policies, the substance of agreements with customers and others, marketing
arrangements, customer lists and other documents embodying such confidential
information.
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<PAGE>
SECTION 11.9. No Bankruptcy Petition. (a) Each of the Transferor and
CompuCredit hereby covenants and agrees that, prior to the date which is one
year and one day after the payment in full of all outstanding Commercial Paper
or other indebtedness of Buyer, it will not institute against, or join any other
Person in instituting against, Buyer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
(b) Notwithstanding any prior termination of this Agreement, the Buyer,
any other Owner, the Agent, the Servicer, each Person which acquires an interest
in the Transferor's Interest and each of their respective successors and
assigns, shall not, prior to the date which is one year and one day after the
termination of this Agreement, acquiesce, petition or otherwise invoke or cause
the Transferor to invoke the process of any Governmental Authority for the
purpose of commencing or sustaining a case against the Transferor under any
Federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Transferor or any substantial part of its property or ordering the
winding-up or liquidation of the affairs of the Transferor.
SECTION 11.10. No Recourse Against Stockholders, Officers or Directors.
No recourse under any obligation, covenant or agreement of Buyer contained in
this Agreement shall be had against any stockholder, officer or director of
Buyer, as such, by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise; it being expressly
agreed and understood that this Agreement is solely a corporate obligation of
Buyer, and that no personal liability whatsoever shall attach to or be incurred
by the stockholders, officers or directors of the buyer, as such, or any of
them, under or by reason of any of the obligations, covenants or agreements of
Buyer contained in this Agreement, or implied therefrom, and that any and all
personal liability for breaches by Buyer of any of such obligations, covenants
or agreements, either at common law or at equity, or by statute or constitution,
of every such stockholder, officer or director of the Buyer is hereby expressly
waived as a condition of and consideration for the execution of this Agreement.
SECTION 11.11. Tax Matters
(a) Notwithstanding anything to the contrary herein, the Servicer shall
be entitled to withhold any amount that it determines in its sole discretion is
required to be withheld pursuant to Section 1446 of the Code and such amount
shall be deemed to have been paid for all purposes of the Agreement.
(b) Each Owner agrees that prior to the date on which the first
interest payment hereunder is due thereto, it will provide to the Servicer (i)
if such Owner is incorporated or organized under the laws of a jurisdiction
outside the United States, two duly completed copies of the United States
Internal Revenue Service Form 4224 or, if
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<PAGE>
the Transferor in its sole discretion consents, Form 1001, or in either case
successor applicable or required forms, (ii) upon the request of the Transferor,
a duly completed copy of United States Internal Revenue Service Form W-9 or, if
the Transferor in its sole discretion consents, Form W-8, or in either case
successor applicable or required forms, and (iii) such other forms and
information as may be required to confirm the availability of any applicable
exemption from United States federal, state or local withholding taxes. Each
Owner agrees to provide to the Servicer like additional subsequent duly
completed forms (subject to like consent) satisfactory to the Servicer on or
before the date that any such form expires or becomes obsolete, or upon the
occurrence of any event requiring an amendment, resubmission or change in the
most recent form previously delivered by it, and to provide such extensions or
renewals as may be reasonably requested by the Servicer. Each Owner certifies,
represents and warrants that as of the date of this Agreement, or in the case of
an Owner which is an assignee as of the date of such Assignment, that it is
entitled (x) to receive payments under this Agreement without deduction or
withholding (other than pursuant to Section 1446 of the Code, if applicable) of
any United States federal income taxes and (y) to an exemption from United
States backup withholding tax. Each Owner represents and warrants (but without
limitation to its rights under Section 8.2 that it shall pay any taxes imposed
on such Owner (but without limitation to its rights under Section 8.2)
attributable to its interest in the Transferred Interest.
(c) Each Owner agrees with the Transferor that: (i) such Owner, will
deliver to the Transferor, on or before the Closing Date or the effective date
of any participation or Assignment, a letter in the form annexed hereto as
Exhibit K (an "Investment Letter"), executed by such assignee, with respect to
the purchase by such Owner, of a portion of an interest relating to the
Transferred Interest and (ii) all of the statements made by such Owner, as
applicable, in its Investment Letter shall be true and correct as of the date
made.
(d) Each Owner, by its holding of an interest in the Transferred
Interest, hereby severally represents, warrants and covenants, and each Buyer or
Owner, as applicable, that acquires an interest in the Transferred Interest by
Assignment shall be deemed to have severally represented, warranted and
covenanted upon such Assignment that: (i) such Buyer or Owner, as applicable,
has not acquired and shall not sell, trade or transfer any interest in the
Transferred Interest, nor cause any interest in the Transferred Interest to be
marketed, on or through either (A) an "established securities market" (or the
substantial equivalent thereof) within the meaning of Section 7704(b)(1) of the
Code (including an interdealer quotation system that regularly disseminates firm
buy or sell quotations by identified brokers or dealers by electronic means or
otherwise) or (B) a "secondary market" (or the substantial equivalent thereof)
within the meaning of Section 7704(b)(2) of the Code (including a market wherein
interests in the Transferred Interest are regularly quoted by any person making
a market in such interests and a market wherein any person regularly makes
available bid or offer quotes with respect to interests in the Transferred
Interest and stands ready to effect buy or sell transactions at the quoted
prices for itself or on behalf of others), and
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(ii) unless the Transferor consents otherwise, such Buyer or Owner, as
applicable, (A) is properly classified as, and shall remain classified as, a
"corporation" as described in Section 7701(a)(3) of the Code and (B) is not, and
shall not become, an "S corporation" as described in Section 1361 of the Code.
Each Buyer or Owner, as applicable, represents, warrants and covenants that it
shall (A) cause each of its Participants otherwise permitted hereunder to make
representations, warranties and covenants similar to the foregoing for the
benefit of the Transferor at the time such Participant becomes a Participant and
(B) forward a copy of such representations, warranties and covenants to the
Transferor. In the event of any breach of the representation, warranty and
covenant of a Buyer or Owner, as applicable, or its Participant that such Buyer
or Owner, as applicable, or Participant shall remain classified as a corporation
other than an S corporation, such Buyer or Owner, as applicable, shall notify
the Transferor promptly upon such Buyer or Owner, as applicable, becoming aware
of such breach, and thereupon the Buyer or Owner, as applicable, hereby agrees
to use reasonable efforts to procure a replacement investor not so affected
which is acceptable to the Transferor and the Buyer to replace such affected
Buyer or Owner, as applicable. In any such event, the Transferor shall also have
the right to procure a replacement investor, provided such replacement investor
(i) is acceptable to the Buyer and the Agent and (ii) any replacement of the
Buyer will terminate the obligations of the Agent hereunder and (iii) any
replacement of the Agent, in its capacity as Agent hereunder or as an Owner,
shall require the replacement of the Buyer. Each affected Buyer and Owner hereby
agrees to take all actions necessary to permit a replacement investor to succeed
to its rights and obligations hereunder. Each Buyer and Owner which has a
Participant which has breached its representation, warranty and covenant that it
shall remain classified as a corporation other than an S corporation hereby
agrees (without limiting the right of the Transferor to procure a replacement
investor for such Buyer or Owner as applicable, as provided above in this
paragraph) to notify the Transferor of such breach promptly upon such Buyer or
Owner, as applicable, becoming aware thereof and to use reasonable efforts to
procure a replacement Participant, as applicable, not so affected which is
acceptable to the Transferor and the Buyer to replace any such Participant.
(e) Subject to the provisions of subsection (g), each Owner may at any
time sell, assign or otherwise transfer, to the extent of such Owner's interest
in the Transferred Interest, to (i) a Permitted Assignee, in the case of an
Assignment by Buyer or its assigns or (ii) any other Person to which the
Transferor may consent, which consent shall not be unreasonably withheld (it
being understood that such consent shall be considered to be withheld reasonably
on the basis that, and no Assignment pursuant to clause (i) or (ii) above shall
be permitted if, following such proposed Assignment the number of Private
Holders would exceed 80 or otherwise cause the arrangement created pursuant to
this Agreement to be in jeopardy of being treated as taxable as a publicly
traded partnership pursuant to Section 7704 of the Code) all or part of its
interest in the Transferred Interest; provided, however, that any Assignment
shall be void unless (x) the minimum amount of such Assignment shall be
$5,000,000, (y) such assignee Buyer or other Owner, as applicable, shall comply
with this Section 11.11 and
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<PAGE>
shall have delivered to the Transferor, prior to the effectiveness of such
Assignment, a copy of an agreement under which such assignee has made the
representations, warranties and covenants required to be made pursuant to this
Section 11.11, and (z) such proposed assignee shall provide the forms described
in Section 11.11(b) (subject to the Transferor's consent, as applicable and as
set forth therein) in the manner described therein. In connection with any
Assignment, the assignor Buyer or the Owner, as applicable, shall request in
writing to the Transferor for the consent of the Transferor (if required
pursuant to this Section) (the Transferor shall respond to any such request
within ten Business Days after its receipt and the Transferor will not
unreasonably withhold such consent) it being understood that the obtaining of
such consent (if required pursuant to this Section) is a condition to the
effectiveness of the Assignment. Each assignee of a Buyer or other Owner, as
applicable, is subject to the terms and conditions of subsection 11.11(b) on an
ongoing basis and hereby makes the certifications, representations and
warranties contained therein.
(f) Subject to the provisions of subsection (g), any Owner may at any
time grant a participation in all or part of its interest in the Transferred
Interest to (i) a Permitted Assignee, in the case of a participation granted by
Buyer or its assigns or (ii) any other Person to which the Transferor may
consent, which consent shall not be unreasonably withheld (it being understood
that such consent shall be considered to be withheld reasonably on the basis
that, and no participation pursuant to clause (i) or (ii) above shall be
permitted if, following such proposed participation the number of Private
Holders would exceed 80 or otherwise cause the arrangement created pursuant to
this Agreement to be in jeopardy of being treated as taxable as a publicly
traded partnership pursuant to Section 7704 of the Code) (each such Person, a
"Participant"); provided, however, that such participation shall be void, unless
such Participant complies with the applicable provisions of this Section 11.11
and such Buyer or other Owner, as applicable, delivers to the Transferor, prior
to the effectiveness of its participation, a copy of an agreement under which
such Participant has made the representations, warranties and covenants to be
made pursuant to this Section 11.11. In connection with the granting of any such
participation to any Person, the granting Buyer or other Owner, as applicable,
shall provide a written request to the Transferor for the consent of the
Transferor to the granting of the specified interest to any identified
prospective Participant, if such consent is required to be given pursuant to
this Section, and the Transferor shall respond to any such request within ten
Business Days after its receipt, it being understood that the obtaining of such
consent (if so required) is a condition to the effectiveness of a participation.
Each Buyer and other Owner hereby acknowledges and agrees that any such
participation will not alter or affect in any way whatsoever such Buyer's and
other Owner's direct obligations hereunder and that the Transferor shall have no
obligation to have any communication or relationship whatsoever with any
Participant of such Buyer or other Owner, as applicable, in order to enforce the
obligations of such Buyer or other Owner, as applicable, hereunder. Each Buyer
and other Owner shall promptly notify the Transferor in writing of the identity
and interest of each Participant upon any such disposition. As a condition of
granting any participation, the applicable Buyer or other Owner hereby agrees to
deliver to the
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<PAGE>
Transferor a certification of the proposed Participant pursuant to which the
Participant certifies, represents and warrants that (i) such Participant is
entitled to (x) receive payments with respect to its participation without
deduction or withholding of any United States federal income taxes and (y) an
exemption from United States backup withholding tax, (ii) prior to the date on
which the first interest payment is due to the Participant, such Buyer or other
Owner, as applicable, will provide to the Servicer the forms described in
clauses (i), (ii) and (iii) of subsection 11.11(b) (subject to the Transferor's
consent, as applicable and as set forth therein) as though the Participant were
a Buyer or other Owner, as applicable, (iii) such Buyer or other Owner similarly
will provide subsequent forms as described in subsection 11.11(b) with respect
to such Participant as though it were a Buyer or other Owner, as applicable, and
(iv) such Participant will pay any taxes imposed on its participation interest
in the Transferred Interest.
(g) Except (i) as provided in subsections (e) and (f) above and in
Sections 9.9 and 11.6 hereof and (ii) in connection with any pledge to any
Federal Reserve Bank to secure any obligation of the Buyer or other Owner,
neither the Buyer nor any other Owner may transfer, assign, exchange or
otherwise convey or pledge, hypothecate, or otherwise grant a security interest
in the Transferred Interest and any such attempted transfer, assignment,
exchange, conveyance, pledge, hypothecation or grant shall be void.
SECTION 11.12. Tax Treatment. The Transferor has entered into this
Agreement, and the interests of the Buyer in the Transferred Interest will be
issued, with the intention that, for federal, state and local income and
franchise tax purposes, the Transferred Interest will qualify as indebtedness
secured by the Receivables. The Transferor, by entering into this Agreement, and
the Buyer, by the acceptance of any such interest in the Transferred Interest,
agree to treat such interest in the Transferred Interest for federal, state and
local income and franchise tax purposes as indebtedness of the Transferor. The
Buyer agrees that it will cause any Person acquiring an interest in the
Transferred Interest through it to comply with this Agreement as to treatment as
indebtedness under applicable tax law, as described in this Section 9.11. None
of the parties hereto shall make the election provided for in Treasury
Regulation section 301.7701-3(c). The provisions of this Agreement shall be
construed in furtherance of the foregoing intended tax treatment.
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IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Transfer and Administration Agreement as of the date first
written above.
SHEFFIELD RECEIVABLES CORPORATION,
as Buyer
By:/s/ Michael Wade
-------------------------------------
Name:
Title:
COMPUCREDIT ACQUISITION FUNDING CORP. II,
as the Transferor
By:/s/ Ashley Johnson
-------------------------------------
Name: Ashley Johnson
Title: Secretary and Treasurer
COMPUCREDIT CORPORATION, individually
and as Servicer and Guarantor
By: /s/ Brett M. Samsky
-------------------------------------
Name: Brett M. Samsky
Title: Chief Financial Officer
BARCLAYS BANK PLC
as the Agent
By: [illegible]
-------------------------------------
Name:
Title:
[Signature Page to Transfer and Administration Agreement]
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<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Summary Financial
Information and Operating Data", "Selected Consolidated Financial Data", and
"Experts" and to the use of our report dated July 23, 1998, in the
Registration Statement (Form S-1 No. 333-00000) and related Prospectus of
CompuCredit Corporation dated December 30, 1998.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
December 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS COMPUCREDIT CORPORATION AND SUBSIDIARIES FOR THE PERIOD
ENDED SEPTEMBER 30, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0001068199
<NAME> COMPUCREDIT CORPORATION
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 5,993,937 1,677,565
<SECURITIES> 0 0
<RECEIVABLES> 27,870,220 14,955,607
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0<F1> 0<F1>
<PP&E> 1,852,810 756,164
<DEPRECIATION> 366,809 (79,228)
<TOTAL-ASSETS> 68,170,454 20,215,099
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 0 0
0 0
20,000,000 20,000,000
<COMMON> 0 0
<OTHER-SE> 29,099,461 (872,771)
<TOTAL-LIABILITY-AND-EQUITY> 68,170,454 20,215,099
<SALES> 0 0
<TOTAL-REVENUES> 42,411,027 4,667,774
<CGS> 0 0
<TOTAL-COSTS> 9,914,245 3,971,311
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 1,421,553
<INTEREST-EXPENSE> 0<F2> 0<F2>
<INCOME-PRETAX> 32,496,782 (725,090)
<INCOME-TAX> 12,478,000 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 20,018,782 (725,090)
<EPS-PRIMARY> 9.01 (0.65)
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1>THE CONSOLIDATED BALANCE SHEET INCLUDED IN THE REGISTRANT'S FORM S-1 IS
UNCLASSIFIED.
<F2>INTEREST EXPENSE IS CONSIDERED AN OPERATING EXPENSE FOR THE REGISTRANT, AS ONE
OF THE REGISTRANT'S PRIMARY SOURCES OF INCOME IS INTEREST EARNED ON SECURITIZED
CREDIT CARD LOANS.
<F3>EPS ON A DILUTED BASIS IS NOT PRESENTED.
</FN>
</TABLE>
