<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION NO. 333-69879
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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) 885-3514 Facsimile: (202) 339-8500
Facsimile: (404) 962-6554
</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............... $--(4)
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, 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 of 1933.
(4) The filing fee of $44,480 has been previously paid.
----------------------------------
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'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 7 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.]
ii
<PAGE>
PROSPECTUS SUMMARY
You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. The term "CompuCredit," as
used in this prospectus, refers to CompuCredit Corporation and its subsidiaries
and its predecessor, CompuCredit L.P. 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 CompuCredit may issue
pursuant to its 1998 Stock Option Plan;
- assumes CompuCredit has already effected a 15.2-for-1 stock split which
will occur at the same time as the closing of this offering; and
- assumes CompuCredit has already exchanged all of its outstanding preferred
stock, including accrued dividends, for shares of common stock,
which will occur at the same time as the closing of this offering.
THE COMPANY
CompuCredit is a credit card company. CompuCredit uses analytical techniques
that is has developed and information provided by credit bureaus to target
consumers who management believes are under-served by more traditional providers
of consumer credit. CompuCredit originates and purchases credit card receivables
and markets products and services to its clients for which it earns fees.
CompuCredit's current credit product is the Aspire-Registered Trademark-
Visa-Registered Trademark- credit card, which CompuCredit 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-. CompuCredit markets 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.
CompuCredit 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, CompuCredit 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,
CompuCredit had 249,000 accounts with an aggregate managed portfolio of $406.3
million of credit card receivables. CompuCredit intends to continue the growth
of its portfolio through offers of credit cards to 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.
TARGET MARKETING AND ACCOUNT MANAGEMENT STRATEGY
CompuCredit has developed scoring models which evaluate the credit and
bankruptcy risks of consumers using credit bureau data and repayment history on
consumer loans. CompuCredit believes that its scoring models allow it to
evaluate credit risk more effectively than most traditional providers of
consumer credit. In particular, these models allow CompuCredit to identify
unique pools of consumers with similar risk characteristics and to offer credit
options that have been tailored to these pools of potential clients. CompuCredit
believes that traditional consumer credit grantors make credit decisions more
frequently based on standard credit scores such as the Fair, Isaac & Company,
Inc. score, which is commonly referred to as a FICO score.
CompuCredit believes that consumers in its target market are not being
solicited with offers of credit cards as often as other consumers. 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
1
<PAGE>
delinquency, a default or a bankruptcy in their credit histories, but have, in
CompuCredit's view, demonstrated recovery. Other consumers in this target market
are establishing or expanding their credit.
Based on research it has conducted with a national credit bureau,
CompuCredit believes that there are approximately 82 million consumers in the
United States that are under-served by consumer credit grantors. Using its
proprietary scoring models, CompuCredit 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 CompuCredit's credit card. Since
1996, CompuCredit has conducted periodic research that indicates that the
particular consumers included in the pool of potential clients changes over time
as individuals' credit characteristics change relative to CompuCredit's
criteria.
CompuCredit's database accumulates client behavior information throughout
the client relationship. CompuCredit monitors this information, including
transactions and the type of usage that occurs on its Aspire Visa cards, as part
of its account management process. CompuCredit believes that the combination of
its proprietary databases, custom scoring models, risk-based pricing strategies,
account management strategies 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.
OPERATIONAL STRATEGY
CompuCredit's strategy focuses on those aspects of the credit card business
in which it has a competitive advantage or a particular competency, such as
credit and risk decision-making, account acquisition strategies, management of
system and model development, collections and ongoing account management.
CompuCredit issues its Aspire credit card under an Affinity Card Agreement with
Columbus Bank and Trust Company, a state-chartered banking subsidiary of Synovus
Financial Corporation. CompuCredit outsources to Columbus Bank and Trust and its
affiliate, Total Systems Services, Inc., certain back office and fulfillment
functions such as card embossing/mailing, fraud detection, cycle billing,
payment processing and transaction processing. CompuCredit believes that
outsourcing allows it to take advantage of the vast expertise already available
to the credit card industry.
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., a national
third party collection agency, during the 1980's until its sale in 1990 to First
Financial Management Corporation, currently known as First Data Corporation. Mr.
Hanna also founded Account Portfolios L.P. in 1989 with Frank J. Hanna, III, his
brother, who is a principal shareholder of CompuCredit and will be a director of
CompuCredit 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. Before joining CompuCredit in 1996, Mr.
Gilbert served initially as Chief Operating Officer of Equifax Credit
Information Services, Inc.'s collection division and subsequently as General
Manager of Strategic Client Services for Equifax. Richard R. House, Jr.,
CompuCredit's Chief Credit Officer, joined CompuCredit 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.
2
<PAGE>
RECENT PORTFOLIO PURCHASE
In November 1998, CompuCredit 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, or sold, by CompuCredit.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by CompuCredit.......... shares
Common stock to be outstanding after the
offering................................... shares
Use of Proceeds.............................. To finance the growth of CompuCredit 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>
3
<PAGE>
SUMMARY FINANCIAL INFORMATION AND OPERATING DATA
You should read the following summary financial and other data in
conjunction with CompuCredit's Consolidated Financial Statements and the related
Notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. CompuCredit has
derived the following summary financial data for the year ended December 31,
1997 and the period ended December 31, 1996 from its audited Consolidated
Financial Statements, which have been audited by Ernst & Young LLP, independent
auditors. CompuCredit has derived the financial data for the nine months ended
September 30, 1998 and 1997 from its unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which CompuCredit considers necessary for a fair
presentation of the financial position and the results of operations for the
period. CompuCredit does not necessarily expect its operating results for the
nine months ended September 30, 1998 to be indicative of the results for the
entire year ending December 31, 1998.
In August 1997 CompuCredit began selling, or "securitizing", substantially
all of its credit card receivables through its master trust or through
wholly-owned special purpose entities to third party asset-backed commercial
paper conduits. In each securitization transaction, CompuCredit removes the
securitized credit card receivables from its Balance Sheet and records a gain on
the sale. CompuCredit's Balance Sheet includes undivided ownership interests in
the assets of the master trust, which are classified as "Retained Interests in
Credit Card Receivables," and interests in the wholly-owned special purpose
entities, which are classified as "Amounts Receivable from Securitization."
CompuCredit manages, reviews and analyzes its financial performance on a
"managed loan" portfolio basis as if the receivables securitized were still on
its Balance Sheet. The information in the following table under "Selected Credit
Card Data" is presented on this managed loan basis.
During the nine months ended September 30, 1998, CompuCredit purchased a
portfolio of credit card receivables. The selected credit card data presented
below excludes certain of these receivables and the related accounts which at
the time of purchase were closed accounts in a certain delinquency status.
CompuCredit believes that these accounts were either in the process of being
charged off by the seller due to 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, CompuCredit believes that it would have had very little opportunity
to influence the delinquency or default rates of these accounts prior to
charge-off. As such, CompuCredit excluded the receivables and any activity in
the accounts since the date of purchase 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.
The price of the purchased portfolio 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 CompuCredit as being at or near charge-off
at the time of purchase and, as previously noted, CompuCredit has excluded these
receivables 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 that CompuCredit's management expects to
receive with respect to the purchased face amount. For purposes of reporting pro
forma charge-off ratios on managed loans, CompuCredit has utilized this discount
related to credit quality 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. CompuCredit considers this $44 million to be a
discount in excess of the discount CompuCredit has ascribed to the credit
quality of the purchased receivables. CompuCredit is amortizing this $44 million
discount into interest income using the interest method for purposes of managed
loan reporting.
4
<PAGE>
The net interest margins presented below include CompuCredit's net interest
and late fee income less actual cost of funds. These net interest margins also
take into account all costs associated with asset securitizations, including the
interest paid to the investors and the amortization of the portion of the
discount on CompuCredit's purchased portfolio that is in excess of discounts
related to credit quality. The net charge-off ratios presented below reflect
actual principal amounts charged off, less recoveries, as a percentage of
average managed loans on an annualized basis. The delinquency ratios presented
below represent credit card receivables that were at least 60 days past due at
period end.
<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............ $ -- $ 14,494 $ 16,634 $ 26,726
Amounts receivable from securitization............................... -- 1,060 253 31,053
Total assets......................................................... 253 20,215 19,997 68,170
Shareholders' equity................................................. 152 19,127 19,056 49,099
</TABLE>
- ------------------------
(1) CompuCredit has computed the pro forma per share information presented above
by dividing net earnings or loss by the weighted average number of shares of
common stock outstanding during the period. CompuCredit has calculated the
weighted average numbers of shares for these purposes by giving effect to a
15.2-for-1 stock split and the exchange of all of the outstanding shares of
CompuCredit's preferred stock, including accrued dividends, for shares
of common stock, each of which will occur at the same time as the
consummation of the offering.
5
<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:
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....................... --% 19.4% 20.9% 20.5%
Net charge-off ratio on managed loans...................... -- 3.6 1.2 8.4
Pro forma charge-off ratio on managed loans................ -- 3.6 1.2 3.5
Delinquency ratio on managed loans......................... -- 5.3 3.7 10.5
</TABLE>
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this prospectus, the
following risk factors should be considered carefully in evaluating CompuCredit
and its business before purchasing any of the shares of common stock offered by
this prospectus.
RISKS ASSOCIATED WITH LIMITED OPERATING HISTORY
CompuCredit was formed in August 1996 and began originating and servicing
credit card receivables in February 1997. Accordingly, CompuCredit has a limited
operating history upon which an investor can base an evaluation of its business
and prospects. In addition, CompuCredit'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. Because of its limited operating history, CompuCredit has limited
underwriting and servicing experience and limited delinquency and default
experience with its credit card receivables. As a result of these factors,
although CompuCredit has experienced growth in credit card receivables
outstanding, revenues and net earnings, there is a risk that CompuCredit will
not be able to sustain these rates of growth or remain profitable in the future.
RISKS ASSOCIATED WITH ACQUISITIONS OF RECEIVABLES FROM THIRD PARTIES
RISKS OF MATERIAL FLUCTUATIONS IN REPORTED MANAGED LOAN DATA. CompuCredit
acquired a significant portion of its credit card receivables through two
portfolio acquisitions during 1998. CompuCredit anticipates that it may make
additional portfolio acquisitions as part of its growth strategy. The
originators of the credit card receivables purchased by CompuCredit may have
used credit criteria different from CompuCredit's underwriting guidelines. As a
result, these credit card receivables may be of a different credit quality than
receivables originated by CompuCredit. These purchased credit card receivables
also may exhibit materially different delinquency and charge-off rates and
otherwise perform differently than the receivables previously originated and
purchased by CompuCredit, which could result in material fluctuations in
CompuCredit's reported managed loan data from quarter to quarter as portfolio
acquisitions occur and are reflected in CompuCredit's reported managed loan
data.
EXPOSURE TO LOSSES ON SECURITIZATION OF PURCHASED RECEIVABLES. CompuCredit
has primarily relied upon certain representations and warranties made by the
sellers in determining whether its purchased receivables satisfy the
representations and warranties which CompuCredit must make concerning the
receivables when it securitizes them. As of September 30, 1998, these purchased
receivables represented 76.7% of CompuCredit's total portfolio. There is a risk
that the receivables CompuCredit purchases and subsequently securitizes could
fail to comply with the representations and warranties made by CompuCredit in
such securitizations. If the failure cannot be cured, CompuCredit may be
required to pay to the investors in the securitizations an amount equal to the
amount of the securitized receivables. While CompuCredit has certain rights to
indemnification for such payments by the sellers of the receivables and may
obtain similar indemnification rights from sellers of portfolios purchased in
the future, there is a risk that CompuCredit will not be able to enforce its
indemnification rights. There is also a risk that its indemnification rights, if
enforceable, will not be sufficient in each case to reimburse CompuCredit fully
for any amounts it may be required to pay to the investors in any
securitizations of the purchased portfolios.
RISKS ASSOCIATED WITH COMPUCREDIT'S SUBSTANTIAL NEED FOR CASH TO FINANCE
OPERATIONS
CompuCredit has a substantial ongoing need for cash to finance its
operations. CompuCredit expects this need to increase to the extent that the
volume of its business increases. As a result of CompuCredit's growth since
inception, CompuCredit's cash requirements exceed cash generated from
operations. CompuCredit's primary cash requirements include the funding of its
originated credit card
7
<PAGE>
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.
CompuCredit currently funds its cash requirements primarily through
securitizations, and it has financed substantially all of its originated and
purchased credit card receivables through securitizations.
There is a risk that CompuCredit will not be able to access 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 CompuCredit's cash requirements.
CompuCredit's inability to access the capital markets or to otherwise obtain
acceptable financing on a timely basis could have a material adverse effect on
CompuCredit's results of operations or financial condition.
RISKS ASSOCIATED WITH COMPUCREDIT'S RELIANCE ON THIRD PARTIES FOR BANK CHARTER
AND OTHER SERVICES
CompuCredit issues its Aspire credit card under an agreement between
Columbus Bank and Trust and CompuCredit. Because CompuCredit does not have a
bank charter, it currently cannot issue credit cards other than through an
agreement with a bank. CompuCredit filed an application for a state bank charter
on October 26, 1998. Unless CompuCredit obtains a bank charter, it will continue
to rely upon Columbus Bank and Trust to issue CompuCredit's credit cards.
Columbus Bank and Trust, together with its affiliate, Total Systems, also
performs many back office and account processing functions with respect to the
Aspire accounts. If Columbus Bank and Trust and/or Total Systems were either
unwilling or unable to continue to perform such services for CompuCredit,
CompuCredit would be required to enter into another contract with a provider of
such services. There is a risk that CompuCredit would not be able to enter into
such an agreement with an alternate provider on terms that CompuCredit considers
favorable or in a timely manner without disruption of CompuCredit's business.
Any disruption in CompuCredit's relationship with Columbus Bank and Trust and
Total Systems could have a material adverse effect on CompuCredit's results of
operations or financial condition. See "Business--Account and Portfolio
Management."
Moreover, CompuCredit'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. CompuCredit has contingency plans designed to minimize the impact of a
disruption in the services it obtains from these third parties. However, a major
disruption in one or more of these services could have a material adverse effect
on CompuCredit's results of operations or financial condition.
RISKS ASSOCIATED WITH COMPUCREDIT'S RELIANCE ON SECURITIZATIONS
CompuCredit 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
CompuCredit. CompuCredit 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. However, there is a risk that additional or increased
facilities will not be available or that future securitization transactions will
not be available on terms acceptable to CompuCredit, or at all. This could occur
if, for example, there was a significant change in the current favorable legal,
regulatory, accounting and tax environments for securitization transactions or
if there was a material disruption in the financial markets. In addition,
CompuCredit's ability to securitize its assets depends on the continued
availability of acceptable credit enhancement terms. Any inability to obtain
this additional funding or any adverse change in the securitization market could
force CompuCredit to reduce its volume of managed loans or to rely on other
potentially more expensive funding sources.
8
<PAGE>
A number of factors affect the timing of any securitization transaction, any
of which could cause substantial fluctuations in quarterly earnings. These risks
include, 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 CompuCredit.
Certain adverse changes in CompuCredit's securitized receivables, including
delinquencies and losses, could have a material adverse effect on its results of
operations or financial condition and the performance of its master trust or
special purpose entities created by CompuCredit to securitize its receivables.
Such changes may also cause early amortization of the outstanding securitization
certificates or participation interests. During an amortization period,
investors in the securitizations receive all principal payments collected on
securitized receivables until they are paid in full, and these principal
payments are not available for reinvestment in new receivables. These changes
could also impact CompuCredit's ability to effect other securitization
transactions on acceptable terms, thereby decreasing CompuCredit's liquidity and
forcing it to rely on other funding sources to the extent available.
RISKS ASSOCIATED WITH GAIN ON SALE ACCOUNTING
CompuCredit uses gain on sale accounting. Gains from the sale of receivables
in CompuCredit's securitization transactions have constituted, and are likely to
continue to constitute, a significant portion of its 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 CompuCredit projected at the time the receivables were sold, or if
default rates are greater than projected at the time such receivables were sold,
CompuCredit 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.
COMPUCREDIT'S ABILITY TO SUSTAIN AND MANAGE GROWTH
CompuCredit has experienced rapid growth and expansion of its business. In
order to meet its strategic objectives, CompuCredit believes that it must
continue to grow its credit card receivables portfolio. Continued growth in
CompuCredit's credit card receivables portfolio depends on the following:
- CompuCredit's ability to attract new clients through originations or
portfolio purchases;
- growth in both existing and new account balances;
- the degree to which CompuCredit loses accounts and account balances to
competing credit card issuers;
- levels of delinquencies and losses;
- the availability of funding, including securitizations, on favorable
terms; and
- general economic and other factors beyond the control of CompuCredit.
CompuCredit's growth also depends on how much CompuCredit spends to solicit
new clients and the number of responses it receives 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.
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<PAGE>
In order to grow, CompuCredit must employ and train new personnel, expand
its facilities, expand its management systems and access additional capital.
Furthermore, CompuCredit'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 CompuCredit's
personnel, procedures, staff, internal controls or systems will not be adequate
to support growth. If CompuCredit does not manage its growth effectively, its
profitability and its ability to achieve its strategic objectives will be
adversely affected.
DELINQUENCY, DEFAULT AND OTHER CREDIT RISKS RELATED TO COMPUCREDIT'S TARGET
MARKET
CompuCredit seeks to target potential clients who management believes have
been under-served by more traditional providers of consumer credit products.
Some of the consumers included in CompuCredit'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 CompuCredit'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
consumer credit. Although CompuCredit 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 CompuCredit. 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 CompuCredit 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 CompuCredit's target market, are that:
- CompuCredit 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.
Additionally, general economic factors, such as the rate of inflation,
unemployment levels and interest rates may affect CompuCredit's target market
clients more severely than other market segments.
RISK OF INCREASED DELINQUENCIES AND DEFAULTS DUE TO LACK OF SEASONING OF CREDIT
CARD PORTFOLIO
A portfolio of older accounts generally behaves more predictably than a
newly originated portfolio. As of September 30, 1998, all of CompuCredit'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 delinquencies and defaults will increase as the average age of
CompuCredit's originated accounts increases. Any material increases in
delinquencies and defaults above management's expectations would have a material
adverse effect on CompuCredit's results of operations and financial condition.
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<PAGE>
RISK OF FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
CompuCredit 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. CompuCredit's
strategy of pursuing potential portfolio acquisitions may also create periodic
fluctuations in its managed loans. These significant fluctuations in its
business directly impact CompuCredit's operating results and cash needs. In
addition, as previously noted, factors affecting the timing of securitization
transactions may cause substantial flucutations in CompuCredit's quarterly
earnings. See "--Risks Associated with Securitizations."
DEPENDENCE ON KEY PERSONNEL
CompuCredit 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. CompuCredit does not maintain key-man life
insurance on any executive officer. The loss of the services of certain members
of its senior management could have a material adverse effect on CompuCredit.
CompuCredit 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 leave CompuCredit to pursue other
opportunities.
RISKS ASSOCIATED WITH FLUCTUATIONS IN INTEREST RATES
CompuCredit'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 CompuCredit's accounts also have an interest rate minimum should the
designated index fall below a certain amount. Although CompuCredit intends to
manage its interest rate risk through asset and liability management,
fluctuations in the interest rate environment may result in changes in its cost
of funds as well as in the relationship between the indices used in its
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 CompuCredit'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
CompuCredit'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 CompuCredit's business become
more significant in an economic slowdown or recession. During periods of
economic slowdown or recession, CompuCredit 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 its focus on
the under-served market, CompuCredit's actual rates of delinquencies and
frequency and severity of losses may be higher in the future under adverse
economic 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 CompuCredit's results of operations or financial
condition.
RISK OF NONCOMPLIANCE WITH CONSUMER AND DEBTOR PROTECTION LAWS AND REGULATIONS
The operations of CompuCredit and of Columbus Bank and Trust, as the issuer
of the Aspire credit card, are regulated by federal, state and local government
authorities. As a result, CompuCredit and Columbus Bank and Trust are subject to
various laws and the rules and regulations promulgated under such laws,
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
11
<PAGE>
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 CompuCredit or
Columbus Bank and Trust, as the issuer of the Aspire credit card or the servicer
of the Aspire credit card accounts, to comply with such legal requirements could
adversely affect the ability of CompuCredit or Columbus Bank and Trust to
collect the full amount of the credit card account balances. CompuCredit also
faces the risk of litigation under state and federal consumer protection
statutes and the rules and regulations promulgated under these and other laws.
CompuCredit does not currently own a bank. However, CompuCredit has filed an
application and is seeking to organize a state-chartered "credit card bank"
under the laws of the State of Georgia. This banking subsidiary, if organized,
is expected to become the issuer of CompuCredit's Aspire credit card. If
CompuCredit completes that process, CompuCredit's 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."
POSSIBLE ADVERSE IMPACT OF CHANGES IN LAW
Numerous legislative and regulatory proposals are advanced each year which,
if adopted, could adversely affect CompuCredit's profitability or limit the
manner in which CompuCredit conducts its activities. Changes in federal and
state bankruptcy and debtor relief laws also could adversely affect CompuCredit
if such changes result in, among other things, additional administrative
expenses and charge-offs. Although CompuCredit believes that it and Columbus
Bank and Trust, to the extent material to CompuCredit'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 restrict the amount
of interest and other charges imposed on credit card accounts originated or
marketed by CompuCredit, limit CompuCredit'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 CompuCredit.
INTENSE COMPETITION FOR CREDIT CARD CUSTOMERS
CompuCredit faces intense and increasing competition from other consumer
lenders. In particular, CompuCredit'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- credit cards. CompuCredit 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 CompuCredit and have greater financial resources.
CompuCredit believes that clients choose credit card issuers largely on the
basis of interest rates, fees, credit limits and other product features. For
this reason, client loyalty is often limited. CompuCredit 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.
CompuCredit'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, CompuCredit's competitors may already be or may begin employing many
of the programs and strategies that CompuCredit has utilized to attract new
accounts and encourage account usage.
CompuCredit's competitors are continually introducing new tactics to attract
clients and increase their market share. 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 CompuCredit's ability to obtain clients and maintain its
profitability.
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<PAGE>
CompuCredit 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 CompuCredit. See "Business--Competition."
OTHER CREDIT CARD INDUSTRY RISKS
CompuCredit also faces the risk of fraud by its clients and third parties.
Also, clients may repay their receivables more rapidly than they have in the
past, reducing the amount of interest paid to CompuCredit. 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
CompuCredit in the future could hurt client acceptance of CompuCredit's products
or lead to changes in the law or regulatory environment, either of which would
have a material adverse effect on CompuCredit.
RISKS ASSOCIATED WITH ABSENCE OF PRIOR PUBLIC MARKET FOR COMPUCREDIT
Prior to the offering, there has been no public market for CompuCredit's
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 CompuCredit and
the representatives of the underwriters of this offering 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.
VOLATILITY OF STOCK MARKET
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 CompuCredit's operating results and other factors,
including the performance of other credit card issuers or consumer finance
companies.
VOTING POWER OF MANAGEMENT AND CURRENT SHAREHOLDERS
Upon the completion of the offering, CompuCredit's executive officers and
directors, in the aggregate, will beneficially own % of the outstanding
common stock of CompuCredit. 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, Frank J. Hanna, III and CompuCredit'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, the voting power of David G. Hanna, Frank J. Hanna,
III and CompuCredit'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 CompuCredit. See "Principal Shareholders."
RISKS OF FUTURE ISSUANCES OF PREFERRED STOCK
CompuCredit 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, CompuCredit's revised Articles of Incorporation, which will become
effective at the same time as the closing of the offering, will authorize
CompuCredit 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
CompuCredit may determine. The issuance of preferred
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<PAGE>
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 CompuCredit. See "Description of Capital
Stock--Preferred Stock" and "--Anti-Takeover Effects of Provisions of the
Amended and Restated Articles of Incorporation."
POSSIBLE FUTURE SALES OF LARGE NUMBERS OF SHARES
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 CompuCredit's ability to raise capital.
Immediately after completion of the offering, CompuCredit 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 under
Rule 144 promulgated under the Securities Act of 1933, unless owned by
"affiliates" of CompuCredit, as that term is defined in Rule 144. CompuCredit
and all of its existing shareholders have agreed that, without the prior written
consent of PaineWebber Incorporated, on behalf of the Underwriters, 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
agreements. CompuCredit intends to register on one or more registration
statements on Form S-8 1,200,000 shares of common stock issuable under its 1998
Stock Option Plan. In addition, the holders of a total of 1,984,862 shares of
common stock have the right to require CompuCredit to register such shares under
the Securities Act of 1933 under certain circumstances. See "Description of
Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
YEAR 2000 PROBLEM
CompuCredit's software systems may be hampered by software deficiencies
relating generally to formatting and date calculations stemming from the year
2000, commonly known as the year 2000 problem. In addition, the year 2000
problem also affects the clients, suppliers and financial institutions with
which CompuCredit transacts business. Although most of CompuCredit's existing
information systems are less than two years old and were originally designed for
year 2000 compliance, CompuCredit 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 CompuCredit believes
will assure system and date integrity in the year 2000 and thereafter.
Efforts are under way to minimize the potential impact to CompuCredit of any
year 2000 problems that third party providers of functions or services to
CompuCredit may experience. CompuCredit is monitoring each vendor's progress in
becoming year 2000 compliant. CompuCredit's contingency plans include the
identification of substitute vendors who are already year 2000 compliant who
could potentially replace any existing third party vendors. CompuCredit's most
critical outside vendors have provided their year 2000 project plans to
CompuCredit 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. CompuCredit believes that its most significant year 2000
risks arise out of the possibility that the legacy systems of its principal
outside service provider, Total Systems, may not be year 2000 compliant. This
vendor has an extensive, detailed plan to test for and remediate any year 2000
problems. In addition, CompuCredit's year 2000 project team is participating in
testing being performed by Total Systems to ensure its year 2000 compliance.
However, any failure by Total Systems to fully remediate any year 2000 problems
could have a material adverse effect on CompuCredit. 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 CompuCredit'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 CompuCredit's
results of operations or financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."
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<PAGE>
THE COMPANY
CompuCredit is a credit card company that markets products and services to
its clients for which it earns fees. CompuCredit originates and purchases credit
card receivables. CompuCredit targets consumers who management believes are
under-served by more traditional providers of consumer credit. CompuCredit's
current credit product is the Aspire Visa credit card, which CompuCredit offers
to its clients on an unsecured basis. CompuCredit markets 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.
CompuCredit was formed as CompuCredit, L.P. in August 1996 and was merged
into CompuCredit Corporation in August 1997. CompuCredit began soliciting
clients in February 1997. As of September 30, 1998, CompuCredit had 78
employees. All of its 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 CompuCredit 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 CompuCredit. CompuCredit expects to use the net proceeds from the offering to
finance its growth through the origination and purchase of credit card
receivables and for marketing costs, working capital and other general corporate
purposes. However, CompuCredit has made no commitments that it will be required
to fund with the proceeds of the offering.
DIVIDEND POLICY
CompuCredit currently intends to retain all future earnings for use in the
expansion and operation of its business. CompuCredit 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 CompuCredit's Board of Directors and
will depend on, among other things, future earnings, capital requirements, the
general financial condition of CompuCredit and general business conditions.
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DILUTION
The pro forma net tangible book value of CompuCredit at September 30, 1998,
after giving effect to (i) a 15.2-for-1 stock split to be effected at the same
time as the consummation of the offering and (ii) the exchange of all of the
outstanding shares of CompuCredit's preferred stock, including accrued
dividends, for shares of common stock at the same time as the consummation
of the offering, was $ , or $ per share. Pro forma net tangible
book value per share represents the amount of CompuCredit's total tangible
assets less total liabilities, divided by the number of shares outstanding.
After giving effect to the receipt by CompuCredit 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
CompuCredit 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.................................................
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.................................................
Dilution per share to new investors............................ $
</TABLE>
- ------------------------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses payable by CompuCredit.
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
CompuCredit, 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>
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<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of CompuCredit (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 at the same time as the
consummation of the offering and (b) the exchange of all of the outstanding
shares of CompuCredit's preferred stock, including accrued dividends, for
shares of common stock at the same time as the consummation of the offering, and
(iii) on such pro forma basis, as adjusted to reflect the sale of shares
of common stock by CompuCredit at an assumed offering price of $ per share,
after deducting underwriting discounts and commissions and estimated offering
expenses payable by CompuCredit. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and CompuCredit's Consolidated Financial Statements
and related Notes 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>
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth, for the periods indicated, certain selected
consolidated financial and other data for CompuCredit. You should read the
selected consolidated financial and other data below in conjunction with
CompuCredit's Consolidated Financial Statements and the related Notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. CompuCredit has derived the
following selected financial data for the year ended December 31, 1997 and the
period ended December 31, 1996 from its audited Consolidated Financial
Statements, which have been audited by Ernst & Young LLP, independent auditors.
CompuCredit has derived the financial data for the nine months ended September
30, 1998 and 1997 from its unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which CompuCredit considers necessary for a fair presentation of the
financial position and the results of operations for the period. CompuCredit
does not necessarily expect its operating results for the nine months ended
September 30, 1998 to be indicative of the results for the entire year ending
December 31, 1998.
In August 1997 CompuCredit began securitizing substantially all of its
credit card receivables through its master trust or through wholly-owned special
purpose entities to third party asset-backed commercial paper conduits. In each
securitization transaction, CompuCredit removes the securitized credit card
receivables from its Balance Sheet and records a gain on the sale. CompuCredit's
Balance Sheet includes undivided ownership interests in the assets of the master
trust, which are classified as "Retained Interests in Credit Card Receivables,"
and interests in the wholly-owned special purpose entities, which are classified
as "Amounts Receivable from Securitization." CompuCredit manages, reviews and
analyzes its financial performance on a "managed loan" portfolio basis as if the
receivables securitized were still on its Balance Sheet. The information in the
following table under "Selected Credit Card Data" is presented on this managed
loan basis.
During the nine months ended September 30, 1998, CompuCredit purchased a
portfolio of credit card receivables. The selected credit card data presented
below excludes certain of these receivables and the related accounts which at
the time of purchase were closed accounts in a certain delinquency status.
CompuCredit believes that these accounts were either in the process of being
charged off by the seller due to 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, CompuCredit believes that it would have had very little opportunity
to influence the delinquency or default rates of these accounts prior to
charge-off. As such, CompuCredit excluded the receivables and any activity in
the accounts since the date of purchase 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.
The price of the purchased portfolio 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 CompuCredit as being at or near charge-off
at the time of purchase and, as previously noted, CompuCredit has excluded these
receivables 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 that CompuCredit's management expects to
receive with respect to the purchased face amount. For purposes of reporting pro
forma charge-off ratios on managed loans, CompuCredit has utilized this discount
related to credit quality 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. CompuCredit considers this $44 million to be a
discount in excess of the discount CompuCredit has ascribed to the credit
quality of the purchased receivables. CompuCredit is amortizing this $44 million
discount into interest income using the interest method for purposes of managed
loan reporting.
18
<PAGE>
The net interest margins presented below include CompuCredit's net interest
and late fee income less actual cost of fund. These net interest margins also
take into account all costs associated with asset securitizations, including the
interest paid to the investors and the amortization of the portion of the
discount on CompuCredit's purchased portfolio that is in excess of discounts
related to credit quality. The net charge-off ratios presented below reflect
actual principal amounts charged off, less recoveries, as a percentage of
average managed loans on an annualized basis. The delinquency ratios presented
below represent credit card receivables that were at least 60 days past due at
period end.
<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
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............ $ -- $ 14,494 $ 16,634 $ 26,726
Amounts receivable from securitization............................... -- 1,060 253 31,053
Total assets......................................................... 253 20,215 19,997 68,170
Shareholders' equity................................................. 152 19,127 19,056 49,099
</TABLE>
- ------------------------
(1) CompuCredit has computed pro forma per share information presented above by
dividing net earnings or loss by the weighted average number of shares of
common stock outstanding during the period. CompuCredit has calculated the
weighted average number of shares for these purposes by giving effect to a
15.2-for-1 stock split and the exchange of all of the outstanding shares of
CompuCredit's preferred stock, including accrued dividends, for shares
of common stock, each of which will occur at the same time as the
consummation of the offering.
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:
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....................... --% 19.4% 20.9% 20.5%
Net charge-off ratio on managed loans...................... -- 3.6 1.2 8.4
Pro forma charge-off ratio on managed loans................ -- 3.6 1.2 3.5
Delinquency ratio on managed loans......................... -- 5.3 3.7 10.5
</TABLE>
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 COMPUCREDIT'S CONSOLIDATED FINANCIAL STATEMENTS
AND THE RELATED NOTES INCLUDED HEREIN.
GENERAL
CompuCredit is a credit card company. CompuCredit uses analytical techniques
that it has developed and information provided by credit bureaus to target
consumers who management believes are under-served by more traditional providers
of consumer credit. CompuCredit originates and purchases credit card receivables
and markets products and services to its clients for which it earns fees.
CompuCredit's current credit product is the Aspire Visa credit card, which
CompuCredit offers to its clients on an unsecured basis. There are currently
four types of Aspire Visa branded cards: Classic, Gold, Platinum and Aspire
Diamond. CompuCredit markets 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.
Consumers in CompuCredit's target 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 CompuCredit'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 CompuCredit on the purchase volume on
CompuCredit'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
CompuCredit'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 CompuCredit's Consolidated
Financial Statements have been prepared by CompuCredit'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
CompuCredit's December 31, 1997 audited financial statements. The results for
the nine months ended September 30, 1998 may not be indicative of operating
results for the full year.
This prospectus, including this Management's Discussion and Analysis of
Financial Condition and Results of Operations, includes forward-looking
statements. CompuCredit 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 CompuCredit are intended 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
discussed in this section, there is a risk that CompuCredit'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 CompuCredit's
plans, expectations and beliefs will change. However, CompuCredit
21
<PAGE>
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, CompuCredit 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, CompuCredit 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, CompuCredit has sold substantially all of its credit card receivables
through its 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 CompuCredit expects to receive over the estimated outstanding period
of the receivables and are reflected on CompuCredit's Balance Sheet under
"Retained Interests in Credit Card Receivables Securitized" and "Amounts
Receivable from Securitization." These cash flows represent an "interest only"
strip, or "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.
CompuCredit's estimates of future cash flows will change based on its assessment
of the actual performance of new and existing securitizations.
A securitization generally involves, at the time of sale, the transfer by
CompuCredit, or by a wholly-owned subsidiary of CompuCredit 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 CompuCredit's retained interests in the receivables pool.
The securitization results in the removal of the receivables, other than
CompuCredit's retained interests, from CompuCredit's Balance Sheet for financial
reporting purposes. In general, CompuCredit'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,
CompuCredit 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.
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. CompuCredit also transfers to the SPEs the
22
<PAGE>
cash collected by it in payment of principal, interest and fees received on
securitized receivables. CompuCredit 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." CompuCredit 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. CompuCredit 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.
CompuCredit retains an interest in the SPEs equal to the amount of retained
certificates it holds plus the amount of the receivables in excess of the
principal balance of the certificates or participation interests sold to
investors. CompuCredit records these retained interests at fair value on its
Balance Sheet as "Retained Interests in Credit Card Receivables Securitized" or
"Amounts Receivable from Securitization." CompuCredit's retained interests
fluctuate as clients make principal payments or incur new charges on the
securitized accounts. CompuCredit 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.
CompuCredit 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. CompuCredit provides all of the services typically
performed for its clients either directly or by contracting with third party
service providers. The securitization of CompuCredit's receivables does not
affect CompuCredit's relationship with its clients.
Investors are entitled to receive periodic interest payments at a floating
rate. In general, CompuCredit'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, otherwise referred to as 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 CompuCredit's retained
interests in the receivables pool. Investors in CompuCredit'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 CompuCredit's securitization
programs, CompuCredit 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 CompuCredit.
MANAGED LOAN PORTFOLIO
As of August 1997, CompuCredit began securitizing substantially all of its
credit card receivables. The securitization results in the removal of the
receivables from CompuCredit's Balance Sheet for financial reporting purposes.
CompuCredit manages, reviews and analyzes its financial performance on
23
<PAGE>
a "managed loan" portfolio basis as if the receivables securitized were still on
CompuCredit's Balance Sheet.
The table set forth below indicates CompuCredit's net interest margin on a
managed loan basis as if the receivables were not securitized and removed from
CompuCredit's Balance Sheet. The table also indicates the ending and average
managed loans and the number of managed accounts. Interest income for
CompuCredit 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, CompuCredit 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 delinquency or were likely to be charged off in the near term.
As a result, management believes that CompuCredit would have had very little
opportunity to influence the delinquency or default rates of these accounts
prior to charge-off. CompuCredit therefore excluded these accounts, the
receivables and any activity in the accounts since the date of purchase 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 CompuCredit on the purchased
portfolio exceeds the discount CompuCredit has ascribed to the credit quality of
the purchased receivables. CompuCredit is reporting this excess discount as
additional interest income over the life of the portfolio for managed loan
reporting and is amortizing it 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 CompuCredit
securitizing substantially all of its credit card receivables beginning in
August 1997. The increases in income were partially offset by 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.
24
<PAGE>
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 CompuCredit's other credit card fees. CompuCredit
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 CompuCredit'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
CompuCredit 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 CompuCredit'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 CompuCredit's
retained interests in securitized credit card receivables. It also includes
interest and late fees earned on CompuCredit's owned credit card receivables
(prior to securitizations), less interest expense on borrowings to fund such
receivables. Prior to August 1997, CompuCredit's interest income was earned on
all outstanding credit card receivables. In August 1997, CompuCredit began
securitizing substantially all of its credit card receivables. The
securitization results in the removal of the receivables from CompuCredit's
Balance Sheet for financial reporting purposes. Retained interests are recorded
at fair value on CompuCredit's Balance Sheet. CompuCredit receives cash flows
relating to these 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 CompuCredit's retained interests is recorded as interest income.
CompuCredit 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 CompuCredit 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, CompuCredit 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. 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.
25
<PAGE>
NET SECURITIZATION INCOME
Net securitization income represents increases in the present value of
estimated cash flows CompuCredit 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. CompuCredit 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
CompuCredit, such as its master trust which CompuCredit expects to utilize for
future securitizations. Since CompuCredit 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 CompuCredit's net securitization income is due to the
increase in the volume of credit card receivables securitized. CompuCredit did
not securitize any credit card receivables until August 1997. CompuCredit
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 CompuCredit relating to a portfolio purchased by CompuCredit
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>
CompuCredit began soliciting clients in February 1997, and as a result,
CompuCredit 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 CompuCredit's managed loan
portfolio over that same nine-month period. CompuCredit's managed loans grew
from $27.9 million at December 31, 1997 to $406.3 million at September 30, 1998.
CompuCredit 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 CompuCredit on the purchase volume on CompuCredit's credit card
receivables. Ancillary product revenues are associated with the fee-based
products and services that CompuCredit 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 CompuCredit's credit card receivables. Ancillary product expenses
relate to CompuCredit'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 CompuCredit's Consolidated Financial
Statements included elsewhere in this prospectus, CompuCredit 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 CompuCredit 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. CompuCredit 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.
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<PAGE>
CompuCredit'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. CompuCredit's effective tax rate was
38.4% for the nine months ended September 30, 1998.
ASSET QUALITY
CompuCredit'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
CompuCredit's credit card accounts, the timing of portfolio purchases, the
success of CompuCredit's collection and recovery efforts and general economic
conditions. The average age of CompuCredit's credit card account portfolio
affects the stability of delinquency and loss rates of the portfolio.
CompuCredit'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 CompuCredit
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 CompuCredit'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 CompuCredit'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 CompuCredit'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>
During the quarter ended June 30, 1998, CompuCredit purchased a portfolio of
credit card receivables. The managed loan delinquency data presented above
excludes certain of these receivables and the related accounts, which at the
time of purchase were closed accounts in a certain delinquency status.
CompuCredit believes that these accounts were either in the process of being
charged off by the seller due to 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, CompuCredit believes that it would have had very little opportunity
to influence the delinquency or default rates of these accounts prior to
charge-off. As such, CompuCredit excluded the accounts and the receivables 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 CompuCredit'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
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<PAGE>
periods presented is also due to an increase in the average age of CompuCredit's
originated portfolio during these periods. The following table separately
reports CompuCredit'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, CompuCredit did not have
a purchased portfolio.
CompuCredit began originating accounts in February 1997. As the average age
of CompuCredit's originated portfolio increases, it is likely that delinquency
rates will increase.
During the quarter ended June 30, 1998, CompuCredit 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 CompuCredit 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. CompuCredit 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. CompuCredit 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
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<PAGE>
estate large enough to pay the debt in full are charged off immediately upon
notification of the client's bankruptcy or death.
As previously noted, CompuCredit 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,
CompuCredit expects the net charge-offs experienced on its receivables portfolio
to increase in future quarters. CompuCredit 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 CompuCredit'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
(annualized)...................... 0.1% 1.8% 6.4% 9.8% 4.3% 11.8%
Pro forma charge-off percentage
(annualized)...................... 0.1 1.8 6.4 9.8 1.7 4.2
</TABLE>
Approximately $70 million of the discount on CompuCredit's portfolio
purchase during the quarter ended September 30, 1998 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 above, 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, CompuCredit
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. CompuCredit 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 CompuCredit which
analyzed a group of consumers management believed to be very similar to
CompuCredit's target market and additional credit risk data obtained from two
other external portfolios.
Substantially all of CompuCredit's credit card receivables have been
securitized. As CompuCredit 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.
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<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. CompuCredit's principal market risk
is related to changes in interest rates. This affects CompuCredit directly in
its lending and borrowing activities, as well as indirectly as interest rates
may impact the payment performance of CompuCredit's clients.
CompuCredit 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 CompuCredit's asset and liability mix, changes in
market interest rates, including changes affected by fluctuations in the yield
curve, payment trends on CompuCredit's interest-bearing assets and payment
requirements on CompuCredit's interest-bearing liabilities, and the general
timing of all other cash flows. To manage CompuCredit's direct risk to market
interest rates, management actively monitors market interest rates and the
interest sensitive components of CompuCredit'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.
CompuCredit 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 CompuCredit'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, CompuCredit 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, CompuCredit believes that the impact of a change in
interest rates would not be material to the financial performance of
CompuCredit.
CompuCredit 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. CompuCredit 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.
CompuCredit believes it is not exposed to any material foreign currency
exchange rate risk or commodity price risk.
LIQUIDITY, FUNDING AND CAPITAL RESOURCES
CompuCredit's goal is to maintain an adequate level of liquidity through
active management of assets and liabilities. Because the characteristics of its
assets and liabilities change, liquidity management is a dynamic process
affected by the pricing and maturity of CompuCredit's assets and liabilities.
A significant source of liquidity for CompuCredit has been the
securitization of credit card receivables. During the year ended December 31,
1997, and for the first nine months of 1998, CompuCredit received net proceeds
of $12.7 million and $273.4 million, respectively, from sales of its credit card
receivables through securitizations. CompuCredit used cash generated from these
transactions to reduce short-term borrowings and to fund further credit card
receivables growth. In addition, in April 1998, CompuCredit 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,
CompuCredit issued shares of common stock to an unrelated investor for cash
proceeds of $10.0 million. In November 1998,
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<PAGE>
CompuCredit purchased a portfolio of credit card receivables. The portfolio
included approximately 58,000 accounts and in excess of $130.0 million in
receivables. CompuCredit financed this purchase primarily through a
securitization with a new securitization facility.
The maturity terms of CompuCredit'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, CompuCredit'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 CompuCredit'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 CompuCredit'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 CompuCredit's securitization
structures, the applicable amortization period, if any, has not yet commenced.
CompuCredit 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 , CompuCredit had total
securitization facilities of $ and had utilized approximately $ 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 CompuCredit's software systems, but also critical software used by
suppliers of goods and services and financial institutions with which
CompuCredit does business.
Although most of CompuCredit's existing information systems are less than
two years old and were originally designed for year 2000 compliance, CompuCredit
has created a year 2000 project team to identify, address and monitor internal
systems and vendor issues related to the year 2000 problem. CompuCredit has
tested all internally developed information and operational systems, including
hardware, software, and systems interfaces, for year 2000 compliance. Where
necessary, CompuCredit has converted such systems to a format that CompuCredit
believes will assure system and data integrity in the year 2000 and thereafter.
Although CompuCredit 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 CompuCredit's results of
operations. In addition, CompuCredit is discussing with outside third party
providers of services, systems and networks whether these outside vendors have
satisfactorily addressed their year 2000 systems issues. CompuCredit'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,
CompuCredit will participate in the year 2000 testing of its credit card
processor, Total Systems, during the first two quarters of 1999. Although
CompuCredit 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 CompuCredit's third party
vendors will successfully address all of their year 2000 issues. CompuCredit has
contingency plans that include, in the event of vendor or software
non-compliance, identification and replacement of critical products or services
as appropriate.
CompuCredit believes that it has adequate resources to achieve year 2000
compliance for any of its systems which are found to be non-compliant.
CompuCredit's costs associated with the year 2000 issue relate primarily to the
management of vendor project plans and participation in testing. If
32
<PAGE>
CompuCredit determines that its non-information technology systems and office
equipment will not be year 2000-compliant, then it will incur the replacement
cost of those systems. CompuCredit is currently preparing cost estimates for
those systems. However, CompuCredit does not believe that these costs will have
a material impact on its results of operations or financial condition. The
majority of the products used by CompuCredit 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. CompuCredit believes that there is,
however, a significant risk that the legacy systems of Total Systems include
unremediated year 2000 problems. This vendor has an extensive plan to develop
and test its systems for compliance. However, any failure by Total Systems to
fully remediate its year 2000 problem could have a material adverse effect on
CompuCredit. As such, CompuCredit plans to be proactive in the monitoring of
Total Systems' year 2000 project plans.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, CompuCredit 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 CompuCredit
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. CompuCredit 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 CompuCredit 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 CompuCredit.
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 CompuCredit.
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 CompuCredit.
33
<PAGE>
BUSINESS
THE COMPANY
CompuCredit is a credit card company. CompuCredit uses analytical techniques
that it has developed and information provided by credit bureaus to target
consumers who management believes are under-served by more traditional providers
of consumer credit. CompuCredit originates and purchases credit card receivables
and markets products and services to its clients for which it earns fees.
CompuCredit's current credit product is the Aspire Visa credit card, which
CompuCredit offers to its clients on an unsecured basis. There are currently
four types of Aspire Visa branded cards: Classic, Gold, Platinum and Aspire
Diamond. CompuCredit markets 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.
CompuCredit 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, CompuCredit had net income of $20.0 million as compared to a net loss
of $725,000 for fiscal 1997. As of September 30, 1998, CompuCredit had 249,000
accounts with an aggregate managed portfolio of $406.3 million of credit card
receivables. CompuCredit 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. CompuCredit
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 CompuCredit, 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. CompuCredit
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 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. CompuCredit 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.
34
<PAGE>
CompuCredit 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.
CompuCredit 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.
COMPUCREDIT'S DATABASE SYSTEM
CompuCredit 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 CompuCredit. The system's purpose is to gather, store and
analyze the data necessary to facilitate CompuCredit'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.]
36
<PAGE>
CompuCredit'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,
CompuCredit 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 CompuCredit'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>
CompuCredit'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 CompuCredit 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 CompuCredit to continuously refine and optimize target
marketing and portfolio management decisions on the basis of continuous
feedback. CompuCredit believes that this capability has been critical in
identifying under-served segments which CompuCredit anticipates will be
profitable and which have been overlooked by traditional providers of
credit-related products.
TARGET MARKETING SYSTEM
Since 1996, CompuCredit has worked with a national credit bureau to develop
proprietary risk evaluation systems using credit bureau data. Initially,
CompuCredit 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. CompuCredit's systems enable it to segment clients into
narrower ranges within each FICO score range. CompuCredit believes that this
sub-segmentation enables it to avoid unacceptable credit risk and to price its
products more effectively.
Within each FICO score range, CompuCredit evaluates every potential client
using numerous credit and marketing segmentation methods derived from a variety
of data sources. CompuCredit places potential clients into
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unique product offering segments based upon combinations of factors reflecting
its 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 CompuCredit's relationship with the under-served client.
CompuCredit 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. CompuCredit seeks to accomplish this by
establishing, for each client segment, the appropriate risk-based pricing level
that will maintain an acceptable response rate to CompuCredit's direct mail and
telemarketing campaigns. During 1997 and the nine months ended September 30,
1998, CompuCredit solicited more than 7.9 million potential clients and
experienced a response rate that it believes is significantly higher than the
overall rate experienced by the credit card industry. CompuCredit 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,
CompuCredit 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 CompuCredit 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, CompuCredit 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 CompuCredit's product.
Since 1996, CompuCredit 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
CompuCredit's criteria (i.e., different consumers are included in the pool of
potential clients at any given time). CompuCredit 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. CompuCredit 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 CompuCredit'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 CompuCredit'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
CompuCredit anticipates growing its receivables portfolio through the
aggressive use of its target marketing system to originate clients through
direct mail and telemarketing campaigns. CompuCredit expects that it will also
pursue growth through the opportunistic purchase of existing credit card
portfolios. CompuCredit 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. CompuCredit'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, CompuCredit completed two portfolio acquisitions and expects that it
will regularly evaluate other potential portfolio acquisitions.
CompuCredit believes its unique target marketing system provides the same
competitive advantage when evaluating portfolios as when originating clients
through direct mail or telemarketing campaigns. CompuCredit believes that its
ability to evaluate credit risk within FICO score ranges enables it to more
accurately determine the portfolio's overall credit risk than many other
companies that may bid on portfolio purchases and many portfolio sellers.
CompuCredit believes that this risk evaluation expertise enables it 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 its forecast of credit risk,
CompuCredit may bid more aggressively for these portfolios.
CompuCredit 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 CompuCredit or purchased.
CompuCredit 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
CompuCredit uses its target marketing strategies to identify potential
clients and to assess the type of product offering to be made to each potential
client. CompuCredit then uses either direct mail or telemarketing campaigns to
solicit each client. CompuCredit began soliciting clients in February 1997. In
each direct mail campaign conducted to date, CompuCredit 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, CompuCredit has solicited new accounts from approximately 7.9 million
potential clients using direct mail and telemarketing. CompuCredit 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 CompuCredit's offers have been pre-approved or
pre-selected offers for an unsecured Visa credit card and have not included (and
CompuCredit does not intend to offer) any teaser-rate pricing. Third party print
production facilities produce its direct mail campaigns, and CompuCredit
contracts with third
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<PAGE>
party telemarketing providers for its telemarketing campaigns. Responses to both
direct mail and telemarketing campaigns are then forwarded to CompuCredit for
application processing. The response data received is also integrated into
CompuCredit's database system for future analysis and response modeling.
APPLICATION PROCESSING
CompuCredit 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. CompuCredit 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 CompuCredit
for processing by its application processing system.
CompuCredit 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 CompuCredit'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 CompuCredit's
proprietary database for ongoing tracking and analysis.
FEE-BASED PRODUCTS AND SERVICES
CompuCredit 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 CompuCredit's
database. CompuCredit 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
CompuCredit's fee-based product relationships began in 1998, and these products
and services are expected to increase in the future as CompuCredit 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
CompuCredit's client base.
ACCOUNT AND PORTFOLIO MANAGEMENT
ONGOING ACCOUNT MANAGEMENT. CompuCredit'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 CompuCredit to develop and test
multiple strategies simultaneously, which allows CompuCredit to continually
refine its account management activities. CompuCredit 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. CompuCredit 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.
CompuCredit monitors authorizations for all accounts. Client credit
availability is limited for transaction types which CompuCredit believes are
higher risks such as certain foreign transactions and cash advances. CompuCredit
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 CompuCredit's
proprietary database for ongoing analysis. CompuCredit proactively adjusts
account management strategies as necessary, based on the results of such
analyses. Additionally, CompuCredit uses industry-standard fraud detection
software to manage the portfolio. CompuCredit 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. CompuCredit has implemented an advisory program
to assist its clients in understanding the prudent use of general-purpose credit
cards. CompuCredit uses its proprietary systems to identify clients who are not
delinquent but are exhibiting credit behavior likely to result in delinquency in
the future. CompuCredit 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 CompuCredit 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. CompuCredit 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 Columbus
Bank and Trust and Total Systems. In January 1997, CompuCredit entered into an
Affinity Card Agreement with Columbus Bank and Trust, a subsidiary of Synovus
Financial Corporation, that provides for the issuance of Aspire credit cards and
the performance of the outsourced functions noted above. CompuCredit 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. CompuCredit
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, CompuCredit intends to continue to outsource certain
functions to Columbus Bank and Trust and its affiliate, Total Systems, and has
recently renewed its agreement with Columbus Bank and Trust 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.
CompuCredit uses its systems to develop custom collection models that rank-order
accounts based on collectability and level of risk. CompuCredit 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 CompuCredit believes
most creditors do.
As in all aspects of its risk management strategies, CompuCredit 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. CompuCredit 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.
CompuCredit 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. CompuCredit 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, CompuCredit outsources certain collection activities.
CompuCredit continuously monitors the performance of its third party providers
against that of its staff to determine which is more effective.
SECURITIZATIONS
CompuCredit finances the growth of its credit card receivables primarily
through asset-backed securitizations. As CompuCredit generates or acquires
credit card receivables, it securitizes the receivables through its master trust
or through wholly-owned special purpose entities to third party asset-backed
commercial paper conduits. In general, CompuCredit'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 CompuCredit's Balance Sheet for
financial reporting purposes. Following a sale, CompuCredit 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, CompuCredit 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
CompuCredit'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 CompuCredit.
Various proposals which could affect CompuCredit'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 CompuCredit.
Although CompuCredit believes that it and, to the extent applicable,
Columbus Bank and Trust are currently in compliance with applicable statutes and
regulations, there can be no assurance that CompuCredit or Columbus Bank and
Trust will be able to maintain such compliance. The failure to comply with such
statutes or regulations could have a material adverse effect on CompuCredit'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
CompuCredit 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 CompuCredit currently is not involved in any material
litigation, a significant judgment against it or within the industry in
connection with any such litigation could have a material adverse effect on
CompuCredit's results of operations or financial condition.
The National Bank Act of 1864, as amended, 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 Columbus Bank and Trust 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 Columbus
Bank and Trust. 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, Columbus Bank and Trust's
ability to impose certain fees could be adversely affected, which could have a
material adverse effect on CompuCredit's results of operations or financial
condition.
CompuCredit does not currently own a bank. However, CompuCredit has filed an
application to organize a state-chartered "credit card bank" under the laws of
the State of Georgia. Once organized, CompuCredit expects this bank to become
the issuer of CompuCredit's Aspire credit card. If CompuCredit completes that
process, this bank will be subject to the various state and federal regulations
generally applicable to such institutions.
COMPETITION
CompuCredit faces intense and increasing competition from other consumer
lenders. In particular, CompuCredit'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. CompuCredit 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
CompuCredit 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 CompuCredit 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. CompuCredit may lose entire
accounts, or may lose account balances, to competing credit card issuers.
CompuCredit'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
CompuCredit's ability to obtain clients and maintain its profitability.
PROPERTIES
CompuCredit'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. CompuCredit 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, CompuCredit had 78 employees, all of whom are
located in Georgia. No collective bargaining agreement exists for any of its
employees. CompuCredit considers its relations with its employees to be good.
TRADEMARKS
Aspire is a registered trademark of CompuCredit. CompuCredit, Aspire
Diamond, Diamond Select and Aspire Diamond Select are trademarks of CompuCredit,
and applications to register such trademarks are pending. CompuCredit 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
CompuCredit regards its database management system and its customer
selection and risk evaluation criteria as confidential and proprietary.
CompuCredit initially developed its pre-screen customer selection criteria under
a contract with a national credit bureau; however, CompuCredit owns all
intellectual property rights in the resulting model. CompuCredit's database
management system has been developed by a third party developer under a contract
pursuant to which CompuCredit holds an exclusive, perpetual license to use,
copy, execute, display and reproduce the software constituting CompuCredit's
database management system. The third party developer owns such software,
subject to CompuCredit's license. The third party developer also has granted to
CompuCredit 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 CompuCredit 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 CompuCredit in the continuing refinement and
use of its computer software systems. The third party developer has granted to
CompuCredit 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 CompuCredit. In addition, CompuCredit 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 CompuCredit is not a party to any legal proceeding
reasonably likely to have a material adverse effect on CompuCredit's financial
position or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of CompuCredit (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 CompuCredit since its inception in 1996 and the sole director since
CompuCredit'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., 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 CompuCredit 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 CompuCredit 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 CompuCredit
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 CompuCredit 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.
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 CompuCredit's internal audit
function and those of its independent auditors, and monitor the adequacy of
CompuCredit'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, among other things, will review salaries, benefits and other
compensation of directors, officers and other employees of CompuCredit 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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DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of CompuCredit 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.
CompuCredit 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 1998 Stock Option Plan. All directors will be reimbursed for expenses
incurred to attend the meetings of the Board of Directors or committees thereof.
CompuCredit 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 CompuCredit's President and CompuCredit'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) CompuCredit believes that the annual compensation of its executive officers,
including its President, Chief Operating Officer, Chief Credit Officer,
Chief Financial Officer and Controller, is below market as compared to
CompuCredit'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. CompuCredit 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 CompuCredit as part of a fee paid to HBR Capital for
management and accounting services provided to CompuCredit in 1997. Of the
amount disclosed for Mr. Gilbert, $51,041 was paid by HBR Capital and
reimbursed by CompuCredit pursuant to the same arrangement, and the balance
was paid by CompuCredit.
(3) Reflects compensation for the period from April 21, 1997, when Mr. House
joined CompuCredit, through December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
CompuCredit 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 CompuCredit has served on
the Board of Directors or the compensation committee of any entity that had
officers who served on CompuCredit's Board of Directors.
1998 STOCK OPTION PLAN
Pursuant to its 1998 Stock Option Plan, CompuCredit is authorized to grant
options to purchase up to 1,200,000 shares of the common stock. Under the 1998
Stock Option Plan, CompuCredit 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"). CompuCredit will receive no consideration for stock
options granted under the 1998 Stock Option Plan.
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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, CompuCredit 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 CompuCredit and its affiliates who have made or have
the capability of making a substantial contribution to the success of
CompuCredit, as the Compensation Committee selects from time to time.
CompuCredit estimates that at the present time all of its employees are eligible
to participate in the 1998 Stock Option Plan. In addition, each of its four
directors after the offering who are not employees or officers of CompuCredit 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
CompuCredit. 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 CompuCredit in cash or in common
stock the amount CompuCredit 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 CompuCredit under exercise of the option shall be
appropriately reduced to reimburse CompuCredit 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 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
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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.
CompuCredit 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 CompuCredit's common stock as of the date of this prospectus and
the percentage ownership of CompuCredit's common stock 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
CompuCredit to own beneficially more than 5% of the outstanding shares of common
stock, (ii) each director of CompuCredit 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 CompuCredit 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
CompuCredit'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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CERTAIN TRANSACTIONS
CompuCredit 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, 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 Atlantic Equity Corporation 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, CompuCredit 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 CompuCredit's
preferred stock 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 CompuCredit's preferred stock had an aggregate liquidation
preference (including accrued dividends) of $252,394 as of September 30, 1998)
will be exchanged with CompuCredit 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, CompuCredit
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, CompuCredit paid to HBR Capital an aggregate of $300,000 for
management and accounting services provided to CompuCredit 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 CompuCredit 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 CompuCredit 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 CompuCredit and Columbus Bank and Trust, 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 CompuCredit 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 Columbus Bank and Trust (the "Letter of Credit"). CompuCredit 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 CompuCredit and SunTrust Bank.
In 1996, Richard R. House, Jr. and Richard W. Gilbert loaned Visionary
Systems, Inc. ("VSI"), the third party developer of CompuCredit'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 CompuCredit and VSI or any
other agreement between CompuCredit 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 CompuCredit 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, CompuCredit's authorized capital stock
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 CompuCredit'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 CompuCredit'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 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
CompuCredit'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.
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
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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 CompuCredit, the holders of
common stock are entitled to receive ratably the net assets of CompuCredit
available after the payment of all its debts and other liabilities, 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 CompuCredit 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 CompuCredit 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, CompuCredit's shareholders 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
CompuCredit's outstanding voting stock. CompuCredit 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 CompuCredit 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 CompuCredit may
issue in the future. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control of CompuCredit.
See "--Preferred Stock."
54
<PAGE>
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. CompuCredit has
not elected to be covered by such restrictions but may do so in the future.
The Georgia 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.
Also, the Georgia 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 certain directors of the Georgia corporation, (iii) the business
combination is recommended by at least two-thirds of certain directors of the
Georgia corporation 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, Atlantic Equity Corporation, 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
CompuCredit 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), Atlantic Equity
Corporation 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, CompuCredit is
required to bear the fees, costs and expenses of each registration of shares
held by Atlantic Equity Corporation, and Atlantic Equity Corporation 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 between an
unrelated private investor holding 1,044,666 shares of common stock and
CompuCredit, the investor has demand and piggyback registration rights with
respect to such shares. If, at any time at least 12 months after the
consummation of the offering, CompuCredit 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
55
<PAGE>
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 CompuCredit 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, CompuCredit 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, CompuCredit's Articles of Incorporation
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 CompuCredit (in general, any person who has a
control relationship with CompuCredit), 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 CompuCredit
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
CompuCredit. Any person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of CompuCredit 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."
Promptly following the consummation of the offering, CompuCredit intends to
file one or more registration statements on Form S-8 under the Securities Act to
register all of the shares of common
56
<PAGE>
stock subject to then outstanding options or future grants under CompuCredit'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 CompuCredit's future
ability to raise capital through an offering of its equity securities.
CompuCredit 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 of the Underwriters, offer to sell, sell, contract to sell,
grant any option to sell, or otherwise dispose of, or require CompuCredit to
file with the Commission a registration statement under the Securities Act to
register, any shares of CompuCredit's common stock or securities convertible
into or exchangeable for any shares of CompuCredit's common stock or warrants or
other rights to acquire shares of CompuCredit's common stock (other than with
respect to employees of CompuCredit 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
CompuCredit 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.
CompuCredit 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.
CompuCredit 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.
CompuCredit 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 CompuCredit to file with the
Commission a registration statement under the Securities Act to register, any
shares of common stock of CompuCredit or securities convertible into or
exchangeable for any shares of common stock of CompuCredit or warrants or other
rights to acquire shares of common stock of CompuCredit (other than with respect
to employees of CompuCredit 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 CompuCredit and the Representatives. Among the factors which were
considered in determining the offering price were CompuCredit'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 CompuCredit 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.
CompuCredit 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 CompuCredit 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
CompuCredit 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
CompuCredit 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 CompuCredit 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
CompuCredit 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.
CompuCredit 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 CompuCredit 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 ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS
TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON STOCK.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................................... 1
Risk Factors........................................... 7
The Company............................................ 15
Use of Proceeds........................................ 15
Dividend Policy........................................ 15
Dilution............................................... 16
Capitalization......................................... 17
Selected Consolidated Financial Data................... 18
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>
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<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.
10.4.5** Series 1999--One Supplement, dated as of January 12, 1999, to the Pooling and
Servicing Agreement, 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.
</TABLE>
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<PAGE>
<TABLE>
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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.
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.
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 CompuCredit's Registration Statement on Form
S-1 (File No. 333-62327) filed with the Commission on August 27, 1998.
++ Previously filed.
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to its 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 15th day of January,
1999.
COMPUCREDIT CORPORATION
By: /s/ DAVID G. HANNA
-----------------------------------------
David G. Hanna
President
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 January 15, 1999
David G. Hanna Officer)
/s/ BRETT M. SAMSKY Chief Financial Officer
- ------------------------------ (Principal Financial January 15, 1999
Brett M. Samsky Officer)
/s/ ASHLEY L. JOHNSON Controller (Principal
- ------------------------------ Accounting Officer) January 15, 1999
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.
10.4.5** Series 1999--One Supplement, dated as of January 12, 1999, to the Pooling and
Servicing Agreement, 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.
</TABLE>
<PAGE>
<TABLE>
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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.
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.
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 CompuCredit's Registration Statement on Form
S-1 (File No. 333-62327), filed with the Commission on August 27, 1998.
++ Previously filed.
<PAGE>
Exhibit 10.4.5
EXECUTION COPY
SERIES 1999-One SUPPLEMENT
Dated as of January 12, 1999
to
POOLING AND SERVICING AGREEMENT
Dated as of August 29, 1997
$125,000,000
- --------------------------------------------------------------------------------
COMPUCREDIT CREDIT CARD MASTER TRUST
SERIES 1999-One
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
among
COMPUCREDIT FUNDING CORP.
Transferor
COMPUCREDIT CORPORATION
Servicer
and
Bankers Trust Company
Trustee
on behalf of the Series 1999-One Certificateholders
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I CREATION OF THE SERIES 1999-ONE CERTIFICATES 1
Section 1.01. Designation........................................................................1
ARTICLE II Definitions................................................................................2
Section 2.01. Definitions........................................................................2
Section 3.01. Servicing Compensation; Interchange...............................................14
ARTICLE IV Rights of Series 1999-One Certificateholders and Allocation and Application of
Collections...............................................................................15
Section 4.01. Collections and Allocations.......................................................15
Section 4.02. Determination of Monthly Interest.................................................19
Section 4.03. Suspension of the Revolving Period; Limited Amortization Period and
Optional Amortization.............................................................19
Section 4.04. Required Amount...................................................................20
Section 4.05. Application of Available Funds and Available Principal Collections................20
Section 4.06. Defaulted Amounts; Investor Charge-Offs...........................................23
Section 4.07. Excess Spread; Excess Finance Charge Collections..................................24
Section 4.08. Reallocated Principal Collections.................................................24
Section 4.09. Excess Finance Charge Collections.................................................24
Section 4.10. Reallocated Investor Finance Charge Collections...................................25
Section 4.11. Shared Principal Collections......................................................26
Section 4.12. Spread Account....................................................................26
Section 4.13. Invested Amount Increases.........................................................28
ARTICLE V Distributions and Reports to Series 1999-One Certificateholders...........................29
Section 5.01. Distributions.....................................................................29
Section 5.02. Reports and Statements to Series 1999-One Certificateholders......................30
ARTICLE VI Pay Out Events............................................................................30
Section 6.01. Pay Out Events....................................................................30
ARTICLE VII Optional Repurchase; Series Termination...................................................32
Section 7.01. Optional Repurchase...............................................................32
Section 7.02. Series Termination................................................................32
ARTICLE VIII Final Distributions.......................................................................33
</TABLE>
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Section 8.01. Sale of Receivables or Certificateholders' Interest pursuant to Section
2.06 or 10.01 of the Agreement and Section 7.01 or 7.02 of this
Supplement........................................................................33
Section 8.02. Distribution of Proceeds of Sale, Disposition or Liquidation of the
Receivables pursuant to Section 9.01 of the Agreement.............................34
ARTICLE IX Miscellaneous Provisions..................................................................35
Section 9.01. Ratification of Agreement.........................................................35
Section 9.02. Counterparts......................................................................35
Section 9.03. Governing Law.....................................................................35
Section 9.04. Tax Matters.......................................................................35
Section 9.05. Additional Provisions Regarding Agreement.........................................39
Section 9.06. Additional Provisions Regarding the Servicer......................................40
Section 9.07. Notices...........................................................................41
Section 9.08. Miscellaneous.....................................................................41
</TABLE>
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<PAGE>
EXHIBITS
- --------
Exhibit A. Form of Class A Certificate
Exhibit B. Form of Class B Certificate
Exhibit C-1 Form of Monthly Servicer's Statement
Exhibit C-2 Form of Release Report
Exhibit D. Form of Class B Increase Notice
Exhibit E. Form of Investment Letter
<PAGE>
SERIES 1999-One SUPPLEMENT, dated as of January 12, 1999 (the
"Supplement"), among COMPUCREDIT FUNDING CORP., a Nevada corporation, as
Transferor, COMPUCREDIT CORPORATION, a Georgia corporation, as Servicer, and
Bankers Trust Company, a New York banking corporation, not in its individual
capacity, but solely as Trustee.
Pursuant to the Pooling and Servicing Agreement dated as of
August 29, 1997 (as amended and supplemented, the "Agreement"), among the
Transferor, the Servicer and the Trustee, the Transferor has created the
CompuCredit Credit Card Master Trust (the "Trust"). Section 6.03 of the
Agreement provides that the Transferor may from time to time direct the Trustee
to authenticate one or more new Series of Investor Certificates representing
fractional undivided interests in the Trust. The Principal Terms of any new
Series are to be set forth in a Supplement to the Agreement.
Pursuant to this Supplement, the Transferor and the Trustee
shall create a new Series of Investor Certificates and specify the Principal
Terms thereof.
ARTICLE I
CREATION OF THE SERIES 1999-ONE CERTIFICATES
SECTION 1.01 DESIGNATION.
(a) There is hereby created a Series of Investor Certificates to be
issued pursuant to the Agreement and this Supplement to be known as
"CompuCredit Credit Card Master Trust, Series 1999-One." The Series 1999-One
Certificates shall be issued in two Classes, the first of which shall be
known as the "Class A Series 1999-One Floating Rate Variable Funding
Certificates" and the second of which shall be known as the "Class B Series
1999-One Floating Rate Variable Funding Certificates."
(b) Series 1999-One shall be included in Group II and shall be a
Principal Sharing Series. Series 1999-One shall be an Excess Allocation
Series. Series 1999-One shall not be subordinated to any other Series.
Notwithstanding any provision in the Agreement or in this Supplement to the
contrary, the first Distribution Date with respect to Series 1999-One shall
be the Distribution Date related to the Monthly Period which follows the
Monthly Period during which a Class A Invested Amount Increase occurs.
(c) The opinions described in clauses (c) and (d) of the definition of
Tax Opinion in Section 1.01 of the Agreement shall not be applicable to the
Series 1999-One Certificates.
<PAGE>
ARTICLE II
DEFINITIONS
SECTION 2.01 DEFINITIONS.
(a) Whenever used in this Supplement, the following words and phrases
shall have the following meanings, and the definitions of such terms are
applicable to the singular as well as the plural forms of such terms and the
masculine as well as the feminine and neuter genders of such terms.
"ADMINISTRATIVE AGENT" shall mean First Union Capital Markets,
a Division of Wheat First Securities, Inc., or any successor designated as the
Deal Agent in the Certificate Purchase Agreement.
"AGGREGATE SUBORDINATION PERCENTAGE" shall mean, for any
date of determination, the greater of (i) *[material omitted] or (ii) the
percentage equivalent of, (a) a fraction the numerator of which is 1 and the
denominator of which is 1 minus the product of *[material omitted] and the
three month average Net Default Percentage, minus (b) 1.
"AMORTIZATION PERIOD" shall mean, with respect to Series
1999-One, the Controlled Amortization Period or the Early Amortization Period
(or both), as the context requires and, for purposes of Shared Principal
Collections, the Limited Amortization Period and an Optional Amortization Date,
if so designated by the Transferor.
"AVAILABLE FUNDS" shall mean, with respect to any Monthly
Period, an amount equal to the sum of (a) the Reallocated Investor Finance
Charge Collections and (b) the amount of funds, if any, to be withdrawn from the
Spread Account which, pursuant to subsection 4.12(c), are required to be
included in Available Funds with respect to such Distribution Date.
"AVAILABLE PRINCIPAL COLLECTIONS" shall mean, with respect to
any Monthly Period, an amount equal to the sum of (a) (i) an amount equal to the
Fixed/Floating Allocation Percentage of Series 1999-One Allocable Principal
Collections received during such Monthly Period MINUS (ii) the amount of
Reallocated Principal Collections with respect to such Monthly Period which
pursuant to Section 4.08 are required to fund the Class A Required Amount for
the related Distribution Date, (b) any Shared Principal Collections with respect
to other Series that are allocated to Series 1999-One in accordance with Section
4.04 of the Agreement and Section 4.11 hereof, (c) any other amounts which
pursuant to Section 4.05 or 4.07 hereof are to be treated as Available Principal
Collections with respect to the related Distribution Date.
"AVAILABLE SPREAD ACCOUNT AMOUNT" shall mean, with respect to
any Distribution Date, the lesser of (a) the amount on deposit in the Spread
Account on such date (before giving effect to any deposit to be made to the
Spread Account on such date) and (b) the Required Spread Account Amount.
"AVERAGE INVESTED AMOUNT" shall mean, for any period, the sum
of the Invested Amounts for each day in such period divided by the number of
days in such period.
- --------------
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 under the Securities
Act of 1933.
2
<PAGE>
"BASE RATE" shall mean, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the numerator of which is
equal to the sum of the Class A Monthly Interest and the Monthly Servicing
Fee, if any, with respect to the related Distribution Date and the
denominator of which is the Class A Average Invested Amount as of the last
day of the preceding Monthly Period.
"CERTIFICATE ASSIGNMENT" shall have the meaning specified in
Section 9.04(e).
"CERTIFICATE PURCHASE AGREEMENT" shall mean the Certificate
Purchase Agreement dated as of January 12, 1999 by and among the Transferor, the
Servicer, the investors named therein, the Administrative Agent, First Union
National Bank, as the liquidity agent, and Variable Funding Capital Corporation,
and all amendments thereto.
"CLASS A AVERAGE INVESTED AMOUNT" shall mean, for any period,
the sum of the Class A Invested Amounts for each day in such period divided by
the number of days in such period.
"CLASS A CERTIFICATE RATE" shall have the meaning specified in
the Certificate Purchase Agreement.
"CLASS A CERTIFICATEHOLDER" shall mean the Person in whose
name a Class A Certificate is registered in the Certificate Register.
"CLASS A CERTIFICATES" shall mean any one of the Certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A.
"CLASS A FLOATING PERCENTAGE" shall mean, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class A Invested
Amount as of the close of business on the last day of the preceding Monthly
Period and the denominator of which is equal to the Invested Amount as of such
day; PROVIDED, HOWEVER, that with respect to the first Monthly Period, the Class
A Floating Percentage shall mean the percentage equivalent of a fraction, the
numerator of which is the Class A Initial Invested Amount and the denominator of
which is the Initial Invested Amount; PROVIDED FURTHER, HOWEVER, that with
respect to any Monthly Period in which one or more Reset Dates occur with
respect to an Invested Amount Increase or an Optional Amortization Date, the
Class A Floating Percentage shall be recalculated as provided above but as of
such Reset Date for the period from and after the date on which any such Reset
Date occurs to but excluding the date (if any) that another such Reset Date
occurs or, if no other Reset Date occurs during such Monthly Period, to and
including the last day of such Monthly Period.
"CLASS A INITIAL INVESTED AMOUNT" shall mean $0.
"CLASS A INVESTED AMOUNT" shall mean, on any date of
determination, an amount equal to (a) the Class A Initial Invested Amount, PLUS
(b) the aggregate principal amount of Class A Invested Amount Increases pursuant
to Section 4.13 on or prior to such date, MINUS (c) the aggregate amount of
principal payments made to the Class A Certificateholders on or prior to such
date, MINUS (d) the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all prior Distribution Dates OVER Class A Investor Charge-Offs
3
<PAGE>
reimbursed pursuant to subsections 4.05(a)(vii) and 4.07(a) prior to such date.
"CLASS A INVESTED AMOUNT INCREASE" shall have the meaning
specified in subsection 4.13(a).
"CLASS A INVESTOR CHARGE-OFFS" shall have the meaning
specified in subsection 4.06(a).
"CLASS A INVESTOR DEFAULT AMOUNT" shall mean, with respect to
each Monthly Period, an amount equal to the product of (i) the Investor Default
Amount for the related Monthly Period and (ii) the Class A Floating Percentage
for such Monthly Period.
"CLASS A MONTHLY INTEREST" shall have the meaning specified in
subsection 4.02(a).
"CLASS A PRINCIPAL PERCENTAGE" shall mean, with respect to any
Monthly Period (i) during the Revolving Period, the Class A Floating Percentage
and (ii) during the Amortization Period or the Limited Amortization Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is the Class A Invested Amount as of the end of the
Revolving Period or suspension thereof, as the case may be, and the denominator
of which is the Invested Amount as of the end of the Revolving Period or
suspension thereof, as the case may be.
"CLASS A REQUIRED AMOUNT" shall have the meaning specified in
Section 4.04.
"CLASS B AVERAGE INVESTED AMOUNT" shall mean, for any period,
the sum of the Class B Invested Amounts for each day in such period divided by
the number of days in such period.
"CLASS B CERTIFICATE RATE" shall mean, for any Interest Period
with respect to the Class B Certificates, a per annum rate of 0%, provided,
however, that upon notice to the Trustee and the Servicer, the Class B
Certificate Rate shall equal such other rate as shall be agreed upon by the
Transferor and the Class B Certificateholder, from time to time.
"CLASS B CERTIFICATEHOLDER" shall mean the Person in whose
name a Class B Certificate is registered in the Certificate Register.
"CLASS B CERTIFICATES" shall mean any one of the Certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit B.
"CLASS B FLOATING PERCENTAGE" shall mean, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class B Invested
Amount as of the close of business on the last day of the preceding Monthly
Period and the denominator of which is equal to the Invested Amount as of the
close of business on such day; PROVIDED, however, that with respect to the first
Monthly Period, the Class B Floating Percentage shall mean the percentage
equivalent of a
4
<PAGE>
fraction, the numerator of which is the Class B Initial Invested Amount and
the denominator of which is the Initial Invested Amount; PROVIDED FURTHER,
HOWEVER, that with respect to any Monthly Period in which one or more Reset
Dates occur with respect to an Invested Amount Increase or an Optional
Amortization Date, the Class B Floating Percentage shall be recalculated as
provided above but as of such Reset Date for the period from and after the
date on which any such Reset Date occurs to but excluding the date (if any)
that another such Reset Date occurs or, if no other Reset Date occurs during
such Monthly Period, to and including the last day of such Monthly Period.
"CLASS B INITIAL INVESTED AMOUNT" shall mean $0.
"CLASS B INVESTED AMOUNT" shall mean, on any date of
determination, an amount equal to (a) the Class B Initial Invested Amount, PLUS
(b) the aggregate principal amount of Class B Invested Amount Increases pursuant
to Section 4.13 on or prior to such date, MINUS (c) the aggregate amount of
principal payments made to the Class B Certificateholders prior to such date,
MINUS (d) the aggregate amount of Class B Investor Charge-Offs for all prior
Distribution Dates, MINUS (e) the amount of Reallocated Principal Collections
allocated on all prior Distribution Dates pursuant to Section 4.08 MINUS (f) an
amount equal to the amount by which the Class B Invested Amount has been reduced
on all prior Distribution Dates pursuant to subsection 4.06(a), PLUS (g) the
amount of Available Funds allocated and available on all prior Distribution
Dates pursuant to subsection 4.05(a)(xii) for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (d), (e) and (f); and PLUS (h) the
amount of Excess Spread and Excess Finance Charge Collections allocated and
available on all prior Distribution Dates pursuant to subsection 4.07(a) for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (d),
(e) and (f); PROVIDED, HOWEVER, that the Class B Invested Amount may not be
reduced below zero.
"CLASS B INVESTED AMOUNT INCREASE" shall have the meaning
specified in subsection 4.13(b).
"CLASS B INVESTOR CHARGE-OFFS" shall have the meaning
specified in subsection 4.06(b).
"CLASS B INVESTOR DEFAULT AMOUNT" shall mean, with respect to
each Monthly Period, an amount equal to the product of (i) the Investor Default
Amount for the related Monthly Period and (ii) the Class B Floating Percentage
for such Monthly Period.
"CLASS B MONTHLY INTEREST" shall have the meaning specified in
subsection 4.02(b).
"CLASS B PRINCIPAL PERCENTAGE" shall mean, with respect to any
Monthly Period, (i) during the Revolving Period, the Class B Floating Percentage
and (ii) during the Amortization Period or the Limited Amortization Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is the Class B Invested Amount as of the end of the
Revolving Period or the suspension thereof, as the case may be, and the
denominator of which is the Invested Amount as of the end of the Revolving
Period or the suspension thereof, as the case may be.
5
<PAGE>
"CLOSING DATE" shall mean January 12, 1999.
"COMMITMENT TERMINATION DATE" shall mean January 11, 2000, or
such later date as agreed to by the Administrative Agent and the Transferor.
"CONTROLLED AMORTIZATION PERIOD" shall mean, unless a Pay Out
Event with respect to Series 1999-One shall have occurred prior thereto, the
period commencing on the Termination Date (as defined in the Certificate
Purchase Agreement, excluding clause (v) thereof) and ending upon the first to
occur of (x) the commencement of the Early Amortization Period, (y) the payment
in full to Class A Certificateholders and the Class B Certificateholders of the
Class A Invested Amount and the Class B Invested Amount, respectively, and (z)
the Series 1999-One Termination Date.
"DELINQUENCY RATIO" shall mean, for any Monthly Period, the
ratio (expressed as a percentage) of (i) the balance of all Receivables as to
which, as of the last day of such Monthly Period, any payment remains unpaid for
more than 30 days from the due date with respect thereto, but excludes
Ineligible Receivables, to (ii) the balance of all Receivables (excluding
Ineligible Receivables) as of the last day of such Monthly Period.
"DISTRIBUTION DATE" shall mean the fifteenth day of each
calendar month, or if such fifteenth day is not a Business Day, the next
succeeding Business Day.
"EARLY AMORTIZATION PERIOD" shall mean the period commencing
at the close of business on the Business Day immediately preceding the day on
which a Pay Out Event with respect to Series 1999-One is deemed to have
occurred, and ending on the first to occur of (i) the payment in full of the
Invested Amount or (ii) the Series 1999-One Termination Date.
"ELIGIBLE INSTITUTION" shall mean any depositary institution
(which may be the Trustee) organized under the laws of the United States or any
one of the states thereof, including the District of Columbia (or any domestic
branch of a foreign bank), which depository institution at all times (a) is a
member of the FDIC and (b) has (i) a long-term unsecured debt rating of AAA and
Aaa or the equivalent, as applicable, by each Rating Agency or (ii) a short-term
unsecured debt certificate of deposit rating of at least A-1 and P-1 by each
Rating Agency. Notwithstanding the previous sentence any institution the
appointment of which satisfies the Rating Agency Condition shall be considered
an Eligible Institution.
"EXCESS FINANCE CHARGE COLLECTIONS" shall mean, with respect
to any Distribution Date, the aggregate amount of Collections of Finance Charge
Receivables allocable to other Series in excess of the amounts necessary to make
required payments with respect to such Series, if any.
"EXCESS SPREAD" shall mean, with respect to any Distribution
Date, the amount, if any, specified pursuant to subsection 4.05(a)(xiii) with
respect to such Distribution Date.
"FACILITY LIMIT" shall have the meaning specified in the
Certificate Purchase Agreement.
"FINANCE CHARGE SHORTFALL" shall have the meaning specified in
Section 4.09.
6
<PAGE>
"FIXED/FLOATING ALLOCATION PERCENTAGE" shall mean, with
respect to any day during a Monthly Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is (a)
during the Revolving Period, the Series Adjusted Invested Amount for Series
1999-One as of the last day of the immediately preceding Monthly Period (or, in
the case of the first Monthly Period, the Initial Invested Amount) and (b)
during the Amortization Period or any Limited Amortization Period, the Series
Adjusted Invested Amount for Series 1999-One as of the close of business on the
date on which the Revolving Period shall have terminated or been suspended, as
the case may be, and the denominator of which is the product of (x) the sum of
(i) the total amount of Principal Receivables in the Trust as of the last day of
the immediately preceding Monthly Period (or with respect to the first Monthly
Period, the total amount of Principal Receivables in the Trust as of the Closing
Date) and (ii) the principal amount on deposit in the Special Funding Account as
of such last day (or with respect to the first Monthly Period, the Closing Date)
and (y) the Series 1999-One Allocation Percentage as of the last day of the
immediately preceding Monthly Period; PROVIDED, HOWEVER, that with respect to
any Monthly Period in which one or more Reset Dates occurs the Fixed/Floating
Allocation Percentage shall be recalculated as provided above but as of such
Reset Date for the period from and including such Reset Date to but excluding
the next such Reset Date, if any, or if no other Reset Date occurs during such
Monthly Period, to and including the last day of such Monthly Period, as
applicable; PROVIDED FURTHER, that the numerator in clause (b) above shall
continue to be the Series Adjusted Invested Amount for Series 1999-One as of the
close of business on the date on which the Revolving Period shall have been
terminated or suspended unless the Invested Amount is paid in full on such date.
"FLOATING ALLOCATION PERCENTAGE" shall mean, with respect to
any Monthly Period, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is the Invested Amount as of
the last day of the preceding Monthly Period (or in the case of the first
Monthly Period, the Initial Invested Amount) and the denominator of which is the
product of (x) the Series 1999-One Allocation Percentage with respect to such
Monthly Period and (y) the sum of (i) the total amount of Principal Receivables
in the Trust as of such day (or with respect to the first Monthly Period, the
total amount of Principal Receivables in the Trust on the Closing Date) and (ii)
the principal amount on deposit in the Special Funding Account as of such last
day (or with respect to the first Monthly Period, the Closing Date); PROVIDED,
HOWEVER, that with respect to any Monthly Period in which one or more Reset
Dates occurs, the Floating Allocation Percentage shall be recalculated as
provided above but as of such Reset Date, for the period from and after the date
on which any such Reset Date occurs to but excluding the date, if any, that
another such Reset Date occurs or, if no other Reset Date occurs during such
Monthly Period, to and including the last day of such Monthly Period.
"FUNDING PERIOD" shall have the meaning specified in the
Certificate Purchase Agreement.
"GROUP II" shall mean Series 1999-One and each other Series
specified in the related Supplement to be included in Group II.
"GROUP II INVESTOR ADDITIONAL AMOUNTS" shall mean, with
respect to any Monthly Period, the sum of (a) Series 1999-One Additional
Amounts for such Distribution Date and (b) for all other Series included in
Group II, the sum of (i) the aggregate net amount by which the
7
<PAGE>
Invested Amounts of such Series have been reduced as a result of investor
charge-offs, subordination of principal collections and funding the investor
default amounts in respect of any Class or Series Enhancement interests of
such Series as of such Distribution Date and (ii) if the applicable
Supplements so provide, the aggregate unpaid amount of interest at the
applicable certificate rates that has accrued on the amounts described in the
preceding clause (i) for such Distribution Date.
"GROUP II INVESTOR DEFAULT AMOUNT" shall mean, with respect to
any Distribution Date, the sum of (a) the Investor Default Amount for such
Distribution Date and (b) the aggregate amount of the investor default amounts
for all other Series included in Group II for such Distribution Date.
"GROUP II INVESTOR FINANCE CHARGE COLLECTIONS" shall mean,
with respect to any Distribution Date, the sum of (a) Investor Finance Charge
Collections for such Distribution Date and (b) the aggregate amount of the
investor finance charge collections for all other Series included in Group II
for such Distribution Date.
"GROUP II INVESTOR MONTHLY FEES" shall mean with respect to
any Distribution Date, the sum of (a) Series 1999-One Monthly Fees for such
Distribution Date and (b) the aggregate amount of the servicing fees, investor
fees, fees payable to any Series Enhancer and any other similar fees, which are
payable out of reallocated investor finance charge collections pursuant to the
related Supplements, for all other Series included in Group II for such
Distribution Date.
"GROUP II INVESTOR MONTHLY INTEREST" shall mean, with respect
to any Distribution Date, the sum of (a) Series 1999-One Monthly Interest for
such Distribution Date and (b) the aggregate amount of monthly interest,
including overdue monthly interest and interest on such overdue monthly
interest, if such amounts are payable out of reallocated investor finance charge
collections pursuant to the related Supplements, for all other Series included
in Group II for such Distribution Date.
"INITIAL INVESTED AMOUNT" shall mean $0.
"INTEREST DISTRIBUTION DATE" shall have the meaning specified
in Section 4.02(c) hereof.
"INTEREST PERIOD" shall mean, with respect to any Distribution
Date, the period from and including the Distribution Date immediately preceding
such Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding such Distribution Date.
"INVESTED AMOUNT" shall mean, as of any date of determination,
an amount equal to the sum of (a) the Class A Invested Amount as of such date
and (b) the Class B Invested Amount as of such date.
"INVESTED AMOUNT INCREASE" shall mean a Class A Invested
Amount Increase or a Class B Invested Amount Increase.
8
<PAGE>
"INVESTMENT LETTER" shall have the meaning specified in
Section 9.04(c).
"INVESTOR CHARGE-OFFS" shall mean Class A Investor Charge-Offs
and Class B Investor Charge-Offs.
"INVESTOR DEFAULT AMOUNT" shall mean, with respect to any
Monthly Period, an amount equal to the product of (a) the Series 1999-One
Allocable Defaulted Amount for the related Monthly Period and (b) the Floating
Allocation Percentage for such Monthly Period.
"INVESTOR FINANCE CHARGE COLLECTIONS" shall mean with respect
to any Distribution Date, an amount equal to the product of (a) (i) during the
Revolving Period or the Limited Amortization Period, the Floating Allocation
Percentage for the related Monthly Period and (ii) during the Amortization
Period, the Fixed/Floating Allocation Percentage for the related Monthly Period
and (b) Series 1999-One Allocable Finance Charge Collections deposited in the
Collection Account for the related Monthly Period.
"LIMITED AMORTIZATION AMOUNT" shall mean for any Distribution
Date relating to a Limited Amortization Period, the excess, if any, of (i) the
amount specified in the notice delivered by the Transferor in accordance with
Section 4.03 over (ii) the aggregate amount of principal distributed to the
Class A Certificateholders on all prior Distribution Dates, if any, in such
Limited Amortization Period.
"LIMITED AMORTIZATION PERIOD" shall mean, unless the
Controlled Amortization Period or the Early Amortization Period shall have
commenced prior thereto, a period beginning on the first day of the Monthly
Period specified in the notice delivered by the Transferor in accordance with
Section 4.03, and ending upon the first to occur of (i) the commencement of the
Controlled Amortization Period or the Early Amortization Period and (ii) the
last day of the Monthly Period related to the Distribution Date on which the
aggregate amount distributed pursuant to Section 4.05 (c)(ii) equals the Limited
Amortization Amount for such Distribution Date.
"MONTHLY INTEREST" means, with respect to any Distribution
Date, the Class A Monthly Interest and the Class B Monthly Interest for such
Distribution Date.
"MONTHLY PRINCIPAL PAYMENT RATE" shall mean, with respect to
any Monthly Period, a fraction, the numerator of which is the Series 1999-One
Allocable Principal Collections for such Monthly Period and the denominator of
which is the average Invested Amount during such Monthly Period.
"MONTHLY SERVICING FEE" shall have the meaning specified in
Section 3.01.
"NET DEFAULT PERCENTAGE" shall mean, with respect to any
Monthly Period, a fraction, the numerator of which is (a) 12, multiplied by
(b) (i) the Investor Default Amount minus (ii) Recoveries, and the
denominator of which is the Average Invested Amount during such Monthly
Period.
"NET PORTFOLIO YIELD" shall mean, with respect to any Monthly
Period, the annualized percentage equivalent of a fraction, (A) the numerator of
which is equal to (a)
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<PAGE>
Investor Finance Charge Collections with respect to such Monthly Period, plus
(b) without duplication of amounts referred to in clause (a) above, the
amount of Interchange to be included as Series 1999-One Allocable Finance
Charge Collections for such Monthly Period pursuant to subsection 3.01(b),
MINUS (c) the Investor Default Amount for the Distribution Date with respect
to such Monthly Period, and (B) the denominator of which is the Class A
Average Invested Amount with respect to such Monthly Period.
"NET YIELD" shall mean, with respect to any Monthly Period,
(a) the Net Portfolio Yield with respect to such Monthly Period MINUS (b) the
Base Rate with respect to such Monthly Period.
"OPTIONAL AMORTIZATION AMOUNT" shall have the meaning
specified in subsection 4.03(b).
"OPTIONAL AMORTIZATION DATE" shall have the meaning specified
in subsection 4.03(b).
"OPTIONAL AMORTIZATION NOTICE" shall have the meaning
specified in subsection 4.03(b).
"PARTICIPANT" shall have the meaning specified in Section
9.04(f).
"PAY OUT EVENT" shall mean any Pay Out Event specified in
Section 6.01.
"PRIVATE HOLDER" shall mean each holder of a right to receive
interest or principal in respect of any direct or indirect interest in the Trust
including any financial instrument or contract the value of which is determined
in whole or part by reference to the Trust (including the Trust's assets, income
of the Trust or distributions made by the Trust), excluding any interest in the
Trust represented by any Series or Class of Certificates or any other interest
as to which the Transferor has provided to the Trustee an Opinion of Counsel to
the effect that such Series, Class or other interest will be treated as debt or
otherwise not as an equity interest in either the Trust or the Receivables for
federal income tax purposes, in each case, provided such interest is not
convertible or exchangeable into an interest in the Trust or the Trust's income
or equivalent value. Notwithstanding the immediately preceding sentence,
"Private Holder" shall also include 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)). Private Holders include each holder of an
interest in the Series 1999-One Certificates or the Transferor Certificates, the
Servicer, and the holder of any interest described in Section 12.02(c) of the
Agreement. Any Person holding more than one interest in the Trust 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, S Corporation or a grantor trust under the Code shall be treated
as a Private Holder unless excepted with the consent of the Transferor (which
consent shall be based on an Opinion of Counsel generally to the effect that the
action taken pursuant to the consent will not cause the Trust to become a
publicly traded partnership treated as a corporation).
10
<PAGE>
"REALLOCATED INVESTOR FINANCE CHARGE COLLECTIONS" shall mean
that portion of Group II Investor Finance Charge Collections allocated to Series
1999-One pursuant to Section 4.10.
"REALLOCATED PRINCIPAL COLLECTIONS" shall mean, with respect
to any Monthly Period, the product of (a) the Series 1999-One Allocable
Principal Collections deposited in the Collection Account for such Monthly
Period, (b) the Fixed/Floating Allocation Percentage, and (c) the Class B
Principal Percentage.
"REASSIGNMENT AMOUNT" shall mean, with respect to any
Distribution Date, after giving effect to any deposits and distributions
otherwise to be made on such Distribution Date, the sum of (i) the Invested
Amount on such Distribution Date plus (ii) Monthly Interest for such
Distribution Date and any Monthly Interest previously due but not distributed to
the Series 1999-One Certificateholders on a prior Distribution Date.
"RECORDS" shall mean 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 and the
related Obligors.
"RELEASE CONDITIONS" shall mean (i) the date specified in
clause (a) or (b) of the definition of "Termination Date" shall not have
occurred and (ii) the Servicer shall have delivered to the Administrative Agent
a completed and satisfactory Release Report.
"RELEASE REPORT" shall mean a statement substantially in the
form of Exhibit C-2 prepared by the Servicer.
"REQUIRED SUBORDINATE AMOUNT" shall mean, on any date of
determination, the Class A Invested Amount as of the end of the day immediately
preceding such determination date, multiplied by the Aggregate Subordination
Percentage.
"REQUIRED SPREAD ACCOUNT AMOUNT" shall mean, shall mean, on
any date of determination, the product of (i) the Class A Invested Amount as of
such date of determination and (ii) the Spread Account Cap Percentage as of such
date of determination.
"RESET DATE" shall mean each of (a) an Addition Date, (b) a
date on which an Invested Amount Increase occurs (c) an Optional Amortization
Date, (d) the date of any increase or decrease (other than regular scheduled
amortization) in the invested amount for another variable funding series, and
(e) any date on which a new Series is issued.
"REVOLVING PERIOD" shall mean the period beginning at the
close of business on the Series Cut-Off Date and ending on the earlier of (a)
the close of business on the day immediately preceding the day the Controlled
Amortization Period commences and (b) the close of business on the day
immediately preceding the day the Early Amortization Period commences;
PROVIDED, HOWEVER, that the Revolving Period shall be temporarily suspended
for the duration of any Limited Amortization Period.
"SERIES CUT-OFF DATE" shall mean the close of business on
December 21, 1998.
11
<PAGE>
"SERIES 1999-ONE" shall mean the Series of Certificates the
terms of which are specified in this Supplement.
"SERIES 1999-ONE ADDITIONAL AMOUNTS" shall mean, with respect
to any Distribution Date, the sum of the amounts determined pursuant to
subsections 4.05(a)(vii) and (xii) for such Distribution Date.
"SERIES 1999-ONE ALLOCABLE DEFAULTED AMOUNT" shall mean the
Series Allocable Defaulted Amount with respect to Series 1999-One.
"SERIES 1999-ONE ALLOCABLE FINANCE CHARGE COLLECTIONS" shall
mean the Series Allocable Finance Charge Collections with respect to Series
1999-One.
"SERIES 1999-ONE ALLOCABLE PRINCIPAL COLLECTIONS" shall mean
the Series Allocable Principal Collections with respect to Series 1999-One.
"SERIES 1999-ONE ALLOCATION PERCENTAGE" shall mean the Series
Allocation Percentage with respect to Series 1999-One which shall be an amount
equal to, with respect to any Monthly Period, the percentage equivalent of a
fraction, the numerator of which is the Series Adjusted Invested Amount for
Series 1999-One as of the last day of the immediately preceding Monthly Period
plus the Series Required Transferor Amount as of such last day and the
denominator of which is the Trust Adjusted Invested Amount plus the sum of all
Series Required Transferor Amounts as of such last day; PROVIDED, HOWEVER, that
with respect to any Monthly Period in which one or more Reset Dates occurs, the
Series 1999-One Allocation Percentage shall be recalculated as provided above
but as of such Reset Date for the period from and after the date on which any
such Reset Date occurs to but excluding the date, if any, that another such
Reset Date occurs or, if no other Reset Date occurs during such Monthly Period,
to and including the last day of such Monthly Period.
"SERIES 1999-ONE CERTIFICATE" shall mean a Class A Certificate
or a Class B Certificate.
"SERIES 1999-ONE CERTIFICATEHOLDER" shall mean a Class A
Certificateholder or a Class B Certificateholder.
"SERIES 1999-ONE CERTIFICATEHOLDERS' INTEREST" shall mean the
Certificateholders' Interest for Series 1999-One.
"SERIES 1999-ONE MONTHLY FEES" shall mean, with respect to any
Distribution Date, the amount determined pursuant to subsection 4.05(a)(iv).
"SERIES 1999-ONE MONTHLY INTEREST" shall mean the amounts
determined pursuant to subsections 4.02(a) and (b).
"SERIES 1999-ONE PRINCIPAL SHORTFALL" shall have the meaning
specified in Section 4.11.
"SERIES 1999-ONE TERMINATION DATE" shall mean December 30,
2008.
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<PAGE>
"SERIES INVESTED AMOUNT" shall mean, with respect to any date
of determination, the Initial Invested Amount PLUS the aggregate principal
amount of Invested Amount Increases and MINUS any payments of principal to the
Series 1999-One Certificateholders during the Limited Amortization Period or on
an Optional Amortization Date.
"SERIES REQUIRED TRANSFEROR AMOUNT" shall mean an amount equal
to 0% of the Invested Amount.
"SERVICER ADVANCE" shall have the meaning specified in Section
4.02(c).
"SERVICING BASE AMOUNT" shall have the meaning specified in
Section 3.01(a).
"SERVICING FEE RATE" shall mean the greater of (a) 2.0% per
annum and (b) the percentage cost per annum of servicing the Accounts or
Receivables pursuant to the applicable fee schedule governing the then-effective
servicing or sub-servicing arrangement as estimated by independent public
accountants on behalf of the Trustee, the Class A Certificateholders and the
Investor Certificateholders of each other Series of Investor Certificates then
outstanding; PROVIDED, HOWEVER, that during the period that Columbus Bank owns
the Accounts pursuant to the Affinity Card Agreement, the Servicing Fee Rate
shall be 0.10% per annum.
"SPECIAL PAYMENT DATE" shall mean each Distribution Date with
respect to the Early Amortization Period.
"SPREAD ACCOUNT" shall have the meaning specified in
subsection 4.12(a).
"SPREAD ACCOUNT CAP PERCENTAGE" shall mean, as of any date of
determination, if the most recent two-month average (calculated as of the
Determination Date immediately preceding such date) of the Net Yield for such
date is greater than or equal to the percentage set forth in the left-hand
column of the table below, and less than the percentage set forth in the middle
column of the table below, an amount equal to the percentage of the Class A
Invested Amount set forth next to such percentages in the right-hand column of
the table below:
AVERAGE NET YIELD
<TABLE>
<CAPTION>
Spread
Greater Than Less Account
OR EQUAL TO THAN CAP %
----------- ----- ------
<S> <C> <C>
6.0% 0%
5.0% 6.0% 3.5%
4.0% 5.0% 5.75%
3.0% 4.0% 8.25%
2.0% 3.0% 11.75%
0.0% 2.0% 100.0%
</TABLE>
13
<PAGE>
"SPREAD ACCOUNT DRAW AMOUNT" shall have the meaning specified
in Section 4.04.
"SPREAD ACCOUNT SURPLUS" shall mean, as of any date of
determination, the amount, if any, by which the amount on deposit in the Spread
Account exceeds the Required Spread Account Amount.
"TERMINATION DATE" shall mean the earliest to occur of (a) the
commencement of the Early Amortization Period, (b) the second Business Day prior
to the Commitment Termination Date and (c) the date of termination as specified
in the Certificate Purchase Agreement.
"TRANCHE" shall have the meaning assigned to such term in the
Certificate Purchase Agreement.
"TRANSFEROR PERCENTAGE" shall mean 100% MINUS (a) the Floating
Allocation Percentage, when used at any time with respect to Defaulted
Receivables, (b) the Floating Allocation Percentage, when used during the
Revolving Period or the Limited Amortization Period with respect to Finance
Charge Receivables, (c) the Fixed/Floating Allocation Percentage, when used
during the Amortization Period with respect to Finance Charge Receivables or (d)
the Fixed/Floating Allocation Percentage, when used at any time with respect to
Principal Receivables.
(b) Each capitalized term defined herein shall relate to the Series
1999-One Certificates and no other Series of Certificates issued by the
Trust, unless the context otherwise requires. All capitalized terms used herein
and not otherwise defined herein have the meanings ascribed to them in the
Agreement. In the event that any term or provision contained herein shall
conflict with or be inconsistent with any term or provision contained in the
Agreement, the terms and provisions of this Supplement shall govern.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Supplement shall refer to this Supplement as a
whole and not to any particular provision of this Supplement; references to any
Article, subsection, Section or Exhibit are references to Articles, subsections,
Sections and Exhibits in or to this Supplement unless otherwise specified; and
the term "including" means "including without limitation."
ARTICLE III
SERVICING FEE AND INTERCHANGE
SECTION 3.01 SERVICING COMPENSATION; INTERCHANGE.
(a) SERVICING FEE. The share of the Servicing Fee allocable to the
Series 1999-One Certificateholders with respect to any Distribution Date
(the "Monthly Servicing Fee") shall be equal to one-twelfth of the product of
(a) the Servicing Fee Rate and (b) (i) the Average Invested Amount for the
Monthly Period preceding such Distribution Date, minus (ii) the product of the
amount, if any, on deposit in the Special Funding Account as of the last day of
the Monthly Period preceding such Distribution Date and the Series 1999-One
Allocation
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Percentage with respect to such Monthly Period (the amount calculated
pursuant to this clause (b) is referred to as the "Servicing Base Amount").
The remainder of the Servicing Fee shall be paid by the Holders of the
Transferor Certificates or the investor certificateholders of other Series
(as provided in the related Supplements) and in no event shall the Trust, the
Trustee or the Series 1999-One Certificateholders be liable for the share of
the Servicing Fee to be paid by the Holders of the Transferor Certificates or
the investor certificateholders of any other Series.
(b) INTERCHANGE. On or before each Determination Date, the Transferor
shall notify the Servicer of the amount of Interchange to be included
as Series 1999-One Allocable Finance Charge Collections with respect to the
preceding Monthly Period as determined pursuant to this subsection 3.01(b). Such
amount of Interchange shall be equal to the product of (i) the amount of
Interchange attributable to the Accounts, as reasonably estimated by the
Transferor, and (ii) the Series 1999-One Allocation Percentage. On each Transfer
Date, the Transferor shall pay to the Servicer, and the Servicer shall deposit
into the Collection Account, in same day funds, the amount of Interchange to be
so included as Series 1999-One Allocable Finance Charge Collections with respect
to the preceding Monthly Period and such Interchange shall be treated as a
portion of Series 1999-One Allocable Finance Charge Collections for all purposes
of this Supplement and the Agreement.
ARTICLE IV
RIGHTS OF SERIES 1999-ONE CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01 COLLECTIONS AND ALLOCATIONS.
(a) ALLOCATIONS. Collections of Finance Charge Receivables and Principal
Receivables and Defaulted Receivables allocated to Series 1999-One pursuant
to Article IV of the Agreement (and, as described herein, Collections
of Finance Charge Receivables reallocated from other Series in Group II) shall
be allocated and distributed or reallocated as set forth in this Article.
Anything to the contrary in the Agreement notwithstanding, prior to the issuance
of another series of Investor Certificates all Collections of Finance Charge
Receivables and Principal Receivables and Defaulted Receivables pursuant to
Article IV of the Agreement will be deposited into the Collection Account and
withdrawn from the Collection Account only as provided below.
(b) PAYMENTS TO THE TRANSFEROR. The Servicer shall on any Business Day
requested by the Transferor, upon satisfaction of the Release Conditions,
withdraw from the Collection Account and pay to the Holders of the
Transferor Certificates the following amounts:
(i) an amount equal to the Transferor Percentage for the
related Monthly Period of Series 1999-One Allocable Finance Charge Collections
deposited in the Collection Account; and
(ii) an amount equal to the Transferor Percentage for the
related Monthly Period of Series 1999-One Allocable Principal Collections
deposited in the Collection Account, if the Transferor Amount (determined after
giving effect to any Principal Receivables transferred to the Trust on such
date) exceeds zero; PROVIDED, HOWEVER, that if on such date the Available Spread
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Account Amount is less than the Required Spread Account Amount (after giving
effect to any deposits into the Spread Account on such date pursuant to
subsections 4.01(c)(ii)(w) and 4.05(a)(viii)), then an amount up to the Required
Spread Account Amount shall be deposited on such date into the Spread Account.
The withdrawals to be made from the Collection Account
pursuant to this subsection 4.01(b) do not apply to deposits into the Collection
Account that do not represent Collections, including payment of the purchase
price for the Certificateholders' Interest pursuant to Section 2.06 or 10.01 of
the Agreement, payment of the purchase price for the Series 1999-One
Certificateholders' Interest pursuant to Section 7.01 of this Supplement and
proceeds from the sale, disposition or liquidation of Receivables pursuant to
Section 9.01 or 12.02 of the Agreement.
(c) ALLOCATIONS TO THE SERIES 1999-ONE CERTIFICATEHOLDERS. The Servicer
shall, prior to the close of business on any Deposit Date, allocate to the
Series 1999-One Certificateholders the following amounts as set forth below:
(i) ALLOCATIONS OF FINANCE CHARGE COLLECTIONS. The Servicer
shall allocate to the Series 1999-One Certificateholders the following amounts
as set forth below:
(x) ALLOCATIONS DURING THE REVOLVING PERIOD AND THE LIMITED
AMORTIZATION PERIOD. During the Revolving Period and the Limited Amortization
Period, the Servicer shall allocate to the Series 1999-One Certificateholders
and retain in the Collection Account for application as provided herein an
amount equal to the product of (A) the Floating Allocation Percentage and (B)
the Series 1999-One Allocation Percentage and (C) the aggregate amount of
Collections of Finance Charge Receivables deposited in the Collection Account on
such Deposit Date; PROVIDED, HOWEVER, that after the date on which an amount of
such Collections of Finance Charge Receivables equal to the amount specified in
subsection 4.05(a)(i) has been deposited into the Collection Account and
allocated to the Series 1999-One Certificateholders, such amount shall be paid
to the Servicer; PROVIDED FURTHER, HOWEVER, that after the date on which an
amount of such Collections of Finance Charge Receivables equal to the sum of the
amounts specified in subsections 4.05(a)(i)-(viii) have been deposited into the
Collection Account (or paid to the Servicer pursuant to the immediately
preceding proviso) and allocated to the Series 1999-One Certificateholders (and,
with respect to the amount specified in subsection 4.05(a)(viii),
deposited into the Spread Account), such amount shall be paid to the Holders of
the Transferor Certificates.
(y) ALLOCATIONS DURING THE AMORTIZATION PERIOD. During the
Amortization Period, the Servicer shall allocate to the Series 1999-One
Certificateholders and retain in the Collection Account for application as
provided herein an amount equal to the product of (A) the Fixed/Floating
Allocation Percentage and (B) the Series 1999-One Allocation Percentage and (C)
the aggregate amount of Collections of Finance Charge Receivables deposited in
the Collection Account on such Deposit Date; PROVIDED, HOWEVER, that after the
date on which an amount of such Collections of Finance Charge Receivables equal
to the amount specified in subsection 4.05(a)(i) has been deposited into the
Collection Account and allocated to the Series 1999-One Certificateholders, such
amount shall be paid to the Servicer; PROVIDED FURTHER, HOWEVER, that after the
date on which an amount of such Collections of Finance Charge
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Receivables equal to the sum of the amounts specified in subsections
4.05(a)(i) -(viii) have been deposited into the Collection Account (or paid
to the Servicer pursuant to the immediately preceding proviso) and allocated
to the Series 1999-One Certificateholders (and, with respect to the amount
specified in subsection 4.05(a)(viii), deposited into the Spread Account),
such amount shall be paid to the Holders of the Transferor Certificates.
(ii) ALLOCATIONS OF PRINCIPAL COLLECTIONS. The Servicer shall
allocate to the Series 1999-One Certificateholders the following amounts as set
forth below:
(w) ALLOCATIONS DURING THE REVOLVING PERIOD. During the
Revolving Period (A) an amount equal to the product of (I) the Class B
Principal Percentage and (II) the Fixed/Floating Allocation Percentage and
(III) the Series 1999-One Allocation Percentage and (IV) the aggregate amount
of Collections of Principal Receivables deposited in the Collection Account
on such Deposit Date, shall be allocated to the Series 1999-One
Certificateholders and retained in the Collection Account until applied as
provided herein and (B) an amount equal to the product of (I) the Class A
Principal Percentage and (II) the Fixed/Floating Allocation Percentage and
(III) the Series 1999-One Allocation Percentage and (IV) the aggregate amount
of Collections of Principal Receivables deposited in the Collection Account
on such Deposit Date shall, if such Deposit Date is after an Optional
Amortization Notice has been given but prior to the related Optional
Amortization Date, be allocated to the Series 1999-One Certificateholders and
retained in the Collection Account until applied as provided herein;
PROVIDED, HOWEVER, that, with respect to clause (B) above, if the sum of such
amount and all such preceding amounts since the date the Optional
Amortization Notice was given exceeds the Optional Amortization Amount (less
(x) any amounts which the Transferor has notified the Trustee will be
available to pay the Optional Amortization Amount from the proceeds of the
issuance of one or more new Series of Investor Certificates and (y) any
amounts available in the Special Funding Account to pay such Optional
Amortization Amount), or if no Optional Amortization Notice has been given or
the needed amount has been allocated, then such excess shall be first, if on
such Deposit Date the Available Spread Account Amount is less than the
Required Spread Account Amount (after giving effect to any deposits into the
Spread Account on such Deposit Date pursuant to subsection 4.05(a)(viii)),
deposited into the Spread Account, second, if any other Principal Sharing
Series is outstanding and in its amortization period or accumulation period,
retained in the Collection Account for application, to the extent necessary,
as Shared Principal Collections on the related Distribution Date, and third,
paid to the Holders of the Transferor Certificates on each Distribution Date;
PROVIDED, HOWEVER, that any such amount to be paid to the Holders of the
Transferor Certificates shall be paid to such Holders only if the Transferor
Amount on such date is greater than the Required Transferor Amount (after
giving effect to all Principal Receivables transferred to the Trust on such
day) and otherwise shall be deposited in the Special Funding Account;
PROVIDED FURTHER, HOWEVER, that any such amount may be paid to the Holders of
the Transferor Certificates on any Business Day requested by the Transferor
upon satisfaction of the Release Conditions.
(x) ALLOCATIONS DURING THE LIMITED AMORTIZATION PERIOD. During
the Limited Amortization Period, (A) an amount equal to the product of (I) the
Class B Principal Percentage and (II) the Fixed/Floating Allocation Percentage
and (III) the Series 1999-One Allocation Percentage and (IV) the aggregate
amount of Collections of Principal Receivables deposited in the Collection
Account on such Deposit Date, shall be allocated to the Series 1999-One
Certificateholders and retained in the Collection Account until applied as
provided herein and
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(B) an amount equal to the product of (I) the Class A Principal Percentage
and (II) the Fixed/Floating Allocation Percentage and (III) the Series
1999-One Allocation Percentage and (IV) the aggregate amount of Collections
of Principal Receivables deposited in the Collection Account on such Deposit
Date, shall be allocated to the Series 1999-One Certificateholders and
retained in the Collection Account until applied as provided herein;
PROVIDED, HOWEVER, that, with respect to clause (B) above, after the date on
which an amount of such Collections equal to the Limited Amortization Amount
has been deposited into the Collection Account and allocated to the Series
1999-One Certificateholders, such amount shall be first, if on such Deposit
Date the Available Spread Account Amount is less than the Required Spread
Account Amount (after giving effect to any deposits into the Spread Account
on such Deposit Date pursuant to subsection 4.05(a)(viii)), deposited into
the Spread Account, second, if any other Principal Sharing Series is
outstanding and in its amortization period or accumulation period, retained
in the Collection Account for application, to the extent necessary, as Shared
Principal Collections on the related Distribution Date, and third paid to the
Holders of the Transferor Certificates only if the Transferor Amount on such
Deposit Date is greater than the Required Transferor Amount (after giving
effect to all Principal Receivables transferred to the Trust on such day) and
otherwise shall be deposited in the Special Funding Account; PROVIDED
FURTHER, HOWEVER, that any such amount shall be paid to the Holders of the
Transferor Certificates on any Business Day requested by the Transferor upon
satisfaction of the Release Conditions.
(y) ALLOCATIONS DURING THE CONTROLLED AMORTIZATION PERIOD.
During the Controlled Amortization Period, an amount equal to the product of
(I) the Fixed/Floating Allocation Percentage and (II) the Series 1999-One
Allocation Percentage and (III) the aggregate amount of Collections of
Principal Receivables deposited in the Collection Account on such Deposit
Date, shall be allocated to the Series 1999-One Certificateholders and
retained in the Collection Account until applied as provided herein;
PROVIDED, HOWEVER, that after the date on which an amount of such Collections
equal to the Invested Amount has been deposited into the Collection Account
and allocated to the Series 1999-One Certificateholders, such amount shall be
first, if any other Principal Sharing Series is outstanding and in its
amortization period or accumulation period, retained in the Collection
Account for application, to the extent necessary, as Shared Principal
Collections on the related Distribution Date, and second paid to the Holders
of the Transferor Certificates only if the Transferor Amount on such Deposit
Date is greater than the Required Transferor Amount (after giving effect to
all Principal Receivables transferred to the Trust on such day) and otherwise
shall be deposited in the Special Funding Account.
(z) ALLOCATIONS DURING THE EARLY AMORTIZATION PERIOD. During
the Early Amortization Period, an amount equal to the product of (I) the
Fixed/Floating Allocation Percentage and (II) the Series 1999-One Allocation
Percentage and (III) the aggregate amount of Collections of Principal
Receivables deposited in the Collection Account on such Deposit Date, shall be
allocated to the Series 1999-One Certificateholders and retained in the
Collection Account until applied as provided herein; PROVIDED, HOWEVER, that
after the date on which an amount of such Collections equal to the Invested
Amount has been deposited into the Collection Account and allocated to the
Series 1999-One Certificateholders, such amount shall be first, if any other
Principal Sharing Series is outstanding and in its amortization period or
accumulation period, retained in the Collection Account for application, to the
extent necessary, as Shared Principal Collections on the related Distribution
Date, and second paid to the Holders of the Transferor Certificates only if the
Transferor Amount on such date is greater than the Required
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Transferor Amount (after giving effect to all Principal Receivables
transferred to the Trust on such day) and otherwise shall be deposited in the
Special Funding Account.
SECTION 4.02 DETERMINATION OF MONTHLY INTEREST.
(a) The amount of monthly interest ("Class A Monthly Interest")
distributable from the Collection Account with respect to the Class A
Certificates on any Distribution Date shall be an amount determined as provided
in the Certificate Purchase Agreement.
(b) The amount of monthly interest ("Class B Monthly Interest")
distributable from the Collection Account with respect to the Class B
Certificates on any Distribution Date shall be an amount equal to the product of
(i) (A) a fraction, the numerator of which is the actual number of days in the
period from (and including) the immediately preceding Distribution Date (or in
the case of the first Distribution Date, the Closing Date) to (but excluding)
such Distribution Date and the denominator of which is 360, times (B) the Class
B Certificate Rate and (ii) the Class B Average Invested Amount with respect to
the related Interest Period.
(c) Interest accrued on each Tranche shall be payable on the day on which
such Tranche matures (each such day an "INTEREST DISTRIBUTION DATE"). The
Servicer, for so long as CompuCredit is the Servicer, shall make an advance on
each Distribution Date in an amount equal to the interest due and payable with
respect to each Tranche maturing on such Interest Distribution Date (each such
advance, a "SERVICER ADVANCE"). Such Servicer Advance shall be paid to the
Administrative Agent, for the benefit of the Class A Certificateholders,
on each such Distribution Date. The Servicer shall not be required to make a
Servicer Advance to the extent that the Servicer, in its sole discretion,
determines that such Servicer Advance is unlikely to be recovered from amounts
retained in the Collection Account pursuant to Section 4.01(c)(i) and subsequent
applications of Available Funds pursuant to Section 4.05(a)(i). On each
Distribution Date, the Servicer shall be entitled to reimbursement, without
interest, for any Servicer Advances not previously reimbursed in accordance with
Section 4.05(a)(i).
SECTION 4.03 SUSPENSION OF THE REVOLVING PERIOD; LIMITED AMORTIZATION
PERIOD AND OPTIONAL AMORTIZATION.
(a) The Transferor may from time to time at its sole discretion, unless
a Pay Out Event shall have occurred prior thereto, suspend the Revolving
Period and cause a Limited Amortization Period to commence for one or more
Monthly Periods by delivering to the Servicer, the Trustee and the
Administrative Agent written notice at least two Business Days prior to the
first day of the Monthly Period in which such Limited Amortization Period is
scheduled to commence, which notice shall specify the Limited Amortization
Amount for such Limited Amortization Period; PROVIDED, HOWEVER, that any
Limited Amortization Amount shall be in an amount of $1,000,000 or any higher
multiple of $100,000; PROVIDED FURTHER that the Transferor may not cause a
Limited Amortization Period to commence unless, in the reasonable belief of
the Transferor, such Limited Amortization Period would not result in the
occurrence of a Pay Out Event.
(b) OPTIONAL AMORTIZATION. On any Business Day during the Revolving
Period, the Transferor may cause the Servicer to provide written notice to
the Trustee, the Administrative Agent and the Series 1999-One
Certificateholders (an "OPTIONAL AMORTIZATION NOTICE") at least two Business
Days prior to any Business Day that is the last day of a Funding
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Period (the "OPTIONAL AMORTIZATION DATE") stating its intention to cause a
full amortization of the Series 1999-One Certificates on the Optional
Amortization Date in an amount (the "OPTIONAL AMORTIZATION AMOUNT") of (x)
with respect to the Class A Certificates, not less than the Class A Invested
Amount on such Optional Amortization Date and (y) with respect to the Class B
Certificates, an amount equal to the Class B Invested Amount on such date.
The Optional Amortization Notice shall state the Optional Amortization Date
and the Optional Amortization Amount. The Optional Amortization Amount shall
be paid from any Available Principal Collections on deposit in the Collection
Account, from funds on deposit in the Special Funding Account (but only to
the extent withdrawals from the Special Funding Account will not cause the
Transferor Amount to be less than the Required Transferor Amount after giving
effect to such withdrawal) or from the proceeds of the issuance of one or
more new Series of Investor Certificates issued substantially
contemporaneously with such full amortization (or any combination of the
above). The accrued interest, if any, on the Class B Invested Amount being
paid on such date shall be payable on the first Distribution Date on or after
the related Optional Amortization Date. On the Optional Amortization Date the
Servicer shall pay (x) the Optional Amortization Amount with respect to the
Class A Certificates to the Administrative Agent for the benefit of the Class
A Certificateholders and (y) the Optional Amortization Amount with respect to
the Class B Certificates to the Class B Certificateholders.
SECTION 4.04 REQUIRED AMOUNT. With respect to each Distribution Date, on
the related Determination Date, the Servicer shall determine the amount (the
"Class A Required Amount"), if any, by which (x) the sum of the amounts required
pursuant to subsections 4.05(a)(i), (ii), (iii), (iv), (v) and (vi) for such
Distribution Date, exceeds (y) the Available Funds for such Distribution Date.
In the event that the difference between (x) the Class A Required Amount for
such Distribution Date and (y) the amount of Excess Spread and Excess Finance
Charge Collections applied with respect thereto pursuant to subsection 4.07(a)
on such Distribution Date is greater than zero (the "Spread Account Draw
Amount"), the Servicer shall give written notice to the Trustee of such positive
Class A Required Amount on the date of computation.
SECTION 4.05 APPLICATION OF AVAILABLE FUNDS AND AVAILABLE PRINCIPAL
COLLECTIONS. The Servicer shall apply, or shall cause the Trustee to apply by
written instruction to the Trustee, on each Distribution Date, Available Funds
and Available Principal Collections on deposit in the Collection Account with
respect to such Distribution Date to make the following distributions:
(a) On each Distribution Date, an amount equal to the Available Funds
with respect to such Distribution Date will be distributed in the following
priority:
(i) an amount equal to the Servicer Advances made with respect
to the preceding Monthly Period which have not been reimbursed pursuant to
4.05(c)(i) and any unreimbursed Servicer Advances from prior Interest Periods
shall be distributed to the Servicer, to the extent not distributed pursuant to
subsection 4.01(c)(i)(x) and (y);
(ii) an amount equal to Class A Monthly Interest for such
Distribution Date, PLUS the amount of any Class A Monthly Interest previously
due but not distributed to Class A
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Certificateholders on a prior Distribution Date shall be distributed to the
Paying Agent for payment to Class A Certificateholders on the applicable
Distribution Date;
(iii) an amount equal to the Class A Investor Default Amount
for such Distribution Date shall be treated as a portion of Available Principal
Collections for such Distribution Date;
(iv) an amount equal to the Monthly Servicing Fee for such
Distribution Date, plus the amount of any Monthly Servicing Fee previously due
but not distributed to the Servicer on a prior Distribution Date, shall be
distributed to the Servicer (unless such amount has been netted against deposits
to the Collection Account in accordance with Section 4.03 of the Agreement);
(v) if the Transferor fails to deposit the amount the
Transferor is required to deposit on such Distribution Date into the Special
Funding Account pursuant to Section 3.09 of the Agreement, an amount equal to
the product of (a) the Class A Floating Percentage (b) the Series 1999-One
Allocation Percentage, (c) the Floating Allocation Percentage, and (d) the
amount the Transferor should have deposited into the Special Funding Account on
such Distribution Date shall be treated as a portion of Available Principal
Collections for such Distribution Date;
(vi) if a Pay Out Event has occurred on or prior to such
Distribution Date, an amount up to the Class A Invested Amount on such
Distribution Date shall be treated as a portion of Available Principal
Collections for such Distribution Date and distributed to the Class A
Certificateholders;
(vii) an amount equal to the aggregate amount of Class A
Investor Charge-Offs which have not been previously reimbursed shall be treated
as a portion of Available Principal Collections for such Distribution Date;
(viii) on each Distribution Date prior to the date on which
the Spread Account terminates pursuant to subsection 4.12(e), an amount up to
the excess, if any, of the Required Spread Account Amount for such
Distribution Date over the Available Spread Account Amount for such
Distribution Date shall be deposited into the Spread Account;
(ix) an amount equal to Class B Monthly Interest for such
Distribution Date, plus the amount of any Class B Monthly Interest previously
due but not distributed to Class B Certificateholders on a prior Distribution
Date shall be distributed to the Class B Certificateholders;
(x) an amount equal to the Class B Investor Default Amount for
such Distribution Date shall be treated as a portion of Available Principal
Collections for such Distribution Date;
(xi) if the Transferor fails to deposit the amount the
Transferor is required to deposit on such Distribution Date into the Special
Funding Account pursuant to Section 3.09 of the Agreement, an amount equal to
the product of (a) the Class B Floating Percentage (b) the Series 1999-One
Allocation Percentage, (c) the Floating Allocation Percentage, and (d) the
amount the Transferor should have deposited into the Special Funding Account on
such
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Distribution Date shall be treated as a portion of Available Principal
Collections for such Distribution Date;
(xii) an amount equal to the aggregate amount by which the
Class B Invested Amount has been reduced pursuant to clauses (d), (e) and (f) of
the definition of "Class B Invested Amount" in Section 2.01 of this Supplement
(but not in excess of the aggregate amount of such reductions which have not
been previously reimbursed) shall be treated as a portion of Available Principal
Collections for such Distribution Date; and
(xiii) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed or deposited as set forth in Section 4.07.
(b) On each Distribution Date with respect to the Revolving Period, an
amount equal to the Available Principal Collections deposited in the Collection
Account for the related Monthly Period shall be distributed in the following
order of priority:
(i) an amount equal to the excess, if any, of the Class B
Invested Amount over the Required Subordinate Amount shall be distributed to the
Class B Certificateholders; and
(ii) the balance of such Available Principal Collections shall
be treated as Shared Principal Collections and applied in accordance with
Section 4.04 of the Agreement.
(c) On each Distribution Date with respect to the Limited Amortization
Period, an amount equal to the Available Principal Collections deposited in
the Collection Account for the related Monthly Period shall be distributed
in the following order of priority:
(i) an amount equal to the excess, if any, of the Class B
Invested Amount over the Required Subordinate Amount shall be distributed to the
Class B Certificateholders;
(ii) an amount equal to the Limited Amortization Amount shall
be distributed to the Class A Certificateholders; and
(iii) the balance of such Available Principal Collections
shall be treated as Shared Principal Collections and applied in accordance with
Section 4.04 of the Agreement.
(d) On each Distribution Date with respect to the Controlled
Amortization Period, an amount equal to the Available Principal Collections
deposited in the Collection Account for the related Monthly Period shall be
distributed in the following order of priority:
(i) an amount equal to the Class A Invested Amount shall be
distributed to the Class A Certificateholders;
(ii) for each Distribution Date beginning on the Distribution
Date on which the Class A Invested Amount shall have been paid in full, an
amount up to the Class B Invested Amount shall be paid to the Class B
Certificateholders; and
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(iii) for each Distribution Date beginning on the Distribution
Date on which the Class B Invested Amount is paid in full, an amount equal to
the balance, if any, of such Available Principal Collections shall be treated as
Shared Principal Collections and applied in accordance with Section 4.04 of the
Agreement.
(e) On each Distribution Date with respect to the Early Amortization
Period, an amount equal to Available Principal Collections deposited in the
Collection Account for the related Monthly Period shall be distributed in the
following order of priority:
(i) an amount up to the Class A Invested Amount on such
Distribution Date shall be distributed to the Class A Certificateholders;
(ii) for each Distribution Date beginning on the Distribution
Date on which the Class A Invested Amount is paid in full, an amount up to the
Class B Invested Amount on such Distribution Date shall be distributed to the
Class B Certificateholders;
(iii) for each Distribution Date, after giving effect to
paragraphs (i) and (ii) above, an amount equal to the balance, if any, of such
Available Principal Collections will be treated as Shared Principal Collections
and applied in accordance with Section 4.04 of the Agreement.
SECTION 4.06 DEFAULTED AMOUNTS; INVESTOR CHARGE-OFFS.
(a) On each Determination Date, the Servicer shall calculate the Class A
Investor Default Amount, if any, for the related Distribution Date. If, on
any Distribution Date, the Class A Required Amount for the related Monthly
Period exceeds the sum of (x) the amount of Reallocated Principal Collections
allocated to Series 1999-One with respect to such Monthly Period and (y) the
amount of Excess Spread and the Excess Finance Charge Collections allocable
to Series 1999-One with respect to such Monthly Period, the Class B Invested
Amount, if any, will be reduced by the amount of such excess, but not by more
than the Class A Investor Default Amount for such Distribution Date. In the
event that such reduction would cause the Class B Invested Amount to be a
negative number, the Class B Invested Amount shall be reduced to zero, and
the Class A Invested Amount shall be reduced by the amount by which the Class
B Invested Amount would have been reduced below zero, but not by more than
the excess, if any, of the Class A Investor Default Amount for such
Distribution Date over the amount of the reduction, if any, of the Class B
Invested Amount for such Distribution Date (a "Class A Investor Charge-Off").
Class A Investor Charge-Offs shall thereafter be reimbursed and the Class A
Invested Amount increased (but not by an amount in excess of the aggregate
unreimbursed Class A Investor Charge-Offs) on any Distribution Date by the
amount of Available Funds and Excess Spread and Excess Finance Charge
Collections allocated and available for that purpose pursuant to subsections
4.05(a)(vii) and 4.07(a).
(b) On each Determination Date, the Servicer shall calculate the Class B
Investor Default Amount. If on any Distribution Date the Class B Investor
Default Amount for the previous Monthly Period exceeds the sum of (x) the
amount of Available Funds allocated and available to pay the amount required
pursuant to subsection 4.05(a)(x) and (y) the amount of Excess Spread and
Excess Finance Charge Collections allocated to Series 1999-One with respect
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to the related Monthly Period which are allocated and available to pay such
amount pursuant to subsection 4.07(a), the Class B Invested Amount will be
reduced by the amount of such excess but not by more than the lesser of the
Class B Investor Default Amount and the Class B Invested Amount for such
Distribution Date (a "Class B Investor Charge-Off"). The Class B Invested
Amount will be reimbursed after any reduction pursuant to this Section 4.06
on any Distribution Date by the sum of (x) the amount of Available Funds
allocated and available to pay the amount required pursuant to subsection
4.05(a)(xii) and (y) the amount of Excess Spread and Excess Finance Charge
Collections allocated and available on such Distribution date for that
purpose as described under subsection 4.07(a).
SECTION 4.07 EXCESS SPREAD; EXCESS FINANCE CHARGE COLLECTIONS. The Servicer
shall apply, or shall cause the Trustee to apply by written instruction to
the Trustee, on each Distribution Date, Excess Spread and Excess Finance
Charge Collections allocated to Series 1999-One with respect to the related
Monthly Period, to make the following distributions or deposits in the
following order of priority:
(a) an amount equal to the amount, if any, by which (x) the amounts
required pursuant to subsections 4.05(a)(i)-(xii) with respect to such
Distribution Date exceeds (y) Available Funds with respect to such
Distribution Date and shall be distributed by the Trustee in accordance with,
and in the priority set forth in, subsections 4.05(a)(i)-(xii).
(b) the balance, if any, will constitute a portion of Excess Finance
Charge Collections for such Distribution Date and will be available for
allocation to other Series or to the Holders of the Transferor Certificates
as described in Section 4.05 of the Agreement.
SECTION 4.08 REALLOCATED PRINCIPAL COLLECTIONS. On each Distribution Date,
the Servicer shall apply, or shall cause the Trustee to apply, Reallocated
Principal Collections with respect to such Distribution Date, to make the
following distributions or deposits in the following order of priority: an
amount equal to the excess, if any, of (i) the Class A Required Amount, if
any, with respect to such Distribution Date over (ii) the amount of Excess
Spread and Excess Finance Charge Collections allocated to Series 1999-One
with respect to the related Monthly Period shall be distributed by the
Trustee to fund any deficiency pursuant to and in the priority set forth in
subsections 4.05(a)(i), (ii), (iii), (iv), (v), (vi) and (vii).
On each Distribution Date, the Class B Invested Amount shall
be reduced by the amount of Reallocated Principal Collections for such
Distribution Date. In the event that such reduction would cause the Class B
Invested Amount (after giving to any Class B Investor Charge-Offs for such
Distribution Date) to be a negative number, the Class B Invested Amount (after
giving effect to any Class B Investor Charge-Offs for such Distribution Date)
shall be reduced to zero.
SECTION 4.09 EXCESS FINANCE CHARGE COLLECTIONS. Series 1999-One shall be an
Excess Allocation Series. Subject to Section 4.05 of the Agreement, Excess
Finance Charge Collections with respect to the Excess Allocation Series for
any Distribution Date will be allocated to Series 1999-One in an amount equal
to the product of (x) the aggregate amount of Excess Finance Charge
Collections with respect to all the Excess Allocation Series for such
Distribution Date and (y) a fraction, the numerator of which is the Finance
Charge Shortfall for
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Series 1999-One for such Distribution Date and the denominator of which is
the aggregate amount of Finance Charge Shortfalls for all the Excess
Allocation Series for such Distribution Date. The "Finance Charge Shortfall"
for Series 1999-One for any Distribution Date will be equal to the excess, if
any, of (a) the full amount required to be paid, without duplication,
pursuant to subsection 4.05(a) on such Distribution Date over (b) the sum of
(i) the Reallocated Investor Finance Charge Collections and (ii) the amount
of funds, if any, to be withdrawn from the Spread Account which, pursuant to
subsection 4.12(c), are required to be included in Available Funds with
respect to such Distribution Date.
SECTION 4.10 REALLOCATED INVESTOR FINANCE CHARGE COLLECTIONS.
(a) THAT PORTION of Group II Investor Finance Charge Collections for any
Distribution Date EQUAL TO THE AMOUNT OF REALLOCATED INVESTOR FINANCE CHARGE
COLLECTIONS for such Distribution Date will be allocated to Series 1999-One
and will be distributed as set forth in this Supplement.
(b) REALLOCATED INVESTOR FINANCE CHARGE COLLECTIONS WITH RESPECT TO ANY
DISTRIBUTION DATE SHALL EQUAL the sum of (i) the aggregate amount of Series
1999-One Monthly Interest, Investor Default Amount, Series 1999-One Monthly
Fees and Series 1999-One Additional Amounts for such Distribution Date and
(ii) that portion of excess Group II Investor Finance Charge Collections to
be included in Reallocated Investor Finance Charge Collections pursuant to
subsection (c) hereof; PROVIDED, HOWEVER, that if the amount of Group II
Investor Finance Charge Collections for such Distribution Date is less than
the sum of (w) Group II Investor Monthly Interest, (x) Group II Investor
Default Amount, (y) Group II Investor Monthly Fees and (z) Group II Investor
Additional Amounts, then Reallocated Investor Finance Charge Collections
shall equal the sum of the following amounts for such Distribution Date:
(A) The product of (I) Group II Investor Finance Charge
Collections (up to the amount of Group II Investor Monthly Interest) and (II) a
fraction, the numerator of which is Series 1999-One Monthly Interest and the
denominator of which is Group II Investor Monthly Interest;
(B) the product of (I) Group II Investor Finance Charge
Collections less the amount of Group II Investor Monthly Interest (such amount
not less than zero) (up to the Group II Investor Default Amount) and (II) a
fraction, the numerator of which is the Investor Default Amount and the
denominator of which is the Group II Investor Default Amount;
(C) the product of (I) Group II Investor Finance Charge
Collections less the amount of Group II Investor Monthly Interest and the Group
II Investor Default Amount (such amount not less than zero) (up to Group II
Investor Monthly Fees) and (II) a fraction, the numerator of which is Series
1999-One Monthly Fees and the denominator of which is Group II Investor Monthly
Fees; and
(D) the product of (I) Group II Investor Finance Charge
Collections less the sum of (i) Group II Investor Monthly Interest, (ii) the
Group II Investor Default Amount and (iii) Group II Investor Monthly Fees (such
amount not less than zero) and (II) a fraction, the
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numerator of which is Series 1999-One Additional Amounts and the denominator
of which is Group II Investor Additional Amounts.
(c) If the amount of Group II Investor Finance Charge Collections for
such Distribution Date exceeds the sum of (i) Group II Investor Monthly
Interest, (ii) Group II Investor Default Amount, (iii) Group II Investor
Monthly Fees and (iv) Group II Investor Additional Amounts, then Reallocated
Investor Finance Charge Collections for such Distribution Date shall include
an amount equal to the product of (x) the amount of such excess and (y) a
fraction, the numerator of which is the Invested Amount as of the last day of
the second preceding Monthly Period and the denominator of which is the sum
of such Invested Amount and the aggregate invested amounts for all other
Series included in Group II as of such last day.
SECTION 4.11 SHARED PRINCIPAL COLLECTIONS. Subject to Section 4.04 of the
Agreement, Shared Principal Collections for any Distribution Date will be
allocated to Series 1999-One in an amount equal to the product of (x) the
aggregate amount of Shared Principal Collections with respect to all
Principal Sharing Series for such Distribution Date and (y) a fraction, the
numerator of which is the Series 1999-One Principal Shortfall for such
Distribution Date and the denominator of which is the aggregate amount of
Principal Shortfalls for all the Series which are Principal Sharing Series
for such Distribution Date. The "Series 1999-One Principal Shortfall" will be
equal to (a) for any Distribution Date with respect to the Revolving Period,
zero; PROVIDED, that if such Distribution Date is an Optional Amortization
Date, the Series 1999-One Shortfall shall be an amount determined by the
Transferor not to exceed the related Optional Amortization Amount, (b) for
any Distribution Date with respect to the Limited Amortization Period, the
excess, if any, of the Limited Amortization Amount over the amount of
Available Principal Collections for such Distribution Date (excluding any
portion thereof attributable to Shared Principal Collections) and (c) for any
Distribution Date with respect to the Controlled Amortization Period or the
Early Amortization Period, the excess, if any, of the Invested Amount
over the amount of Available Principal Collections for such Distribution Date
(excluding any portion thereof attributable to Shared Principal Collections).
SECTION 4.12 SPREAD ACCOUNT.
(a) The Servicer shall establish and maintain, in the name of the
Trustee, on behalf of the Trust, for the benefit of the Class A
Certificateholders, an Eligible Deposit Account (the "Spread Account")
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Class A Certificateholders. The Spread Account
shall initially be established with the Trustee. The Trustee shall possess
all right, title and interest in all funds on deposit from time to time in
the Spread Account and in all proceeds thereof. The Spread Account shall be
under the sole dominion and control of the Trustee for the benefit of the
Class A Certificateholders. If at any time the Spread Account ceases to be an
Eligible Deposit Account, the Trustee (or the Servicer on its behalf) shall
within 10 Business Days (or such longer period, not to exceed 30 calendar
days, as to which the Administrative Agent shall consent) establish a new
Spread Account meeting the conditions specified above as an Eligible Deposit
Account, and shall transfer any cash or any investments to such new Spread
Account. The Trustee, at the written direction of the Servicer, shall (i)
make withdrawals from the Spread Account from time to time in an amount up to
the Available Spread Account Amount at such time, for the purposes set forth
in this Supplement, and (ii) on each Distribution Date prior to the
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termination of the Spread Account make a deposit into the Spread Account in
the amount specified in, and otherwise in accordance with, subsection
4.05(a)(viii).
(b) Funds on deposit in the Spread Account shall be invested at the
written direction of the Servicer by the Trustee in Eligible Investments. In
no event shall the Trustee be liable for the selection of Eligible
Investments or for investment losses incurred thereon. The Trustee shall have
no liability in respect of losses incurred as a result of the liquidation of
any Eligible Investment prior to its stated maturity or the failure of the
Servicer to provide timely written investment direction. The Trustee shall
have no obligation to invest or reinvest any amounts held hereunder in the
absence of written investment direction. Funds on deposit in the Spread
Account on any Transfer Date, after giving effect to any withdrawals from the
Spread Account on such Transfer Date, shall be invested in such investments
that will mature so that such funds will be available for withdrawal on or
prior to the following Transfer Date. The Trustee shall maintain for the
benefit of the Class A Certificateholders possession of the negotiable
instruments or securities, if any, evidencing such Eligible Investments. No
such Eligible Investment shall be disposed of prior to its maturity;
PROVIDED, HOWEVER, that the Trustee may sell, liquidate or dispose of any
such Eligible Investment before its maturity, at the written direction of the
Servicer, if such sale, liquidation or disposal would not result in a loss of
all or part of the principal portion of such Eligible Investment or if, prior
to the maturity of such Eligible Investment, a default occurs in the payment
of principal, interest or any other amount with respect to such Eligible
Investment. On each Distribution Date, all interest and earnings (net of
losses and investment expenses) accrued since the preceding Distribution Date
on funds on deposit in the Spread Account shall be retained in the Spread
Account (to the extent that the Available Spread Account Amount is less than
the Required Spread Account Amount) and the balance, if any, shall be
deposited in the Collection Account and treated as collections of Finance
Charge Receivables allocable to Series 1999-One. For purposes of determining
the availability of funds or the balance in the Spread Account for any reason
under this Supplement, except as otherwise provided in the preceding
sentence, investment earnings on such funds shall be deemed not to be
available or on deposit.
(c) In the event that for any Distribution Date the Spread Account Draw
Amount is greater than zero, the Spread Account Draw Amount, up to the
Available Spread Account Amount, shall be withdrawn from the Spread Account
on the related Transfer Date by the Trustee (acting in accordance with the
written instructions of the Servicer), deposited into the Collection Account
and included in Available Funds for such Distribution Date.
(d) In the event that the Spread Account Surplus on any Distribution
Date, after giving effect to all deposits to and withdrawals from the Spread
Account with respect to such Distribution Date, is greater than zero, the
Trustee, acting in accordance with the written instructions of the Servicer,
shall withdraw from the Spread Account, and pay to the Transferor, an amount
equal to such Spread Account Surplus.
(e) Upon the earlier to occur of (i) the day on which the Class A
Invested Amount and all other accrued and unpaid amounts owing to the Class A
Certificateholders pursuant to the Certificate Purchase Agreement are paid in
full to the Class A Certificateholders and (ii) the termination of the Trust
pursuant to the Agreement, the Trustee, acting in accordance with the
instructions of the Servicer, after the prior payment of all amounts owing to
the Class A
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Certificateholders which are payable from the Spread Account as provided
herein, shall withdraw from the Spread Account and pay to the Transferor all
amounts, if any, on deposit in the Spread Account and the Spread Account
shall be deemed to have terminated for purposes of this Supplement.
SECTION 4.13 INVESTED AMOUNT INCREASES.
(a) The Class A Certificateholders agree, by acceptance of the Class A
Certificates, that the Transferor may from time to time, prior to the
commencement of the Controlled Amortization Period or the Early Amortization
Period, request upon two Business Days prior irrevocable written notice to
each of the Trustee, the Servicer and the Class A Certificateholders
substantially in the form of EXHIBIT A to the Certificate Purchase Agreement
that the Class A Certificateholders acquire additional undivided interests in
the Trust in specified amounts (each such amount, a "CLASS A INVESTED AMOUNT
Increase"); PROVIDED, HOWEVER, that any applicable conditions set forth in
Section 2.2 of the Certificate Purchase Agreement shall have been satisfied
or waived as provided therein. The Class A Certificateholders shall acquire
such additional interest, upon payment, in same day funds, to the Transferor
of the amount of such Class A Invested Amount Increase, in accordance with
the payment instructions specified in the notice delivered with respect to
such Class A Invested Amount Increase.
(b) The Class B Certificateholders agree, by acceptance of the Class B
Certificates, that the Transferor may from time to time, prior to the
commencement of the Controlled Amortization Period or the Early Amortization
Period, request upon one Business Day prior written notice to each of the
Trustee, the Servicer and the Class B Certificateholders substantially in the
form of EXHIBIT D that the Class B Certificateholders acquire additional
undivided interests in the Trust in specified amounts (each such amount, a
"CLASS B INVESTED AMOUNT INCREASE"); PROVIDED, HOWEVER, that (i) after giving
effect to such Class B Invested Amount Increase, the Transferor Amount shall
not be less than the Required Transferor Amount and (ii) after giving effect
to such Class B Invested Amount Increase, (a) the product of the Transferor
Amount and the Series 1999-One Allocation Percentage shall not be less than
(b) the Series Required Transferor Amount. The Class B Certificateholders
shall acquire such additional interest through a reduction of the Transferor
Interest by the amount of such Class B Invested Amount Increase.
(c) The Transferor may on any Business Day permanently reduce the
Facility Limit if the following conditions are met: (i) after giving effect
to such reduction, the Facility Limit would be not less than the Class A
Invested Amount on the date of such reduction (after giving effect to any
increase pursuant to Section 4.13(a) on or prior to the date of such
reduction of the Facility Limit) and (ii) the aggregate Commitment (as
defined in the Certificate Purchase Agreement) are reduced by the same amount
on such date. In order to effect the reduction of the Facility Limit pursuant
to this Section 4.13(c), the Transferor shall deliver to the Servicer, the
Trustee and the Administrative Agent at least five Business Days prior to
such reduction a written notice executed by a duly authorized representative
of the Transferor specifying the decrease in the Facility Limit, the date on
which such decrease is to become effective and the Class A Invested Amount on
such date. The Administrative Agent shall, subject to the provisions of the
Certificate Purchase Agreement and the Program Support Agreement (as defined
in the Certificate Purchase Agreement), take all actions necessary to reduce
the Commitments to an amount that will permit the specified reduction of the
Facility Limit. Upon
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the date specified in such notice, if the conditions set forth in this
Section 4.13(c) have been met, the Facility Limit shall be reduced by the
amount specified in such notice.
(d) No decrease in the Class A Invested Amount pursuant to Section 4.03
shall limit the ability of the Transferor to increase the Class A Invested
Amount pursuant to Section 4.13(a).
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
SERIES 1999-ONE CERTIFICATEHOLDERS
SECTION 5.01 DISTRIBUTIONS.
(a) On each Distribution Date, the Paying Agent shall distribute to each
Class A Certificateholder (other than as provided in Section 12.02 of the
Agreement) such amounts held by the Paying Agent that are allocated and
available on such Distribution Date to pay the Class A Monthly Interest, any
principal payable to and other amounts due to the Class A Certificates
pursuant to this Supplement.
(b) On each Special Payment Date, the Paying Agent shall distribute to
each Class A Certificateholder of record on the related Record Date (other
than as provided in Section 12.02 of the Agreement) such amounts held by the
Paying Agent that are allocated and available on such date to pay principal
of the Class A Certificates pursuant to this Supplement up to a maximum
amount on any such date equal to the Class A Invested Amount on such date.
(c) On each Distribution Date, the Paying Agent shall distribute to each
Class B Certificateholder of record on the related Record Date (other than as
provided in Section 12.02 of the Agreement) such amounts held by the Paying
Agent that are allocated and available on such Distribution Date to pay
interest on the Class B Certificates pursuant to this Supplement.
(d) On each Special Payment Date, the Paying Agent shall distribute to
each Class B Certificateholder of record on the related Record Date (other
than as provided in Section 12.02 of the Agreement) such amounts held by the
Paying Agent that are allocated and available on such date to pay principal
of the Class B Certificates pursuant to this Supplement up to a maximum
amount on any such date equal to the Class B Invested Amount on such date.
(e) The distributions to be made pursuant to this Section 5.01 are
subject to the provisions of Sections 2.06, 9.01, 10.01 and 12.02 of the
Agreement and Sections 8.01 and 8.02 of this Supplement.
(f) Except as provided in Section 12.02 of the Agreement with respect to
a final distribution, distributions to Series 1999-One Certificateholders
hereunder shall be made by wire transfer of same day funds to the account
that has been designated by the applicable Certificateholders not less than
ten Business Days prior to such Distribution Date.
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SECTION 5.02 REPORTS AND STATEMENTS TO SERIES 1999-ONE CERTIFICATEHOLDERS.
(a) Not later than each Determination Date, the Servicer shall deliver
to the Trustee, the Paying Agent and the Administrative Agent (i) a statement
substantially in the form of Exhibit C-1 prepared by the Servicer and (ii) a
certificate of a Servicing Officer substantially in the form attached thereto.
(b) A copy of each statement or certificate provided pursuant to
paragraph (a) or (b) may be obtained by any Series 1999-One Certificateholder
or any Certificate Owner thereof by a request in writing to the Servicer.
(c) On or before January 31 of each calendar year, beginning with
calendar year 2000, the Paying Agent, on behalf of the Trustee, shall furnish
or cause to be furnished to each Person who at any time during the preceding
calendar year was a Series 1999-One Certificateholder, a statement prepared
by the Servicer containing the information which is required to be contained
in the statement to Series 1999-One Certificateholders, as set forth in
paragraph (a) above aggregated for such calendar year or the applicable
portion thereof during which such Person was a Series 1999-One
Certificateholder, together with other information as is required to be
provided by an issuer of indebtedness under the Code. Such obligation of the
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Paying Agent
pursuant to any requirements of the Code as from time to time in effect.
ARTICLE VI
PAY OUT EVENTS
SECTION 6.01 PAY OUT EVENTS. If any one of the following events shall
occur with respect to the Series 1999-One Certificates:
(a) the occurrence of an Insolvency Event relating to the Transferor or
Columbus Bank.
(b) the Trust becomes an investment company within the meaning of the
Investment Company Act;
(c) failure on the part of the Transferor (i) to make any payment or
deposit required by the terms of the Agreement or this Supplement on or
before the date occurring five Business Days after the date such payment or
deposit is required to be made therein or herein or (ii) duly to observe or
perform any other covenants or agreements of the Transferor set forth in the
Agreement, the Receivables Purchase Agreement, or this Supplement, which
failure has a material adverse effect on the Series 1999-One
Certificateholders and which continues unremedied for a period of 10 days
after the date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Transferor by the Trustee, or to
the Transferor and the Trustee by the Administrative Agent or any Holder of
the Series 1999-One Certificates;
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(d) any representation or warranty made by the Transferor in the
Agreement or this Supplement shall prove to have been incorrect when made or
when delivered, which continues to be incorrect for a period of 60 days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee, or to the
Transferor and the Trustee by any Holder of the Series 1999-One Certificates,
and as a result of which the interests of the Series 1999-One
Certificateholders are materially and adversely affected for such period;
PROVIDED, HOWEVER, that a Pay Out Event pursuant to this subsection 6.01(d)
shall not be deemed to have occurred hereunder if the Transferor has accepted
reassignment of the related Receivable, or all of such Receivables, if
applicable, during such period in accordance with the provisions of the
Agreement;
(e) any Servicer Default shall occur as a result of which the interests
of the Series 1999-One Certificateholders are materially and adversely
affected (provided that a Servicer Default under Section 10.01(d) of the
Agreement is hereby deemed to materially and adversely affect the Series
1999-One Certificateholders, and, notwithstanding Section 10.01(d) of the
Agreement, shall not be subject to any grace period);
(f) the average Net Yield for any three consecutive Monthly Periods is
reduced to a rate which is less than 2.0% or the average Net Yield for any
Monthly Period is less than or equal to 0.0%;
(g) the average Delinquency Ratio for any two consecutive Monthly
Periods exceeds 10.0%;
(h) the Trustee shall, for any reason, fail to have a valid and
perfected first priority security interest in the Receivables;
(i) any material adverse change in the operations of the Transferor, the
Servicer or Columbus Bank, or any other event, which materially affects the
Transferor's or the Servicer's or Columbus Bank's ability to either collect
upon the Receivables or the Transferor's, the Servicer's or Columbus Bank's
ability to perform thereunder, which has a material adverse effect on the
Class A Certificateholders;
(j) if, on any date, the product of (i) the Floating Allocation
Percentage (determined, for this purpose only, by using a numerator equal to
the Class A Invested Amount, or Class A Initial Invested Amount, as
applicable, in lieu of the Invested Amount or Initial Invested Amount, as
applicable) and (ii) the sum of the principal amount on deposit in the
Special Funding Account, the amount on deposit in the Collection Account in
respect of Collections of Principal Receivables and the total amount of
Principal Receivables in the Trust on such date, is less than the Class A
Invested Amount on such date;
(k) the average Monthly Principal Payment Rate for any two consecutive
Monthly Periods is less than 5.0%;
(l) on any date of determination, the Class B Invested Amount is less
than the Required Subordinate Amount and the Class B Invested Amount
continues to be less than the Required Subordinate Amount for a period of two
Business Days after such date of determination; and
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(m) for so long as the Affinity Card Agreement remains in effect,
Columbus Bank's senior unsecured debt ratings shall be downgraded below Baa2
or BBB by Moody's or Standard & Poor's, respectively;
then, in the case of any event described in subparagraph (a), (d) or (e), after
the applicable grace period, if any, set forth in such subparagraphs, either the
Trustee or the Holders of Series 1999-One Certificates evidencing more than 50%
of the aggregate unpaid principal amount of Series 1999-One Certificates by
notice then given in writing to the Transferor and the Servicer (and to the
Trustee if given by the Series 1999-One Certificateholders) may declare that a
Pay Out Event has occurred with respect to Series 1999-One as of the date of
such notice, and, in the case of any event described in subparagraph (b), (c),
(f), (g), (h), (i), (j), or (k), a Pay Out Event shall occur with respect to
Series 1999-One without any notice or other action on the part of the Trustee or
the Series 1999-One Certificateholders immediately upon the occurrence of such
event, unless such Pay Out Event is waived by the Holders of Series 1999-One
Certificates evidencing more than 50% of the aggregate unpaid principal amount
of Series 1999-One Certificates by notice given in writing to the Trustee, the
Transferor and the Servicer.
ARTICLE VII
OPTIONAL REPURCHASE; SERIES TERMINATION
SECTION 7.01 OPTIONAL REPURCHASE.
(a) On any day occurring on or after the date on which the Invested
Amount is reduced to 10% or less of the largest Invested Amount at any time
on or after the Closing Date, the Transferor shall have the option to
purchase the Series 1999-One Certificateholders' Interest, at a purchase
price equal to (i) if such day is a Distribution Date, the Reassignment
Amount for such Distribution Date or (ii) if such day is not a Distribution
Date, the Reassignment Amount for the Distribution Date following such day.
(b) The Transferor shall give the Servicer and the Trustee at least 30
days prior written notice of the date on which the Transferor intends to
exercise such purchase option. The Transferor shall deposit the Reassignment
Amount into the Collection Account in same day funds and such Transferor
shall use reasonable efforts to initiate such deposit prior to 11:00 a.m. New
York City time on such day. Such purchase option is subject to payment in
full of the Reassignment Amount. Following the deposit of the Reassignment
Amount into the Collection Amount in accordance with the foregoing, the
Invested Amount for Series 1999-One shall be reduced to zero and the Series
1999-One Certificateholders shall have no further interest in the
Receivables. The Reassignment Amount shall be distributed as set forth in
subsection 8.01(b).
SECTION 7.02 SERIES TERMINATION.
(a) If, on the June 2007 Distribution Date, the Invested Amount (after
giving effect to all changes therein on such date) would be greater than
zero, the Servicer, on behalf of the Trustee, shall, within the 40-day period
which begins on such Distribution Date, solicit bids for the sale of
Principal Receivables and the related Finance Charge Receivables (or
interests therein) in an amount equal to the Invested Amount at the close of
business on the last day of the
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Monthly Period preceding the Series 1999-One Termination Date (after giving
effect to all distributions required to be made on the Series 1999-One
Termination Date, except pursuant to this Section 7.02). Such bids shall
require that such sale shall (subject to subsection 7.02(b)) occur on the
Series 1999-One Termination Date. The Transferor shall be entitled to
participate in, and to receive from the Servicer a copy of each other bid
submitted in connection with, such bidding process.
(b) The Servicer, on behalf of the Trustee, shall sell such Receivables
(or interests therein) on the Series 1999-One Termination Date to the bidder
who made the highest cash purchase offer. The proceeds of any such sale shall
be treated as Collections on the Receivables allocated to the Series 1999-One
Certificateholders pursuant to the Agreement and this Supplement; PROVIDED,
HOWEVER, that the Servicer shall determine conclusively the amount of such
proceeds which are allocable to Finance Charge Receivables and the amount of
such proceeds which are allocable to Principal Receivables. During the period
from the June 2007 Distribution Date to the Series 1999-One Termination Date,
the Servicer shall continue to collect payments on the Receivables and
allocate and deposit such Collections in accordance with the provisions of
the Agreement and the Supplements.
ARTICLE VIII
FINAL DISTRIBUTIONS
SECTION 8.01 SALE OF RECEIVABLES OR CERTIFICATEHOLDERS' INTEREST
PURSUANT TO SECTION 2.06 OR 10.01 OF THE AGREEMENT AND SECTION 7.01 OR 7.02 OF
THIS SUPPLEMENT.
(a) (i) The amount to be paid by the Transferor with respect to
Series 1999-One in connection with a reassignment of Receivables to the
Transferor pursuant to Section 2.06 of the Agreement shall equal the
Reassignment Amount for the first Distribution Date following the Monthly
Period in which the reassignment obligation arises under the Agreement.
(ii) The amount to be paid by the Transferor with respect to
Series 1999-One in connection with a repurchase of the Certificateholders'
Interest pursuant to Section 10.01 of the Agreement shall equal the Reassignment
Amount for the Distribution Date of such repurchase.
(b) With respect to the Reassignment Amount deposited into the
Collection Account pursuant to Section 7.01 or any amounts allocable to the
Series 1999-One Certificateholders' Interest deposited into the Collection
Account pursuant to Section 7.02, the Trustee shall, in accordance with the
written direction of the Servicer, not later than 11:00 a.m., New York City
time, on the related Distribution Date, make deposits or distributions of the
following amounts (in the priority set forth below and, in each case after
giving effect to any deposits and distributions otherwise to be made on such
date) in same day funds: (i) (x) the Class A Invested Amount on such
Distribution Date will be distributed to the Paying Agent for payment to the
Class A Certificateholders and (y) an amount equal to the sum of (A) Class A
Monthly Interest for such Distribution Date and (B) any Class A Monthly Interest
previously due but not distributed to the Class A Certificateholders on a prior
Distribution Date will be distributed to the Paying Agent for
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payment to the Class A Certificateholders and (ii) (x) the Class B Invested
Amount on such Distribution Date will be distributed to the Paying Agent for
payment to the Class B Certificateholders and (y) an amount equal to the sum
of (A) Class B Monthly Interest for such Distribution Date and (B) any Class
B Monthly Interest previously due but not distributed to the Class B
Certificateholders on a prior Distribution Date will be distributed to the
Paying Agent for payment to the Class B Certificateholders.
(c) Notwithstanding anything to the contrary in this Supplement or the
Agreement, all amounts distributed to the Paying Agent pursuant to subsection
8.01(b) for payment to the Series 1999-One Certificateholders shall be
deemed distributed in full to the Series 1999-One Certificateholders on the
date on which such funds are distributed to the Paying Agent pursuant to this
Section and shall be deemed to be a final distribution pursuant to Section
12.02 of the Agreement.
SECTION 8.02 DISTRIBUTION OF PROCEEDS OF SALE, DISPOSITION OR
LIQUIDATION OF THE RECEIVABLES PURSUANT TO SECTION 9.01 OF THE AGREEMENT.
(a) Not later than 4:00 p.m., New York City time, on the Distribution
Date following the date on which the Insolvency Proceeds are deposited into
the Collection Account pursuant to subsection 9.01(b) of the Agreement, the
Trustee shall in accordance with the written direction of the Servicer (in
the following priority and, in each case, after giving effect to any deposits
and distributions otherwise to be made on such Distribution Date) (i) deduct
an amount equal to the Class A Invested Amount on such Distribution Date from
the portion of the Insolvency Proceeds allocated to Series 1999-One Allocable
Principal Collections and distribute such amount to the Paying Agent for
payment to the Class A Certificateholders, provided that the amount of such
distribution shall not exceed the product of (x) the portion of the
Insolvency Proceeds allocated to Series 1999-One Allocable Principal
Collections and (y) the Fixed/Floating Allocation Percentage with respect to
the related Monthly Period and (ii) deduct an amount equal to the Class B
Invested Amount on such Distribution Date from the portion of the Insolvency
Proceeds allocated to Series 1999-One Allocable Principal Collections and
distribute such amount to the Paying Agent for payment to the Class B
Certificateholders, provided that the amount of such distribution shall not
exceed (x) the product of (A) the portion of such Insolvency Proceeds
allocated to Series 1999-One Allocable Principal Collections and (B) the
Fixed/Floating Allocation Percentage with respect to the related Monthly
Period minus (y) the amount distributed to the Paying Agent pursuant to
clause (i) of this sentence. To the extent that the product of (A) the
portion of the Insolvency Proceeds allocated to Series 1999-One Allocable
Principal Collections and (B) the Fixed/Floating Allocation Percentage with
respect to the related Monthly Period exceeds the aggregate amounts
distributed to the Paying Agent pursuant to the preceding sentence, the
excess shall be allocated to the Transferor's Interest and shall be released
to the Holders of the Transferor Certificates on such Distribution Date.
(b) Not later than 4:00 p.m., New York City time, on such Distribution
Date, the Trustee shall in accordance with the written direction of the
Servicer (in the following priority and, in each case, after giving effect to
any deposits and distributions otherwise to be made on such Distribution
Date) (i) deduct an amount equal to the sum of (x) Class A Monthly Interest
for such Distribution Date and (y) any Class A Monthly Interest previously
due but not distributed to the Class A Certificateholders on a prior
Distribution Date from the portion of the Insolvency Proceeds allocated to
Collections of Finance Charge Receivables and distribute such amount to the
Paying Agent for payment to the Class A Certificateholders, provided that the
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amount of such distribution shall not exceed the product of (x) the portion
of the Insolvency Proceeds allocated to Series 1999-One Allocable Finance
Charge Collections and (y) the Floating Allocation Percentage with respect to
the related Monthly Period and (ii) deduct an amount equal to the sum of (x)
Class B Monthly Interest for such Distribution Date and (y) Class B Monthly
Interest previously due but not distributed to the Class B Certificateholders
on a prior Distribution Date from the portion of the Insolvency Proceeds
allocated to Series 1999-One Allocable Finance Charge Collections and
distribute such amount to the Paying Agent for payment to the Class B
Certificateholders, provided that the amount of such distribution shall not
exceed (x) the product of (x) the portion of the Insolvency Proceeds
allocated to Series 1999-One Allocable Finance Charge Collections and (y) the
Floating Allocation Percentage with respect to the related Monthly Period
minus (y) the amount distributed to the Paying Agent pursuant to clause (i)
of this sentence. To the extent that the product of (A) the portion of the
Insolvency Proceeds allocated to Series 1999-One Allocable Finance Charge
Collections and (B) the Floating Allocation Percentage with respect to the
related Monthly Period exceeds the aggregate amount distributed to the Paying
Agent pursuant to the preceding sentence, the excess shall be allocated to
the Transferor's Interest and shall be released to the Holders of the
Transferor Certificates on such Distribution Date.
(c) Notwithstanding anything to the contrary in this Supplement or the
Agreement, all amounts distributed to the Paying Agent pursuant to this
Section for payment to the Series 1999-One Certificateholders shall be
distributed in full to the Series 1999-One Certificateholders on the date on
which funds are distributed to the Paying Agent pursuant to this Section and
shall be deemed to be a final distribution pursuant to Section 12.02 of the
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.01 RATIFICATION OF AGREEMENT. As supplemented by this Supplement,
the Agreement is in all respects ratified and confirmed and the Agreement as
so supplemented by this Supplement shall be read, taken and construed as one
and the same instrument.
SECTION 9.02 COUNTERPARTS. This Supplement may be executed in two or more
counterparts, and by different parties on separate counterparts, each of
which shall be an original, but all of which shall constitute one and the
same instrument.
SECTION 9.03 GOVERNING LAW. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 9.04 TAX MATTERS.
(a) Notwithstanding anything to the contrary herein, each of the Paying
Agent, Servicer or Trustee 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.
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(b) Each of the Series 1999-One Certificateholders agrees that prior to
the date on which the first interest payment hereunder is due thereto, it
will provide to the Servicer and the Trustee (i) if such Series 1999-One
Certificateholder 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 the Transferor in its
sole discretion consents, Form 1001, or in either case successor applicable
or required forms, (ii) 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 reasonably required to
confirm the availability of any applicable exemption from United States
federal, state or local withholding taxes. Each Series 1999-One
Certificateholder agrees to provide to the Servicer and Trustee, like
additional subsequent duly completed forms (subject to like consent)
satisfactory to the Servicer and Trustee 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 or Trustee. Each Series 1999-One
Certificateholder certifies, represents and warrants that as of the date of
this Agreement, or in the case of a Series 1999-One Certificateholder which
is an assignee as of the date of such Certificate 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 Series 1999-One Certificateholder
represents and warrants that it shall pay any taxes imposed on such Series
1999-One Certificateholder attributable to its interest in the Series
1999-One Certificates.
(c) Each Series 1999-One Certificateholder agrees with the Transferor
that: (a) such Series 1999-One Certificateholder will deliver to the
Transferor on or before the Closing Date or the effective date of any
participation or Certificate Assignment a letter in the form annexed hereto
as Exhibit E (an "INVESTMENT LETTER"), executed by such assignee Series
1999-One Certificateholder, in the case of a Certificate Assignment, or by
the Participant, in the case of a participation, with respect to the purchase
by such Series 1999-One Certificateholder or Participant of a portion of an
interest relating to the Series 1999-One Certificate and (b) all of the
statements made by such Series 1999-One Certificateholder in its Investment
Letter shall be true and correct as of the date made.
(d) Each Series 1999-One Certificateholder, by its holding of an
interest in the Series 1999-One Certificates, hereby severally represents,
warrants and covenants, and each Series 1999-One Certificateholder that
acquires an interest in the Series 1999-One Certificates by Certificate
Assignment shall be deemed to have severally represented, warranted and
covenanted upon such Certificate Assignment that: (i) such Series 1999-One
Certificateholder has not acquired and shall not sell, trade or transfer any
interest in the Series 1999-One Certificates, nor cause any interest in the
Series 1999-One Certificates 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 Series 1999-One Certificates are regularly quoted by any
person making a market in such interests and
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a market wherein any person regularly makes available bid or offer quotes
with respect to interests in the Series 1999-One Certificates and stands
ready to effect buy or sell transactions at the quoted prices for itself or
on behalf of others), and (ii) unless the Transferor consents otherwise, such
Series 1999-One Certificateholder (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 Series 1999-One Certificateholder
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 and the Trust at the time such Participant becomes a Participant
and (B) forward a copy of such representations, warranties and covenants to
the Trustee. In the event of any breach of the representation, warranty and
covenant of a Series 1999-One Certificateholder or its Participant that such
Series 1999-One Certificateholder or participant shall remain classified as a
corporation other than an S corporation, such Series 1999-One
Certificateholder shall notify the Transferor promptly upon such Series
1999-One Certificateholder's becoming aware of such breach, and thereupon the
Series 1999-One Certificateholder hereby agrees to use reasonable efforts to
procure a replacement investor which is acceptable to the Transferor not so
affected to replace such affected Series 1999-One Certificateholder. In any
such event, the Transferor shall also have the right to procure a replacement
investor. Each affected Series 1999-One Certificateholder hereby agrees to
take all actions necessary to permit a replacement investor to succeed to its
rights and obligations hereunder. Each Series 1999-One Certificateholder
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 Series 1999-One Certificateholder as
provided above in this paragraph) to notify the Transferor of such breach
promptly upon such Series 1999-One Certificateholder's becoming aware thereof
and to use reasonable efforts to procure a replacement Participant, as
applicable, not so affected which is acceptable to the Transferor to replace
any such Participant.
(e) Subject to the provisions of subsection (h), each Series 1999-One
Certificateholder may at any time sell, assign or otherwise transfer, to the
extent of such Series 1999-One Certificateholder's interest in the Series
1999-One Certificates (each, a "Certificate Assignment"), to any 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 following such proposed Certificate
Assignment the number of Private Holders would exceed 80 or otherwise cause
the Trust 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 Series 1999-One Certificates; PROVIDED, HOWEVER, that any Certificate
Assignment shall be void unless (i) the minimum amount of such Certificate
Assignment shall be $5,000,000, (ii) such assignee Series 1999-One
Certificateholder shall comply with this Section 9.04 and shall have
delivered to the Trustee, prior to the effectiveness of such Certificate
Assignment, a copy of an agreement under which such assignee Series 1999-One
Certificateholder has made the representations, warranties and covenants
required to be made pursuant to this Section 9.04, and (iii) such proposed
assignee shall provide the forms described in clauses (i), (ii) and (iii) of
subsection 9.04(b) (subject to the Transferor's consent, as applicable and as
set forth therein) in the manner described therein. In connection with any
Certificate Assignment, the assignor Series 1999-One Certificateholder shall
request in writing to the Trustee (who shall promptly
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deliver it to the Transferor) for the consent of the Transferor (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 is a condition to the
effectiveness of the Certificate Assignment. Each assignee Series 1999-One
Certificateholder is subject to the terms and conditions of subsection
9.04(b) on an ongoing basis and hereby makes the certifications,
representations and warranties contained therein.
(f) Subject to the provisions of subsection (h), any Series 1999-One
Certificateholder may at any time grant a participation in all or part (but
not less than $5,000,000 of its interest in Series 1999-One Certificates to
any 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 following such
proposed participation the number of Private Holders would exceed 80 or
otherwise cause the Trust 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 9.04 and such Series 1999-One Certificateholder delivers to the
Trustee, prior to the effectiveness of its participation, a copy of an
agreement under which such Participant has made the representations,
warranties and covenants required to be made pursuant to this Section. In
connection with the granting of any such participation to any Person, the
granting Series 1999-One Certificateholder shall provide a written request to
the Trustee (who shall promptly deliver it to the Transferor) for the consent
of the Transferor to the granting of the specified interest to any identified
prospective Participant, the Transferor shall respond to any such request
within ten Business Days after its receipt, it being understood that the
obtaining of such consent is a condition to the effectiveness of a
participation. Each Series 1999-One Certificateholder hereby acknowledges and
agrees that any such participation will not alter or affect in any way
whatsoever such Series 1999-One Certificateholder's direct obligations
hereunder and that the Transferor shall have no obligation to have any
communication or relationship whatsoever with any Participant of such Series
1999-One Certificateholder in order to enforce the obligations of such Series
1999-One Certificateholder hereunder. Each Series 1999-One Certificateholder
shall promptly notify the Trustee (which 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
Series 1999-One Certificateholder hereby agrees to deliver to the 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 Series 1999-One
Certificateholder will provide to the Servicer and Trustee, the forms
described in clauses (i), (ii) and (iii) of subsection 9.04(b) (subject to
the Transferor's consent, as applicable and as set forth therein) as though
the Participant were a Series 1999-One Certificateholder, (iii) such Series
1999-One Certificateholder similarly will provide subsequent forms as
described in subsection 9.04(b) with respect to such Participant as though it
were a Series 1999-One Certificateholder, and (iv) such Participant will pay
any taxes imposed on its participation interest in the Series 1999-One
Certificates.
(g) Any holder of an interest in the Trust acquired pursuant to Section
12.02(c) of the Agreement in respect of the Series 1999-One Certificates
shall be required to represent and
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covenant in connection with such acquisition that (x) it has neither
acquired, nor will it sell, trade or transfer any interest in the Trust or
cause any interest in the Trust to be marketed on or through either (i) an
"established securities market" within the meaning of Code section
7704(b)(1), including without limitation an interdealer quotation system that
regularly disseminates firm buy or sell quotations by identified brokers or
dealers by electronic means or otherwise or (ii) a "secondary market (or the
substantial equivalent thereof)" within the meaning of Code section
7704(b)(2), including a market wherein interests in the Trust are regularly
quoted by any person making a market in such interests and a market wherein
any person regularly makes available to the public bid or offer quotes with
respect to interests in the Trust and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf of others, (y)
unless the Transferor consents otherwise (which consent shall be based on an
Opinion of Counsel generally to the effect that the action taken pursuant to
the consent will not cause the Trust to become a publicly traded partnership
treated as a corporation), such holder (i) is properly classified as, and
will remain classified as, a "corporation" as described in Code section
7701(a)(3) and (ii) is not, and will not become, an S corporation as
described in Code section 1361, and (z) it will (i) cause any participant
with respect to such interest otherwise permitted hereunder to make similar
representations and covenants for the benefit of the Transferor and the Trust
and (ii) forward a copy of such representations and covenants to the Trustee.
Each such holder shall further agree in connection with its acquisition of
such interest that, in the event of any breach of its (or its participant's)
representation and covenant that it (or its participant) is and shall remain
classified as a corporation other than an S corporation, the Transferor shall
have the right to procure a replacement investor to replace such holder (or
its participant), and further that such holder shall take all actions
necessary to permit such replacement investor to succeed to its rights and
obligations as a holder (or to the rights of its participant).
(h) Except (i) as provided in subsections (e) and (f) above and (ii) in
connection with any pledge to any Federal Reserve Bank to secure any
obligation of a Series 1999-One Certificateholder, no Investor
Certificateholder may transfer, assign, exchange or otherwise convey or
pledge, hypothecate, or otherwise grant a security interest in a Series
1999-One Certificate and any such attempted transfer, assignment, exchange,
conveyance, pledge, hypothecation or grant shall be void.
SECTION 9.05 ADDITIONAL PROVISIONS REGARDING AGREEMENT.
(a) The Transferor may not either (i) convey Participation Interests
pursuant to Section 2.09(b) of the Agreement, (ii) designate Additional
Transferors pursuant to Section 2.09(d) of the Agreement, (iii) exercise its
defeasance option with respect to Series 1999-One pursuant to Section 12.04
of the Agreement or (iv) change the Discount Percentage pursuant to Section
2.12 of the Agreement, without the prior written consent of the
Administrative Agent.
(b) Promptly after the execution of any amendment or consent pursuant to
Section 13.01 of the Agreement (other than an amendment pursuant to
13.01(a)), the Trustee shall furnish notification of the form of such
amendment to the Administrative Agent and the consent of the Administrative
Agent shall be necessary to approve the particular form of any proposed
amendment.
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(c)(i) On the date of execution of this Supplement, the Transferor shall
have a net worth calculated in accordance with generally accepted accounting
principles of at least $10,000,000 and (ii) the Transferor shall make no
distributions of dividends or returns of capital comprising its net worth, as
calculated in accordance with generally accepted accounting principles,
except to the extent that, after giving effect thereto, the Transferor shall
have a net worth at least equal to the greater of (a) 10% of the highest
balance of Principal Receivables outstanding with respect to the immediately
preceding twelve (12) calendar month period or (b) $10,000,000.
(d) For so long as no other Series of Investor Certificates other than
Series 1999-One is outstanding, Sections 3.06(a) and (b) of the Agreement
shall not be applicable.
SECTION 9.06 ADDITIONAL PROVISIONS REGARDING THE SERVICER.
(a) NO EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise
expressly permitted by the Agreement 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. The Servicer further covenants that, except as otherwise
required by any Requirement of Law, it shall not reduce the periodic finance
charges assessed on any Receivable or other fees on any Account if, as a
result of such reduction, the reasonable expectation of the Net Yield as of
such date would be less than 2.00% or has a material adverse effect on the
Series 1999-One Certificateholders and unless (a) such reduction is made
applicable to the comparable segment of the consumer revolving credit
accounts owned or serviced by the Servicer 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 such a comparable segment, it will not make
any such change with the intent to materially benefit the Transferor or
itself over the Series 1999-One Certificateholders.
(b) NO ASSIGNMENT. The Servicer shall not assign any of its rights or
delegate any of its duties hereunder or under the Agreement, other than
delegation to Columbus Bank pursuant to the Subservicer Letter Agreement,
dated as of August 29, 1997, by and between the Servicer and Columbus Bank,
without the prior written consent of the Agent.
(c) FURNISHING OF INFORMATION AND INSPECTION OF RECORDS. (i) The
Servicer will furnish to the Transferor from time to time such information
with respect to the Receivables as the Transferor may reasonably request,
including, without limitation, listings identifying the Obligor and the
outstanding Principal Balance for each Receivable.
(ii) The Servicer will at any time and from time to time
during regular business hours permit the Transferor or its agents, designees, or
representatives, (a) to examine and make copies of and take abstracts from all
Records and (b) 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 under the Agreement with any of the
officers, directors, employees or independent public accountants of the Servicer
having knowledge of such matters.
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(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 Transferor notice of any material
change in the administrative and operating procedures of the Servicer
referred to in the previous sentence.
SECTION 9.07 NOTICES. The Trustee shall give notice to the Agent of any
proposed change or amendment to either the Affinity Card Agreement or the
Facilities Management Services Agreement with respect to which the Trustee's
consent is sought pursuant to the Agreement.
SECTION 9.08 MISCELLANEOUS.
(a) Notwithstanding anything to the contrary contained herein, prior to
the date the first Class A Invested Amount Increase occurs, the amounts
payable to the Holders of the Transferor Certificate pursuant to Section
4.01(b) and 4.01(c)(ii) shall not be subject to the Release Conditions and
shall be withdrawn by the Servicer on Deposit Dates and paid to the Holders
of the Transferor Certificates.
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IN WITNESS WHEREOF, the undersigned have caused this
Supplement to be duly executed and delivered by their respective duly authorized
officers on the day and year first above written.
COMPUCREDIT FUNDING CORP.
Transferor
By: /s/ Brett M. Samsky
------------------------------------------
Name: Brett M. Samsky
Title: President
COMPUCREDIT CORPORATION
Servicer
By: /s/ Brett M. Samsky
------------------------------------------
Name: Brett M. Samsky
Title: Chief Financial Officer
BANKERS TRUST COMPANY
not in its individual capacity, but solely as
Trustee,
By: /s/ illegible
------------------------------------------
Name:
Title:
[Signature Page for Series 1999-One Supplement]
<PAGE>
Exhibit A
FORM OF CLASS A CERTIFICATE EXHIBIT A
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION
HEREOF MAY BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF
THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING
AND SERVICING AGREEMENT AND THE SERIES 1999-ONE SUPPLEMENT THERETO REFERRED
TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED
TO AN EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT THAT IS SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR DESCRIBED IN SECTION
4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED,
ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED, EXCEPT IN ACCORDANCE
WITH THE POOLING AND SERVICING AGREEMENT AND SERIES 1999-ONE SUPPLEMENT
REFERRED TO HEREIN.
REGISTERED $__________
No. R-__________ CUSIP No.
COMPUCREDIT CREDIT CARD MASTER TRUST
SERIES 1999-ONE
CLASS A FLOATING RATE VARIABLE FUNDING CERTIFICATE
Evidencing an undivided interest in certain assets of a trust, the corpus of
which consists primarily of an interest in receivables generated from time to
time in the ordinary course of
business in a portfolio of consumer revolving credit card accounts serviced by
COMPUCREDIT CORPORATION
and other assets and interests constituting the Trust under the Pooling and
Servicing Agreement referred to below.
(Not an interest in or obligation of CompuCredit Corporation, CompuCredit
Funding Corp. or any of their respective affiliates).
A-1
<PAGE>
This certifies that Variable Funding Capital Corporation (the "CLASS A
CERTIFICATEHOLDER") is the registered owner of a fractional undivided
interest in certain assets of a trust (the "TRUST") created pursuant to the
Pooling and Servicing Agreement, dated as of August 29, 1997 (the
"AGREEMENT"), as supplemented by the Series 1999-One Supplement dated as of
__________, 1999 (the "SUPPLEMENT"), among CompuCredit Funding Corp., as
Transferor, CompuCredit Corporation, as Servicer, and Bankers Trust Company,
a banking corporation organized under the laws of the State of New York, as
trustee (the "TRUSTEE"). The corpus of the Trust consists of (i) in the case
of Receivables arising in the Initial Accounts, the Receivables existing at
the close of business on the Initial Cut-Off Date, and thereafter created
from time to time in the Initial Accounts until the termination of the Trust
and (ii) in the case of Receivables arising in the Automatic Additional
Accounts, the Receivables created from time to time after the Initial Cut-Off
Date until the termination of the Trust, (iii) all Interchange and Recoveries
allocable to the Trust as provided in the Agreement, (iv) all rights to
payment and amounts due or to become due with respect to all of the
foregoing, (v) the Collection Account, the Series Accounts and the Special
Funding Account and all amounts, investment property, financial assets and
property credited to each and/or all of such accounts, (vi) any property
conveyed to the Trustee on behalf of the Trust pursuant to any Participation
Interest Supplement, (vii) all Series Enhancements, (viii) Recoveries
attributable to cardholder charges for merchandise and services in the
Accounts, (ix) all of the Transferor's rights under the Receivables Purchase
Agreement and (x) all amounts received with respect to any of the foregoing;
(xi) all proceeds (including "proceeds" as defined in the UCC) thereof and
(xii) all monies and other property on deposit in the Collection Account, the
Series Accounts and the Special Funding Account, the rights of the Trustee on
behalf of the Trust under the Agreement and any Supplement, the property
conveyed to the Trustee on behalf of the Trust under any Participation
Interest Supplement, any Series Enhancement, the right to receive Recoveries
attributed to cardholder charges for merchandise and services in the Accounts
and the rights of the Transferor under the Receivables Purchase Agreement.
The Holder of this Certificate is entitled to the benefits of the
subordination of the Class B Certificates to the extent provided in the
Supplement. Although a summary of certain provisions of the Agreement and the
Supplement is set forth below and in the Summary of Terms and Conditions
attached hereto and made a part hereof, this Class A Certificate does not
purport to summarize the Agreement and the Supplement and reference is made
to the Agreement and the Supplement for information with respect to the
interests, rights, benefits, obligations, proceeds and duties evidenced
hereby and the rights, duties and obligations of the Trustee. A copy of the
Agreement and the Supplement (without schedules) may be requested from the
Trustee by writing to the Trustee at the Corporate Trust Office. To the
extent not defined herein, the capitalized terms used herein have the
meanings ascribed to them in the Agreement or the Supplement, as applicable.
This Class A Certificate is issued under and is subject to
the terms, provisions and conditions of the Agreement and the Supplement, to
which Agreement and Supplement, each as amended and supplemented from time to
time, the Class A Certificateholder by virtue of the acceptance hereof
assents and is bound.
It is the intent of the Transferor and the Class A
Certificateholder that, for federal, state and local income and franchise tax
purposes only, the Class A Certificate will qualify as indebtedness of the
Transferor secured by the Receivables. The Class A Certificateholder, by the
A-2
<PAGE>
acceptance of this Class A Certificate, agrees to treat this Class A
Certificate for federal, state and local income and franchise tax purposes as
debt of the Transferor.
In general, payments of principal with respect to the Class
A Certificate are limited to the Class A Invested Amount, which may be less
than the unpaid principal balance of the Class A Certificate.
This Class A Certificate may not be acquired by or for the
account of any employee benefit plan, trust or account, including an
individual retirement account, that is subject to the Employee Retirement
Security Act of 1974, as amended, or that is described in Section 4975(e)(1)
of the Internal Revenue Code of 1986, as amended, or an entity whose
underlying assets include plan assets by reason of a plan's investment in
such entity (a "BENEFIT PLAN"). By accepting and holding this Class A
Certificate, the Holder hereof shall be deemed to have represented and
warranted that it is a not a Benefit Plan. By acquiring any interest in this
Class A Certificate, the applicable Certificate Owner or Owners shall be
deemed to have represented and warranted that it or they are not Benefit Plans
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Class A
Certificate shall not be entitled to any benefit under the Agreement or the
Supplement or be valid for any purpose.
A-3
<PAGE>
IN WITNESS WHEREOF, the Transferor has caused this Class A
Certificate to be duly executed.
COMPUCREDIT FUNDING CORP.
By:
------------------------------
Name:
Title:
Dated: ___________________, 1999
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Class A Certificate described in the within-mentioned Agreement
and Supplement.
BANKERS TRUST COMPANY,
as Trustee,
By:
------------------------------
Authorized Officer
or
By:
------------------------------
as Authenticating Agent
for the Trustee,
By:
------------------------------
Authorized Officer
<PAGE>
COMPUCREDIT CREDIT CARD MASTER TRUST
SERIES 1999-ONE
CLASS A FLOATING RATE VARIABLE FUNDING CERTIFICATE
Summary of Terms and Conditions
The Receivables consist of Principal Receivables which
arise generally from the purchase of goods and services and amounts advanced
to cardmembers as cash advances and Finance Charge Receivables. This Class A
Certificate is one of a Series of Certificates entitled CompuCredit Credit
Card Master Trust, Series 1999-One (the "SERIES 1999-ONE CERTIFICATES"), and
one of a class thereof entitled Class A Series 1999-One Floating Rate
Variable Funding Certificates, (the "CLASS A CERTIFICATE"), each of which
represents a fractional, undivided interest in certain assets of the Trust.
The assets of the Trust are allocated in part to the Investor
Certificateholders of all outstanding Series (the "CERTIFICATEHOLDERS'
INTEREST") with the remainder allocated to the Holder of the Transferor
Certificate. The aggregate interest represented by the Class A Certificate at
any time in the Principal Receivables in the Trust shall not exceed an amount
equal to the Class A Invested Amount at such time. The Class A Initial
Invested Amount is $0. The Class A Invested Amount on any determination date
will be an amount equal to (a) the Class A Initial Invested Amount, PLUS (b)
the aggregate principal amount of Class A Invested Amount Increases pursuant
to Section 4.13 of the Supplement prior to such date, MINUS (c) the aggregate
amount of principal payments made to the Class A Certificateholders on or
prior to such date, MINUS (d) the excess, if any, of the aggregate amount of
Class A Investor Charge-Offs for all prior Distribution Dates over Class A
Investor Charge-Offs reimbursed pursuant to subsections 4.05(a)(vii) and
4.07(a) of the Supplement prior to such date.
Subject to the terms and conditions of the Agreement, the
Transferor may, from time to time, direct the Trustee, on behalf of the
Trust, to issue one or more new Series of Investor Certificates, which will
represent fractional, undivided interests in certain of the Trust Assets.
On each Distribution Date, the Paying Agent shall
distribute to each Class A Certificateholder of record on the last day of the
preceding calendar month (each a "RECORD DATE") such amounts as are payable
to the Class A Certificateholders pursuant to the Agreement and the
Supplement. Distributions with respect to this Class A Certificate will be
made by the Paying Agent by wire transfer of immediately available funds to
the account that has been designated by the Certificateholder of this Class A
Certificate not less than ten business Days prior to such Distribution Date.
Final payment of this Class A Certificate will be made only upon presentation
and surrender of this Class A Certificate at the office or agency specified
in the notice of final distribution delivered by the Trustee to the Series
1999-One Certificateholders in accordance with the Agreement and the
Supplement.
On any day occurring on or after the day on which the
Invested Amount is reduced to 10% or less of the largest Initial Invested
Amount at any time on or after the Closing Date, the Transferor has the
option to repurchase the Series 1999-One Certificateholders' Interest
S-1
<PAGE>
in the Trust. The repurchase price will be equal to (a) if such day is a
Distribution Date, the Reassignment Amount for such Distribution Date or (b)
if such day is not a Distribution Date, the Reassignment Amount for the
Distribution Date following such day. Following the deposit of the
Reassignment Amount in the Collection Account, the Invested Amount for Series
1997-One shall be reduced to zero and the Series 1999-One Certificateholders
will not have any interest in the Receivables and the Series 1999-One
Certificates will represent only the right to receive such Reassignment
Amount.
THIS CLASS A CERTIFICATE DOES NOT REPRESENT AN OBLIGATION
OF, OR AN INTEREST IN, THE TRANSFEROR OR THE SERVICER OR ANY AFFILIATE OF
EITHER OF THEM AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THIS CLASS A CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN
COLLECTIONS WITH RESPECT TO THE RECEIVABLES (AND CERTAIN OTHER AMOUNTS), ALL
AS MORE SPECIFICALLY SET FORTH HEREINABOVE AND IN THE AGREEMENT AND THE
SUPPLEMENT.
The transfer or exchange of this Class A Certificate shall
be registered in the Certificate Register upon surrender of this Class A
Certificate for registration of transfer or exchange at any office or agency
maintained by the Transfer Agent and Registrar accompanied by a written
instrument of transfer, in a form satisfactory to the Trustee or the Transfer
Agent and Registrar, duly executed by the Class A Certificateholder or such
Class A Certificateholder's attorney, and duly authorized in writing with
such signature guaranteed, and thereupon one or more new Class A Certificates
of authorized denominations and for the same aggregate fractional undivided
interest will be issued to the designated transferee or transferees.
As provided in the Agreement and subject to certain
limitations therein set forth, Class A Certificates are exchangeable for new
Class A Certificates evidencing like aggregate fractional, undivided
interests as requested by the Class A Certificateholder surrendering such
Class A Certificates. No service charge may be imposed for any such exchange
but the Servicer or Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
The Servicer, the Trustee, the Paying Agent and the
Transfer Agent and Registrar and any agent of any of them, may treat the
person in whose name this Class A Certificate is registered as the owner
hereof for all purposes, and neither the Servicer nor the Trustee, the Paying
Agent, the Transfer Agent and Registrar, nor any agent of any of them, shall
be affected by notice to the contrary except in certain circumstances
described in the Agreement.
THIS CLASS A CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
S-2
<PAGE>
ASSIGNMENT
Social Security or other identifying number of assignee _______________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________________________________________
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints ______________, attorney, to transfer said certificate
on the books kept for registration thereof, with full power of substitution in
the premises.
Dated: ___________________________________1/
Signature Guaranteed:
- -------------------
1/ NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Certificate in
every particular, without alteration, enlargement or any change whatsoever.
<PAGE>
Exhibit B
FORM OF CLASS B CERTIFICATE EXHIBIT B
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION
HEREOF MAY BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF
THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING
AND SERVICING AGREEMENT AND THE SERIES 1999-ONE SUPPLEMENT THERETO REFERRED
TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED
TO AN EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT THAT IS SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR DESCRIBED IN SECTION
4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED,
ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED, EXCEPT IN ACCORDANCE
WITH THE POOLING AND SERVICING AGREEMENT AND SERIES 1999-ONE SUPPLEMENT
REFERRED TO HEREIN.
REGISTERED $__________
No. R-__________ CUSIP No.
COMPUCREDIT CREDIT CARD MASTER TRUST
SERIES 1999-ONE
CLASS B FLOATING RATE VARIABLE FUNDING CERTIFICATE
Evidencing an undivided interest in certain assets of a trust, the corpus of
which consists primarily of an interest in receivables generated from time to
time in the ordinary course of business in a portfolio of consumer revolving
credit card accounts serviced by
COMPUCREDIT CORPORATION
and other assets and interests constituting the Trust under the Pooling and
Servicing Agreement referred to below.
(Not an interest in or obligation of CompuCredit Corporation, CompuCredit
Funding Corp. or any of their respective affiliates). This certifies that
CompuCredit Funding Corp. (the "CLASS B CERTIFICATEHOLDER") is the registered
owner of a fractional, undivided interest in certain assets of a trust (the
"TRUST") created pursuant to the Pooling and Servicing Agreement, dated as of
August 29, 1997 (the "AGREEMENT"), as supplemented by the Series 1999-One
Supplement dated
<PAGE>
as of , 1999 (the "SUPPLEMENT"), among CompuCredit Funding Corp. as
Transferor, CompuCredit Corporation, as Servicer, and Bankers Trust Company,
a banking corporation organized under the laws of the State of New York, as
trustee (the "TRUSTEE"). The corpus of the Trust consists of (i) in the case
of Receivables arising in the Initial Accounts, the Receivables existing at
the close of business on the Initial Cut-Off Date, and thereafter created
from time to time in the Initial Accounts until the termination of the Trust
and (ii) in the case of Receivables arising in the Automatic Additional
Accounts, the Receivables created from time to time after the Initial Cut-Off
Date until the termination of the Trust, (iii) all Interchange and Recoveries
allocable to the Trust as provided in the Agreement, (iv) all rights to
payment and amounts due or to become due with respect to all of the
foregoing, (v) the Collection Account, the Series Accounts and the Special
Funding Account and all amounts, investment property, financial assets and
property credited to each and/or all of such accounts, (vi) any property
conveyed to the Trustee on behalf of the Trust pursuant to any Participation
Interest Supplement, (vii) all Series Enhancements, (viii) Recoveries
attributable to cardholder charges for merchandise and services in the
Accounts, (ix) all of the Transferor's rights under the Receivables Purchase
Agreement and (x) all amounts received with respect to any of the foregoing;
(xi) all proceeds (including "proceeds" as defined in the UCC) thereof and
(xii) all monies and other property on deposit in the Collection Account, the
Series Accounts and the Special Funding Account, the rights of the Trustee on
behalf of the Trust under the Agreement and any Supplement, the property
conveyed to the Trustee on behalf of the Trust under any Participation
Interest Supplement, any Series Enhancement, the right to receive Recoveries
attributed to cardholder charges for merchandise and services in the Accounts
and the rights of the Transferor under the Receivables Purchase Agreement.
Although a summary of certain provisions of the Agreement and the Supplement
is set forth below and in the Summary of Terms and Conditions attached hereto
and made a part hereof, this Class B Certificate does not purport to
summarize the Agreement and the Supplement and reference is made to the
Agreement and the Supplement for information with respect to the interests,
rights, benefits, obligations, proceeds and duties evidenced hereby and the
rights, duties and obligations of the Trustee. A copy of the Agreement and
the Supplement (without schedules) may be requested from the Trustee by
writing to the Trustee at the Corporate Trust Office. To the extent not
defined herein, the capitalized terms used herein have the meanings ascribed
to them in the Agreement or the Supplement, as applicable.
This Class B Certificate is issued under and is subject to
the terms, provisions and conditions of the Agreement and the Supplement, to
which Agreement and Supplement, each as amended and supplemented from time to
time, the Class B Certificateholder by virtue of the acceptance hereof
assents and is bound.
THIS CLASS B CERTIFICATE IS SUBORDINATED TO THE EXTENT
NECESSARY TO FUND PAYMENTS ON THE CLASS A CERTIFICATES TO THE EXTENT
SPECIFIED IN THE SUPPLEMENT.
It is the intent of the Transferor and the Class B
Certificateholder that, for federal, state and local income and franchise tax
purposes only, the Class B Certificate will qualify as indebtedness of the
Transferor secured by the Receivables. The Class B Certificateholder, by the
acceptance of this Class B Certificate, agrees to treat this Class B
Certificate for federal, state and local income and franchise tax purposes as
debt of the Transferor.
B-2
<PAGE>
In general, payments of principal with respect to the Class
B Certificate are limited to the Class B Invested Amount, which may be less
then the unpaid principal balance of the Class B Certificate.
This Class B Certificate may not be acquired by or for the
account of any employee benefit plan, trust or account, including an
individual retirement account, that is subject to the Employee Retirement
Security Act of 1974, as amended, or that is described in Section 4975(e)(1)
of the Internal Revenue Code of 1986, as amended, or an entity whose
underlying assets include plan assets by reason of a plan's investment in
such entity (a "BENEFIT PLAN"). By accepting and holding this Class B
Certificate, the Holder hereof shall be deemed to have represented and
warranted that it is a not a Benefit Plan. By acquiring any interest in this
Class B Certificate, the applicable Certificate Owner or Owners shall be
deemed to have represented and warranted that it or they are not Benefit
Plans.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Class B
Certificate shall not be entitled to any benefit under the Agreement or the
Supplement or be valid for any purpose.
B-3
<PAGE>
IN WITNESS WHEREOF, the Transferor has caused this Class B
Certificate to be duly executed.
COMPUCREDIT FUNDING CORP.
By:
------------------------------
Name:
Title:
Dated: , 1999
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Class B Certificate described in the within
mentioned Agreement and Supplement.
BANKERS TRUST COMPANY,
as Trustee,
By:
------------------------------
Authorized Officer
or
By:
------------------------------
as Authenticating Agent
for the Trustee,
By:
------------------------------
Authorized Officer
<PAGE>
COMPUCREDIT CREDIT CARD MASTER TRUST
SERIES 1999-ONE
CLASS B FLOATING RATE VARIABLE FUNDING CERTIFICATE
Summary of Terms and Conditions
The Receivables consist of Principal Receivables which
arise generally from the purchase of goods and services and amounts advanced
to cardmembers as cash advances and Finance Charge Receivables. This Class B
Certificate is one of a Series of Certificates entitled CompuCredit Credit
Card Master Trust, Series 1999-One (the "SERIES 1999-ONE CERTIFICATES"), and
one of a class thereof entitled Class B Series 1999-One Floating Rate
Variable Funding Certificates, (the "CLASS B CERTIFICATE"), each of which
represents a fractional, undivided interest in certain assets of the Trust.
The assets of the Trust are allocated in part to the Investor
Certificateholders of all outstanding Series (the "CERTIFICATEHOLDERS'
INTEREST") with the remainder allocated to the Holder of the Transferor
Certificate. The aggregate interest represented by the Class B Certificate at
any time in the Principal Receivables in the Trust shall not exceed an amount
equal to the Class B Invested Amount at such time. The Class B Initial
Invested Amount is $0. The Class B Invested Amount on any date will be an
amount equal to (a) the Class B Initial Invested Amount, PLUS (b) the
aggregate principal amount of Class B Invested Amount Increases pursuant to
Section 4.13 on or prior to such date, MINUS (c) the aggregate amount of
principal payments made to the Class B Certificateholders prior to such date,
MINUS (d) the aggregate amount of Class B Investor Charge-Offs for all prior
Distribution Dates, MINUS (e) the amount of Reallocated Principal Collections
allocated on all prior Distribution Dates pursuant to Section 4.08 of the
Supplement, MINUS (f) an amount equal to the amount by which the Class B
Invested Amount has been reduced on all prior Distribution Dates pursuant to
subsection 4.06(a), PLUS (g) the amount of Available Funds allocated and
available on all prior Distribution Dates pursuant to subsection 4.05(a)(xii)
for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (d), (e), (f); and PLUS (h) the amount of Excess Spread and Excess
Finance Charge Collections allocated and available on all prior Distribution
Dates pursuant to subsection 4.07(a) for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (d), (e) and (f); PROVIDED,
HOWEVER, that the Class B Invested Amount may not be reduced below zero.
Subject to the terms and conditions of the Agreement, the
Transferor may, from time to time, direct the Trustee, on behalf of the
Trust, to issue one or more new Series of Investor Certificates, which will
represent fractional, undivided interests in certain of the Trust Assets.
On each Distribution Date, the Paying Agent shall
distribute to each Class B Certificateholder of record on the last day of the
preceding calendar month (each a "RECORD DATE") such amounts as are payable
to the Class B Certificateholders pursuant to the Agreement and the
Supplement. Distributions with respect to this Class B Certificate will be
made by the Paying Agent by wire transfer of immediately available funds to
the account that has been designated by the Certificateholder of this Class A
Certificate not less than ten business Days
S-1
<PAGE>
prior to such Distribution Date. Final
payment of this Class B Certificate will be made only upon presentation and
surrender of this Class B Certificate at the office or agency specified in
the notice of final distribution delivered by the Trustee to the Series
1999-One Certificateholders in accordance with the Agreement and the
Supplement.
On any day occurring on or after the day on which the
Invested Amount is reduced to 10% or less of the largest Invested Amount at
any time on or after the Closing Date, the Transferor has the option to
repurchase the Series 1999-One Certificateholders' Interest in the Trust. The
repurchase price will be equal to (a) if such day is a Distribution Date, the
Reassignment Amount for such Distribution Date or (b) if such day is not a
Distribution Date, the Reassignment Amount for the Distribution Date next
following such day. Following the deposit of the Reassignment Amount in the
Collection Account, the Invested Amount for Series 1999-One shall be reduced
to zero and the Series 1999-One Certificateholders will not have any interest
in the Receivables and the Series 1999-One Certificates will represent only
the right to receive such Reassignment Amount.
THIS CLASS B CERTIFICATE DOES NOT REPRESENT AN OBLIGATION
OF, OR AN INTEREST IN, THE TRANSFEROR OR THE SERVICER OR ANY AFFILIATE OF
EITHER OF THEM AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THIS CLASS B CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN
COLLECTIONS WITH RESPECT TO THE RECEIVABLES (AND CERTAIN OTHER AMOUNTS), ALL
AS MORE SPECIFICALLY SET FORTH HEREINABOVE AND IN THE AGREEMENT AND THE
SUPPLEMENT.
The transfer or exchange of this Class B Certificate shall
be registered in the Certificate Register upon surrender of this Class B
Certificate for registration of transfer or exchange at any office or agency
maintained by the Transfer Agent and Registrar accompanied by a written
instrument of transfer, in a form satisfactory to the Trustee or the Transfer
Agent and Registrar, duly executed by the Class B Certificateholder or such
Class B Certificateholder's attorney, and duly authorized in writing with
such signature guaranteed, and thereupon one or more new Class B Certificates
of authorized denominations and for the same aggregate fractional undivided
interest will be issued to the designated transferee or transferees.
As provided in the Agreement and subject to certain
limitations therein set forth, Class B Certificates are exchangeable for new
Class B Certificates evidencing like aggregate fractional undivided interests
as requested by the Class B Certificateholder surrendering such Class B
Certificates. No service charge may be imposed for any such exchange but the
Servicer or Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
The Servicer, the Trustee, the Paying Agent and the
Transfer Agent and Registrar and any agent of any of them, may treat the
person in whose name this Class B Certificate is registered as the owner
hereof for all purposes, and neither the Servicer nor the Trustee, the Paying
Agent, the Transfer Agent and Registrar, nor any agent of any of them, shall
be affected by notice to the contrary except in certain circumstances
described in the Agreement.
THIS CLASS B CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
S-2
<PAGE>
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
S-3
<PAGE>
ASSIGNMENT
Social Security or other identifying number of assignee _______________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
_______________________________________________________________________________
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints , attorney, to transfer said certificate on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: ___________________________ 2/
Signature Guaranteed:
--------------------
- --------
2 / NOTE: The signature to this Assignment must correspond with the name of the
registered owner as it appears on the face of the within Certificate in every
particular, without alteration, enlargement or any change whatsoever.
<PAGE>
EXHIBIT C-1
FORM OF MONTHLY SERVICER'S STATEMENT
- -------------------------------------------------------------------------------
COMPUCREDIT CREDIT CARD MASTER TRUST
SERIES 1999-ONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY PERIOD - FROM: __/__/99
TO: __/__/99
DETERMINATION DATE: __/__/99
DISTRIBUTION DATE: __/__/99
NUMBER OF DAYS IN THE MONTHLY PERIOD: __/__/99
FACILITY AMOUNT: $____________
REVOLVING PERIOD OR AMORTIZATION PERIOD?
PAY-OUT EVENT?
Pursuant to Section 3.04(b) of the Pooling and Servicing Agreement dated as
of August 29, 1997 (the "Pooling and Servicing Agreement") among CompuCredit
Corporation as Servicer ("CompuCredit"); CompuCredit Funding Corp. as
Transferor ("Funding"); and Bankers Trust Company as Trustee (the "Trustee");
and section 5.02(b) of the Series 1999-One Supplement to the Pooling and
Servicing Agreement dated as of January ___, 1999 (the "Series Supplement")
among CompuCredit, Funding and the Trustee (the Pooling and Servicing
Agreement together, with the Series Supplement, the "Agreement"), CompuCredit
is required to prepare certain information each month regarding the current
distributions to the Certificateholders and the performance of the
CompuCredit Credit Card Master Trust (the "Trust") during the previous month.
The undersigned, a duly authorized representative of the Servicer, does
hereby certify:
i. Capitalized terms used in this Certificate have their
respective meanings set forth in the Agreement. References
herein to certain sections and subsections are references to
their respective sections and subsections of the Agreement.
ii. This Certificate is being delivered pursuant to Section
5.02(b) of the Series Supplement.
iii. CompuCredit is the Servicer under the Agreement. The
undersigned is an authorized officer of the Servicer.
iv. The date of this Certificate is on, or prior to, the
Determination Date, prior to the Distribution Date specified
above.
v. No Pay-Out Event has occurred under the Agreement.
C-1-1
<PAGE>
vi. As of the date hereof, to the best knowledge of the
undersigned, the Servicer has performed in all material
respects all its obligations under the Agreement through the
Monthly Period preceding such Distribution Date.
A. PRINCIPAL BALANCE INFORMATION
1. Aggregate Principal Receivables (excluding Finance Charge
Receivables and Defaulted Receivables)
<TABLE>
<S> <C> <C>
(a) such Principal Receivables outstanding on the last day
of the Monthly Period................................. ---------
(b) such Principal Receivables outstanding on the last day
of the prior Monthly Period (prior month line 1(a))
...................................................... ---------
(c) average daily Principal Receivables outstanding during
the Monthly Period.................................... ---------
(d) Principal Balance of all Ineligible Receivables
outstanding on the last day of the Monthly
Period................................................ ---------
</TABLE>
2. Discount Percentage (as defined in Section 2.12 of the Pooling
and Servicing Agreement)
<TABLE>
<S> <C> <C>
3. Principal Receivables (less Discount Option Receivables)........... ---------
(a) such Principal Receivables as of the last day of the
Monthly Period (line 1(a) minus (line 1(a) times line
2))................................................... ---------
(b) such Average Principal Receivables as of the last day of
Prior Monthly Period (line 1(b) minus (line 1(b) times
line 2)).............................................. ---------
(c) Average Principal Receivables during the Monthly Period
(line 1(c) minus (line 1(c) times line 2))............ ---------
</TABLE>
B. INVESTOR INFORMATION
<TABLE>
<S> <C>
4. The Average Invested Amount during the Monthly Period. ---------
</TABLE>
<TABLE>
<S> <C> <C>
(a) Class A Average Invested Amount during the Monthly
Period................................................... ---------
(b) Class B Average Invested Amount during the Monthly
Period................................................... ---------
</TABLE>
C-1-2
<PAGE>
5. Invested Amount on the last day of the prior Monthly Period (line
5(a) plus line 5(b))
<TABLE>
<S> <C> <C>
(a) Class A Invested Amount on the last day of prior Monthly
Period................................................ ---------
(b) Class B Invested Amount on the last day of prior Monthly
Period................................................ ---------
</TABLE>
6. Invested Amount Increases made during the Monthly Period (line
6(a) plus line 6(b))
<TABLE>
<S> <C> <C>
(a) Class A Invested Amount Increases made during the Monthly
Period................................................ ---------
(b) Class B Invested Amount Increases made during the Monthly
Period................................................ ---------
</TABLE>
7. Invested Amount on the last day of the Monthly Period (line7(a)
plus line 7(b))
<TABLE>
<S> <C> <C>
(a) Class A Invested Amount on the last day of the Monthly
Period (line 5(a) plus line 6(a))..................... ---------
(b) Class B Invested Amount on the last day of the Monthly
Period (line 5(b) plus line 6(b))..................... ---------
C. DEFAULT INFORMATION
8. Defaulted Amount for the Monthly Period............................ ---------
9. Series 1999-One Allocable Defaulted Amount for the Monthly Period
(line 8 times line 12).............................................. ---------
10. Investor Default Amount for the Monthly Period
(line 9 times line 14).............................................. ---------
(a) Class A Investor Default Amount (line 10 times line 15).... ---------
(b) Class B Investor Default Amount (line 10 times line 16).... ---------
11. Investor Default Amount for the prior Monthly Period (line 11(a)
plus line 11(b) (Prior Month line 10)............................... ---------
(a) Class A Investor Default Amount (Prior Month line 10(a))... ---------
(b) Class B Investor Default Amount (Prior Month line 10(b).... ---------
</TABLE>
C-1-3
<PAGE>
D. INVESTOR PERCENTAGES FOR THE MONTHLY PERIOD
<TABLE>
<S> <C> <C>
12. Series 1999-One Allocation Percentage........................ ---------
13. Fixed/Floating Allocation Percentage for the related Monthly
Period (during the Revolving period (line 7 divided by (line
1(a) plus line 29)))......................................... ---------
14. Floating Allocation Percentage for the related Monthly Period
(line 7 divided by (line 1(a) plus line 29))................. ---------
15. Class A Floating Percentage (line 7(a) divided by line 7).... ---------
16. Class B Floating Percentage (line 7(b) divided by line 7).... ---------
17. Class A Principal Percentage (line 15)....................... ---------
18. Class B Principal Percentage (line 16)....................... ---------
</TABLE>
E. COLLECTIONS INFORMATION FOR THE MONTHLY PERIOD
<TABLE>
<S> <C> <C>
19. (a) The aggregate amount of Cash Collections for the Monthly
Period.............................................. ---------
(b) Compensation paid to Columbus Bank pursuant to Exhibit C
in the Affinity Card Agreement...................... ---------
(c) The aggregate amount of Cash Collections for the Monthly
Period (line 19(a) plus line 19(b).................. ---------
20. Collections of Interchange, Charge-Off Recoveries, and
interest earned on the Special Funding Account for the
Monthly Period............................................... ---------
21. Aggregate amount of Collections of Principal Receivables (actual
Collections of Principal Receivables without regard to Discount
Option Receivables, if any).................................. ---------
22. Collections of Discount Option Receivables (line 21 times line 2)
23. Collections of Principal Receivables (line 21 minus
line 22)..................................................... ---------
24. The aggregate amount of Collections of Finance Charge Receivables
(line 19(c) plus line 20 minus line 23)...................... ---------
25. The Series 1999-One Allocation Principal Collections (line 23
times line 12 times line 13)................................. ---------
</TABLE>
C-1-4
<PAGE>
<TABLE>
<S> <C> <C>
26. Transferor Percentage Series 1999-One Allocable Principal
Collections ((1 minus line 13) times line 25)................ ---------
27. The Series 1999-One Allocation Finance Charge Collections
(line 24 times line 12 times line 14)........................ ---------
28. Transferor Percentage of Series 1999-One Allocable Finance Charge
Collections ((1 minus line 14) times line 27)................ ---------
29. Special Funding Account balance.............................. ---------
30. Required Spread Account Amount............................... ---------
31. Available Spread Account Amount.............................. ---------
32. Check: ((line 12 times sum of (line 19(c) plus line 20)) minus
line 25 minus line 26 minus line 27 minus line 28 must equal
zero)........................................................ ---------
</TABLE>
F. WITHDRAWAL INFORMATION FROM THE COLLECTION ACCOUNT RELATING TO
COLLECTIONS OF FINANCE CHARGE RECEIVABLES AND REALLOCATED PRINCIPAL
COLLECTIONS
PURSUANT TO SUBSECTION 4.05(a)(i)
<TABLE>
<S> <C> <C>
33. Servicer Advances made with respect to the Monthly Period.... ---------
34. Servicer Advances reimbursed during Monthly Period pursuant to
Section 4.05(c)(i)........................................... ---------
35. Unreimbursed Servicer Advances from such Monthly Period (line 33
minus line 34)............................................... ---------
36. Unreimbursed Servicer Advances from previous Monthly Periods. ---------
PURSUANT TO SUBSECTION 4.05(a)(ii)
37. Class A Monthly Interest and Fees (all such fees calculated on
the basis of the actual number of days elapsed divided by 360)... ---------
(a) CP interest for the Monthly Period.................. ---------
(b) Facility Fee........................................ ---------
(c) Total Carrying Cost for Monthly Period (line 37(a)
through 37(b))...................................... ---------
(d) Total unreimbursed Servicer Advances (line 35 plus line
36)................................................. ---------
</TABLE>
C-1-5
<PAGE>
<TABLE>
<S> <C> <C>
(e) Dealer fees and Interest withdrawn from the Collections
Account during the Monthly Period................... ---------
(f) Total due to Class A Certificateholder (line 37(c) minus
line 37(d) minus line 37(e))........................ ---------
38. (Reserved)................................................... ---------
PURSUANT TO SUBSECTION 4.05(a)(iii)
39. Class A Investor Default Amount for the Monthly Period shall
be treated as Available Principal Collections (line 10(a)) ---------
PURSUANT TO SUBSECTION 4.05(a)(iv)
40. The Monthly Servicing Fee for the Monthly Period (one-twelfth of
0.10% times (line 4 minus (line 12 times line 29))).......... ---------
41. Accrued and unpaid Monthly Servicing Fees.................... ---------
PURSUANT TO SUBSECTION 4.05(a)(v)
42. If the Transferor fails to deposit the amount the Transferor is
required to deposit on such Distribution Date into the Special
Funding Account pursuant to Section 3.09 of the Agreement, the
product of (a) the Class A Floating Percentage, (b) the Series
1999-One Allocation Percentage, (c) the Floating Allocation
Percentage and (d) the amount the Transferor should have
deposited into the Special Funding Account on such Distribution
Date shall be treated as a portion of Available Principal
Collections.................................................. ---------
PURSUANT TO SUBSECTION 4.05(a)(vi)
43. If a Pay Out Event has occurred, an amount up to the Class A
Invested Amount shall be treated as Available Principal
Collections and distributed to the Class A
Certificateholders........................................... ---------
PURSUANT TO SUBSECTION 4.05(a)(vii)
44. The aggregate Class A Investor Charge-Offs which have not been
previously reimbursed shall be treated as a portion of Available
Principal Collections (prior month line 81).................. ---------
</TABLE>
PURSUANT TO SUBSECTION 4.05(a)(viii)
C-1-6
<PAGE>
<TABLE>
<S> <C> <C>
45. On each Distribution Date prior to the date on which the Spread
Account terminates pursuant to subsection 4.12(e) of the Series
Supplement, an amount up to the excess, if any, of the Required
Spread Account Amount over the Available Spread Account Amount
shall be deposited into the Spread Account................... ---------
PURSUANT TO SUBSECTION 4.05(a)(ix)
46. The Class B Monthly Interest (0 until further notice)........ ---------
47. Class B Monthly Interest previously due and unpaid........... ---------
PURSUANT TO SUBSECTION 4.05(a)(x)
48. The Class B Investor Default Amount shall be treated as a portion
of Available Principal Collections (line 10(b)).............. ---------
PURSUANT TO SUBSECTION 4.05(a)(xi)
49. If the Transferor fails to deposit the amount the Transferor is
required to deposit on such Distribution Date into the Special
Funding Account pursuant to Section 3.09 of the Agreement, the
product of (a) the Class B Floating Percentage, (b) the Series
1999-One Allocation Percentage, (c) the Floating Allocation
Percentage and (d) the amount the Transferor should have
deposited into the Special Funding Account on such Distribution
Date shall be treated as a portion of Available Principal
Collections.................................................. ---------
PURSUANT TO SUBSECTION 4.05(a)(xii)
50. The aggregate amount by which the Class B Invested Amount has
been reduced pursuant to clauses (d), (e) and (f) of the
definition of "Class B Invested Amount" in Section 2.01 of the
Series Supplement shall be treated as a portion of Available
Principal Collections........................................ ---------
PURSUANT TO SUBSECTION 4.05(a)(xiii)
51. Amount constituting Excess Spread to be allocated and
distributed or deposited as set forth in Section 4.07 of the
Series Supplement (line 27 minus ((line 37(c)) plus (lines
38-50))...................................................... ---------
52. Amount on line 51 allocated per Section 4.07 to other Series. ---------
</TABLE>
C-1-7
<PAGE>
<TABLE>
<S> <C> <C>
53. Amount on line 51 allocated per Section 4.07 to Transferor (line
51 minus line 52)............................................ ---------
G. WITHDRAWAL INFORMATION FROM THE COLLECTION ACCOUNT RELATING TO
COLLECTIONS OF PRINCIPAL RECEIVABLES
54. Investor portion of Collections of Principal Receivables (line 25
minus line 26)............................................... ---------
55. Investor portion of Collections of Finance Charge Receivables
recharacterized as Collections of Principal Receivables...... ---------
(a) Class A Investor Default Amount for the preceding
Monthly Period shall be treated as Available Principal
Collections (line 39) ................................. ---------
(b) If the Transferor fails to deposit the amount the
Transferor is required to deposit on such Distribution
Date into the Special Funding Account pursuant to
Section 3.09 of the Agreement, the product of (a) the
Class A Floating Percentage (b) the amount the
Transferor should have deposited into the Special
Funding Account on such Distribution Date shall be
treated as a portion of Available Principal Collections
(line 42) ............................................. ---------
(c) If a Pay-Out Event has occurred, an amount up to the
Class A Invested Amount shall be treated as Available
Principal Collections and distributed to the Class A
Certificateholders (line 43)........................... ---------
(d) The aggregate Class A Investor Charge-Offs which have
not been previously reimbursed shall be treated as a
portion of Available Principal Collections (line 44)... ---------
(e) The Class B Investor Default Amount shall be treated as
a portion of Available Principal Collections (line 48). ---------
(f) If the Transferor fails to deposit the amount the
Transferor is required to deposit on such Distribution
Date into the Special Funding Account pursuant to
Section 3.09 of the Agreement, the product of (a) the
Class B Floating Percentage, and (b) the amount the
Transferor should have deposited into the Special
Funding Account on such Distribution Date shall be
treated as a portion of Available Principal Collections
(line 49) ............................................. ---------
</TABLE>
C-1-8
<PAGE>
<TABLE>
<S> <C> <C>
(g) The aggregate amount by which the Class B Invested
Amount has been reduced pursuant to clauses (d), (e)
and (f) of the definition of "Class B Invested Amount"
in Section 2.01 of the Series Supplement shall be
treated as a portion of Available Principal Collections
(line 50) ............................................. ---------
56. Aggregate amount of Collections of Finance Charge Receivables
recharacterized as Collections of Principal Receivables (sum of
line 55(a) through 55(g)).................................... ---------
57. Reallocated Principal Collections pursuant to Section 4.08... ---------
58. Amounts deposited into Spread Account pursuant to Subsection
4.01(b)(ii).................................................. ---------
59. Amounts deposited into Spread Account pursuant to Subsections
4.01(c)(ii)(w) and (c)(ii)(x)................................ ---------
60. Shared Principal Collections allocated to Series 1999-One.... ---------
61. Total Collections of Principal Receivables deposited in the
Collection Account (net of the amount allocable to the
Transferor pursuant to line 26) (line 54 plus line 56 minus
line 57 minus line 58 minus line 59 plus line 60)............ ---------
</TABLE>
If Revolving Period, the amount specified in line 61 shall be
allocated as follows:
PURSUANT TO SUBSECTION 4.05(b)(i)
<TABLE>
<S> <C> <C>
62. The excess, if any, of the Class B Invested Amount over the
Required Subordinate Amount.................................. ---------
PURSUANT TO SUBSECTION 4.05(b)(ii)
63. Amount to be treated as Shared Principal Collections......... ---------
64. Amount to be treated as reinvestment of Collections of Principal
Receivables (line 61 minus line 62 minus line 63)............ ---------
</TABLE>
C-1-9
<PAGE>
H. INSTRUCTIONS TO MAKE CERTAIN PAYMENTS (FUNDS MOVEMENT ANALYSIS)
Pursuant to Section 5.01 of the Series Supplement, the Servicer does hereby
instruct the Trustees to pay in accordance with Section 5.01 from amounts held
by the Paying Agent, on the Distribution Date according to the Series
Supplement, the following amounts as set forth below:
<TABLE>
<S> <C> <C>
65. Total Collections (line 25 plus line 27)..................... ---------
66. Permitted withdrawals made from the Collection Account during the
Monthly Period (sum of lines 66(a) through 66(d)............. ---------
(a) Amounts withdrawn pursuant to line 34................. ---------
(b) Amounts withdrawn pursuant to line 37(e).............. ---------
(c) Amounts in respect of Collections of Principal withdrawn
prior to Distribution Date............................ ---------
(d) Amounts in respect of collections of Finance Charge
Receivables withdrawn prior to Distribution Date...... ---------
67. Net Collections (line 65 minus line 66)...................... ---------
68. PAY TO SERVICER.............................................. ---------
(a) Payment of sum of (line "________________________")... ---------
69. PAY TO CLASS B CERTIFICATEHOLDERS
(a) Payment of the sum of (line "_____________________").. ---------
70. PAY TO SPREAD ACCOUNT
(a) Deposit the amounts specified in line "___________" .. ---------
71. PAY TO CLASS A CERTIFICATEHOLDERS
(a) Payment to Deal Agent: line "____________________" .. ---------
72. PAY TO TRANSFEROR
Payment of line "____________________________"............... ---------
73. Check: Sum of lines "_______________________________"....... ---------
</TABLE>
C-1-10
<PAGE>
I. ACCRUED AND UNPAID AMOUNTS
After giving effect to the withdrawals and transfers to be made in accordance
with this notice, the following amount will be accrued and unpaid with respect
to all Monthly Periods preceding the current calendar month:
<TABLE>
<S> <C> <C>
74. The aggregate amount of all unreimbursed Class A Investor
Charge-Offs.................................................. ---------
75. The aggregate amount by which the "Class B Invested Amount" has
been reduced pursuant to clauses (c), (d), (e) and (f) of the
definition thereof........................................... ---------
76. Previously due and unpaid Class A Monthly Interest........... ---------
77. Previously due and unpaid Servicing fees..................... ---------
</TABLE>
J. MANAGEMENT REPORTING DATA
<TABLE>
<S> <C> <C>
78. Number of re-aged accounts and receivables for the
related Monthly Period....................................... ---------
79. Dollar amount of re-aged accounts and receivables
for the related Monthly Period .............................. ---------
80. Losses by fraud ............................................. ---------
81. Total losses by non-fraud ................................... ---------
82. Non-fraud losses by bankruptcy .............................. ---------
83. Non-fraud losses by non-bankruptcy .......................... ---------
84. Total number of accounts .................................... ---------
85. End of month delinquencies
(a) 31 - 60 days delinquent .............................. ---------
(b) 61 - 90 days delinquent .............................. ---------
(c) 90+ days delinquent .................................. ---------
(d) (Total 30+ days delinquent) (line 85(a)
through line 85(c)) .................................. ---------
(e) Prior month delinquency ratio (Previous
month line 85(d)) .................................... ---------
</TABLE>
C-1-11
<PAGE>
<TABLE>
<S> <C> <C>
(f) Delinquency Ratio 2 months ago (Previous
month line 85 (e)) ................................... ---------
(g) 3 month Delinquency Ratio average .................... ---------
86. Net Portfolio Yield (((line "_________")) ................... ---------
87. Base Rate (((line 37 (g) plus line 40) divided by
line 4 (a)) times 12) ....................................... ---------
88. Net Yield (line 95 minus line 96) ........................... ---------
89. Prior Monthly Period Net Yield (prior month line
"_____________") ............................................ ---------
90. Average Net Yield for the most recent three month period .... ---------
</TABLE>
91. FICO Score Distribution:
FICO Risk Score Receivables Subordination Total
<TABLE>
<CAPTION>
Range* Percentage
<S> <C>
*[material omitted] *[material omitted]
*[material omitted] *[material omitted]
*[material omitted] *[material omitted]
*[material omitted] *[material omitted]
Total
</TABLE>
*FICO Risk Score at the time of initial booking of account.
<TABLE>
<S> <C> <C>
92. Calculated Subordination Percentage total (line
"_________________")....................................... ---------
93. Aggregate Subordination Percentage (the greater of line "_______"
or *[material omitted]).................................... ---------
94. Current Month Class A Invested Amount times the Aggregate
Subordination Percentage ("_______________________")....... ---------
95. CompuCredit Shareholder's Equity is greater than the required
amount..................................................... ---------
96. CompuCredit's Ratio of Shareholder's Equity to total managed
assets is 8% or greater.................................... ---------
97. Description of servicing currently provided by CB&T versus
in-house .................................................. ---------
</TABLE>
- -------------
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 under the Securities
Act of 1933.
C-1-12
<PAGE>
<TABLE>
<CAPTION>
In-House CB&T
<S> <C>
Credit Analysis Application fulfillment
Risk Management Customer Service
Collections Fraud Investigation
Marketing and Solicitation Payment Processing
Application Processing Statement Generation
Transaction Processing
Account Reporting
</TABLE>
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate on
__/__/99.
COMPUCREDIT CORPORATION,
By:
------------------------
Ashley Johnson
Controller
C-1-13
<PAGE>
EXHIBIT C-2
FORM OF RELEASE REPORT
I, [Name of Officer], the undersigned [Title of Officer] of
CompuCredit Funding Corp., a Nevada corporation, pursuant to Section 4.01 of
the Series Supplement dated January __, 1999 (the "SERIES SUPPLEMENT"), by
and among the Transferor, CompuCredit Corporation, a Georgia corporation, as
servicer (in such capacity, the "SERVICER"), and Bankers Trust Company as
Trustee (the "Trustee"), hereby certify that as of _______________, 19___:
<TABLE>
<S> <C>
Total Principal Receivables in Trust $
Total Special Funding Account Balance $
Trust Adjusted Invested Amount $
Required Transfer Amount $
Line 1 plus Line 2 minus Line 3 minus [YES]
Line 4
is not
less than
zero
No Payout Event has occurred [YES]
The date specified in Clause (a) or (b) of the [YES]
Definition
of
Termination
Date
have
not
occurred.
Amount on deposit in the Spread Account $
Required Spread Account Amount $
Amount to be withdrawn $
</TABLE>
Capitalized terms used and not otherwise defined herein shall
have the meaning assigned to such terms in the Series Supplement, the Pooling
and Servicing Agreement, dated as of August 29, 1997, by and among the
Transferor, the Servicer and the Trustee.
<PAGE>
IN WITNESS WHEREOF, I have duly executed and delivered this
Weekly Servicer Report on this day of , 199 .
COMPUCREDIT FUNDING CORP.,
as Transferor
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF CLASS B INVESTED AMOUNT INCREASE NOTICE
I, [Name of Officer], the undersigned [Title of Officer] of
CompuCredit Funding Corp., a Georgia corporation, pursuant to Section 4.13(b)
of the Series Supplement dated August 29, 1997 (the "SERIES SUPPLEMENT"), by
and among the Transferor, CompuCredit Corporation, a Georgia corporation, as
servicer (in such capacity, the "SERVICER"), and Bankers Trust Company as
Trustee (the "Trustee"), hereby certify that:
<TABLE>
<S> <C> <C>
(1) The Class B Invested Amount as of the Business Day immediately $__________
preceding the date hereof....................................
(2) The total amount of the Class B Invested Amount Increase $__________
requested by the Transferor..................................
(3) The Class B Invested Amount after giving effect to the Class B $__________
Invested Amount Increase (line 1 PLUS line 2)................
(4) The Transferor Amount after giving effect to the Class B $__________
Invested Amount Increase, each as of the Business Day
immediately preceding the date hereof
(5) The Transferor Amount is not less than the Required Transferor [YES]
Amount.......................................................
(6) The product of the Transferor Amount and the Series 1997-One [Yes]
Allocation Percentage minus the Series Required Transferor
Amount is not less than zero.................................
</TABLE>
Capitalized terms used and not otherwise defined herein shall
have the meaning assigned to such terms in the Series Supplement, the Pooling
and Servicing Agreement, dated as of August 29, 1997, by and among the
Transferor, the Servicer and the Trustee.
D-1
<PAGE>
IN WITNESS WHEREOF, I have duly executed and delivered this
Class B Investment Amount Increase Notice on this day of _____________, 199___.
COMPUCREDIT FUNDING CORP.,
as Transferor
By:
---------------------------------
Name:
Title:
D-2
<PAGE>
Exhibit E
EXECUTION COPY
INVESTMENT LETTER
January 12, 1999
CompuCredit Funding Corporation
Bankers Trust Company, as Trustee
Re: PURCHASE OF CLASS A CERTIFICATE
Ladies and Gentlemen:
This letter (the "Investment Letter") is delivered by Variable
Funding Capital Corporation ("VFCC") and First Union National Bank (the "Bank"
or the "Investor" and, together with VFCC, the "Purchasers") pursuant to Section
9.04 of the Series 1999-One Supplement, dated as of January 12, 1999 relating to
the CompuCredit Credit Card Master Trust (the "Series Supplement"). Capitalized
terms used herein without definition shall have the meanings set forth in the
Series 1999-One Supplement or in the Certificate Purchase Agreement (as defined
therein). Each of the Purchasers represents to the Transferor as follows:
i) it is authorized to enter into the Certificate Purchase Agreement
and to perform its obligations thereunder and to consummate the transactions
contemplated thereby;
ii) it has knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of an investment in the
Class A Certificate and it is able to bear the economic risk of such investment;
iii) it has reviewed the Pooling and Servicing Agreement and the Series
Supplement (including the schedule and exhibits thereto) and has had the
opportunity to perform due diligence with respect thereto and to ask questions
of and receive answers from the Transferor and its representatives concerning
the Transferor, the Trust and the Class A Certificate;
iv) neither VFCC nor the Bank is acquiring the Class A Certificate as
an agent or otherwise for any other person. VFCC is a Delaware corporation and
the Bank is a national banking association with its principal office in
Charlotte, North Carolina;
v) each of VFCC, the Bank, as Liquidity Agent, First Union Capital
Markets, as Deal Agent (together with the Bank, the "Agents"), and the Bank is
an "accredited investor" as defined in Rule 501, promulgated by the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended. VFCC, the Agents and the Bank understand that the offering and sale of
the Class A Certificate have not been and will not be registered under the
Securities Act of 1933, as amended, and have not and will not be registered or
qualified under any applicable "blue sky" law, and that the offering and sale of
the Class A
<PAGE>
Certificate have not been reviewed by, passed on or submitted to any federal
or state agency or commission, securities exchange or other regulatory body;
vi) VFCC and the Bank are acquiring or will acquire the Class A
Certificate without a view to any distribution, resale or other transfer
thereof. VFCC, the Agents and the Bank will not resell or otherwise transfer the
Class A Certificate or any portion thereof, (A) without a letter from the buyer
or transferee thereof in substantially the form hereof and (B) other than (i)
pursuant to an effective registration statement under the Securities Act of
1933, as amended; (ii) in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, and applicable state
securities or "blue sky" laws; (iii) to the Transferor or any affiliate of the
Transferor; (iv) to a person who VFCC and the Agents or the Bank reasonably
believes is a qualified institutional buyer (within the meaning thereof in Rule
144A under the Securities Act of 1933, as amended) that is aware that the resale
or other transfer is being made in reliance upon Rule 144A; or (v) pursuant to
Regulation S under the Securities Act of 1933, as amended.
vii) VFCC, the Agents and the Bank understand that the Class A
Certificate will bear a legend to substantially the following effect:
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON EXEMPTIONS PROVIDED BY
THE SECURITIES ACT. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE
EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISION OF THE SECURITIES ACT AND
ANY APPLICABLE PROVISION UNDER STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH PROVISION. THE TRANSFER OF THIS CERTIFICATE IS
SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT
AND SERIES SUPPLEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE ACQUIRED BY (A)
AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
SECURITY ACT OF 1974, AS AMENDED ("ERISA") THAT IS SUBJECT TO THE PROVISIONS OF
TITLE 1 OF ERISA, (B) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (C) ANY ENTITY WHOSE UNDERLYING ASSETS
INCLUDE PLAN ASSETS BY REASON OF A PLAN IS INVESTMENT IN THE ENTITY (EACH A
"BENEFIT PLAN"). BY ACCEPTING AND HOLDING THIS CERTIFICATE OR ANY INTEREST
HEREIN, THE HOLDER HEREOF OR ANY OWNER OF AN INTEREST HEREIN SHALL BE DEEMED TO
HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN.
viii) this Investment Letter has been duly authorized, executed and
delivered and constitutes the legal, valid and binding obligations of VFCC, the
Agents and the Bank, enforceable against VFCC, the Agents and the Bank in
accordance with its terms, except as such enforceability may be limited by
receivership, conservatorship, bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general principles of equity;
<PAGE>
ix) each of VFCC, the Agents and the Bank represents and warrants that
it is not (i) an employee benefit plan as defined in Section 3(3) or ERISA) that
is subject to the provisions of Title I of ERISA, (ii) a plan described in
Section 4975(e)(1) of the Internal Revenue Code, or (iii) an entity whose
underlying assets include plan assets by reason of a plan's investment in such
entity;
x) each of the Purchasers represents, warrants and covenants that it
has not and will not acquire, and shall not sell, trade or transfer any interest
in the Class A Certificates to be marketed on or through either (i) an
"established securities market" within the meaning of Section 7704(b)(1) of the
Internal Revenue Code of 1986, as amended (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 (ii) a
"secondary market" (or the substantial equivalent thereto) within the meaning of
Code Section 7704(b)(2) (including a market wherein interests in the Class A
Certificate 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 Class A Certificates and stands ready to effect
buy or sell transactions at the quoted prices for itself or on behalf of
others).
xi) unless the Transferor consents otherwise, each of the Purchasers
represents, warrants and covenants that it (i) is properly classified as, and
will remain classified as, a "corporation" as described in Code section
7701(a)(3) and (ii) is not, and will not become, an "S corporation" under Code
section 1361. Each of the Purchasers represents, warrants and covenants that it
shall (i) cause each of its Participants otherwise permitted hereunder to make
representations, warranties and covenants as required by Section 9.04 of the
Series Supplement for the benefit of the Transferor and the Trust at the time
such Participant became a Participant and (ii) forward a copy of such
representations, warranties and covenants to the Trustee. In the event of any
breach of the representation, warranty and covenant of either Purchaser or its
Participant that such Purchaser or its Participant shall remain classified as a
corporation other than an S corporation, such Purchaser shall notify the
Transferor promptly upon such Purchaser's becoming aware of such breach, and
thereupon such Purchaser hereby agrees to use reasonable efforts to procure a
replacement investor to succeed to its rights and obligations hereunder. In any
event, the transferor shall also have a right to procure a replacement investor.
Each affected Purchaser hereby agrees to take all actions necessary to permit a
replacement investor to succeed to its rights and obligations hereunder. Each
Purchaser that has a Participant that 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 Purchaser as provided above in this
paragraph) to notify the Transferor of such breach promptly upon such
Purchaser's becoming aware thereof and to use reasonable efforts to procure a
replacement Participant, as applicable, not so affected which is acceptable to
the Transferor to replace any such Participant.
<PAGE>
The Transferor hereby consents to the transfer of the Class A
Certificate by the Purchaser to the Bank.
Very truly yours,
VARIABLE FUNDING CAPITAL CORPORATION
as Purchaser
By:
------------------------------
Name:
Title:
FIRST UNION CAPITAL MARKETS,
a division of Wheat First Securities, Inc.,
as Deal Agent
By:
------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
as Liquidity Agent and Purchaser
By:
------------------------------
Name:
Title:
AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN:
COMPUCREDIT FUNDING CORP.,
as Transferor
By:
----------------------------
Name:
Title:
<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 Amendment No.
1 to Registration Statement (Form S-1 No. 333-69879) and related Prospectus of
CompuCredit Corporation dated January 15, 1999.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 13, 1999
