<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1999
REGISTRATION NO. 333-69879
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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. / /
----------------------------------
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] 8,125,000 SHARES
COMPUCREDIT CORPORATION
COMMON STOCK
------------------
This is CompuCredit's initial public offering of common stock. We expect the
public offering price to be between $15.00 and $17.00 per share. 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 5 OF THIS PROSPECTUS.
---------------------
<TABLE>
<CAPTION>
Per Share Total
----------- ---------
<S> <C> <C>
Public Offering Price....................................................... $ $
Underwriting Discount....................................................... $ $
Proceeds, before expenses, to CompuCredit................................... $ $
</TABLE>
This is a firm commitment underwriting, which means that the underwriters
must purchase all of the securities, if any are purchased. The underwriters may
also purchase up to an additional 1,218,750 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.
-----------------
PAINEWEBBER INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
The date of this prospectus is , 1999
<PAGE>
[DESCRIPTION OF OMITTED GRAPHICAL MATERIAL
On the left side of the page, the CompuCredit logo, the text "transforming
information into value" and photographs of each of CompuCredit's Gold, Silver,
Platinum and Diamond Aspire Visa cards are superimposed on photographs of CD-ROM
discs. On the right side of the page, from the top of the page to the bottom,
there is a photograph of a man working at a computer terminal, a photograph of
computer hardware and a photograph of a woman looking at a credit card she has
pulled out of her purse.]
ii
<PAGE>
PROSPECTUS SUMMARY
You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. In this prospectus, the
term "CompuCredit" refers to CompuCredit Corporation and its subsidiaries and
its predecessor, CompuCredit L.P. Unless otherwise indicated, all of the
information in this prospectus except for the consolidated financial statements
and related notes:
- 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 1,428,767 shares of common stock
which will occur at the same time as the closing of this offering. This
number of shares is based on dividends accrued through March 31, 1999 and
an assumed offering price of $16.00 per share.
THE COMPANY
CompuCredit is a credit card company that uses analytical techniques that it
has developed and information from credit bureaus to identify consumers who
management believes are under-served by more traditional providers of consumer
credit. CompuCredit offers its Aspire-Registered Trademark-
Visa-Registered Trademark- credit card 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 also markets life insurance, card
registration, telecommunication products, memberships in buying clubs, travel
services and debt waiver programs to its credit card clients.
CompuCredit believes that consumers in the under-served market are not being
solicited with offers of credit cards as often as other consumers. Consumers in
this 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
delinquencies, 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 estimates that there are
approximately 82 million consumers in the United States that are under-served by
consumer credit providers, and 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.
CompuCredit has developed computer models which evaluate the credit and
bankruptcy risks of consumers using credit bureau data and repayment history on
consumer loans. CompuCredit believes that its models allow it to evaluate credit
risk more effectively than most traditional providers of consumer credit. These
models are designed to identify specific groups of consumers with similar risks
and to offer credit lines and pricing tailored to each group. CompuCredit's
database accumulates information about its clients throughout the client
relationship, including information regarding transactions and the type of usage
that occurs on its Aspire Visa cards. The combination of CompuCredit's
proprietary databases, custom computer models, risk-based pricing strategies,
account management strategies and collections processes is designed to enable
CompuCredit to provide credit to an under-served market, to assess the risks its
clients present and to offer and price its products accordingly.
CompuCredit was formed in August 1996 and has grown significantly since it
began soliciting clients in February 1997. For the year ended December 31, 1998,
CompuCredit had net income of
1
<PAGE>
$25.4 million as compared to a net loss of $725,000 for the year ended December
31, 1997. As of December 31, 1998, CompuCredit had 343,000 accounts with an
aggregate managed portfolio of $504.0 million of credit card receivables.
CompuCredit intends to increase the size of its portfolio of credit card
receivables by adding new accounts. CompuCredit adds accounts by soliciting new
clients or by purchasing portfolios of credit card receivables whose cardholders
generally meet CompuCredit's credit criteria. CompuCredit may use either or both
of these methods of account growth to varying degrees, depending on its
assessment of the relative cost of each method.
To date, CompuCredit has relied on the securitization of its credit card
receivables to fund its operations and increase the size of its business. When
CompuCredit securitizes its receivables, it sells the receivables for cash and a
limited right to receive cash in the future as the receivables are repaid.
CompuCredit issues its Aspire credit card under an agreement with Columbus
Bank and Trust Company, a state-chartered banking subsidiary of Synovus
Financial Corporation. Under this agreement, Columbus Bank and Trust owns the
credit card accounts. However, CompuCredit has filed an application for a state
bank charter. If CompuCredit establishes or acquires a bank, the agreement with
Columbus Bank and Trust provides that these accounts will be transferred to the
new bank. CompuCredit outsources to Columbus Bank and Trust and its affiliate,
Total Systems Services, Inc., certain account processing and servicing functions
such as card embossing/mailing, fraud detection, cycle billing, payment
processing and transaction processing.
CompuCredit's executive offices are located at Two Ravinia Drive, Suite
1750, Atlanta, Georgia, 30346, and its telephone number is (770) 901-5840.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by CompuCredit.......... 8,125,000 shares, or 9,343,750 shares if the
underwriters exercise their over-allotment
option.
Common stock to be outstanding after the
offering................................... 41,938,628 shares, or 43,157,378 shares if
the underwriters exercise their
over-allotment option.
Use of Proceeds.............................. To finance CompuCredit's growth through the
origination and purchase of credit card
receivables, to capitalize CompuCredit's
proposed bank subsidiary, if the bank charter
is approved, 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>
2
<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, except for the selected credit
card data, for the years ended December 31, 1998 and 1997 and the period from
its inception on August 14, 1996 to December 31, 1996 from its audited
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors.
In August 1997, CompuCredit began securitizing its credit card receivables
by selling the receivables through its master trust or through special purpose
entities to third parties. In each securitization, CompuCredit receives cash,
retains certain ownership interests in the receivables that are sold, and has
limited rights to receive cash in the future as the sold receivables are
collected. CompuCredit removes the sold receivables from its balance sheet and
records a gain on the sale. The gain represents the estimated net present value
of the cash flows CompuCredit expects to receive in the future. CompuCredit's
balance sheet includes the ownership interests and the estimated net present
value of the expected cash flows. These amounts are classified on the balance
sheet as "Retained Interests in Credit Card Receivables." The securitization
transactions do not affect the relationship that CompuCredit has with its
clients, and CompuCredit continues to service the credit card receivables.
CompuCredit analyzes its financial performance on a "managed loan" portfolio
basis, as if the receivables securitized were still on its balance sheet because
the performance of those receivables will affect the future cash flows
CompuCredit actually receives on the receivables. The information in the
following table under "Selected Credit Card Data" is presented on this managed
loan basis.
During 1998, CompuCredit purchased two portfolios of credit card receivables
at substantial discounts from the face amount of the credit card receivables
outstanding. The discounts totaled $284.5 million at the time of purchase. A
portion of the discount relates to receivables identified by CompuCredit as
being at or near charge-off at the time of purchase. There were approximately
52,000 of these accounts, representing 25.9% of the accounts purchased, with
$137.2 million of outstanding receivables at the time of purchase. CompuCredit
has excluded these receivables from all managed loan data presented in this
prospectus. CompuCredit has divided the remaining portion of the $284.5 million
discount into two components. The first component of approximately $87.5 million
relates to the credit quality of the remaining receivables in the portfolios and
reflects the difference between the purchased face amount of the receivables and
the future cash collections that CompuCredit's management expects to receive
from the receivables. For purposes of reporting pro forma charge-off ratios on
managed loans, CompuCredit has used this discount related to credit quality to
offset a portion of actual net charge-offs. The second component of the
remaining discount, which was approximately $59.8 million, is unrelated to the
credit quality of the receivables, and this component is being added into
interest income for purposes of managed loan reporting.
The net interest margins presented below under "Selected Credit Card Data"
include CompuCredit's net interest and late fee income on a managed loan basis
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 the end of the period.
CompuCredit has computed the pro forma per share information presented below
by dividing net income 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
3
<PAGE>
giving effect to CompuCredit's anticipated stock split and preferred stock
exchange as if they occurred as of the beginning of the periods presented.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1996 YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, ---------------------
1996 1997 1998
--------------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Interest income.......................................................... $ -- $ 2,658 $ 256
Interest expense......................................................... -- 361 536
----- --------- ----------
Net interest income (expense).......................................... -- 2,297 (280)
Provision for loan losses................................................ -- 1,422 --
Securitization income.................................................... -- 628 16,389
Income from retained interests in credit card receivables securitized.... -- -- 22,690
Other operating income................................................... -- 1,383 19,237
Other operating expense.................................................. 148 3,611 17,127
----- --------- ----------
Income (loss) before income taxes...................................... (148) (725) 40,909
Income taxes............................................................. -- -- (15,479)
----- --------- ----------
Net income (loss)........................................................ $ (148) $ (725) $ 25,430
----- --------- ----------
----- --------- ----------
Net income (loss) attributable to common shareholders.................... $ (1,341) $ 23,630
--------- ----------
--------- ----------
PRO FORMA STATEMENT OF OPERATIONS DATA:
Pro forma net income (loss) per share (unaudited)........................ $ (.02) $ .77
--------- ----------
--------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Retained interests in credit card receivables securitized....................... $ -- $ 15,037 $ 65,184
Total assets.................................................................... 253 20,215 87,583
Shareholders' equity............................................................ 152 19,127 54,510
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM AT OR FOR THE
AUGUST 14, 1996 YEAR ENDED DECEMBER
TO 31,
DECEMBER 31, ---------------------
1996 1997 1998
--------------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
SELECTED CREDIT CARD DATA:
Average managed loans................................................... $ -- $ 11,151 $ 306,706
Period-end managed loans................................................ -- 27,899 503,985
Period-end total accounts............................................... -- 45 343
Net interest margin..................................................... --% 19.4% 19.9%
Net charge-off ratio.................................................... -- 3.6 13.2
Pro forma charge-off ratio.............................................. -- 3.6 4.0
Delinquency ratio....................................................... -- 5.3 8.6
</TABLE>
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS OCCUR, COMPUCREDIT'S
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY
HARMED. IN THAT CASE, THE TRADING PRICE OF COMPUCREDIT'S COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. ADDITIONAL RISKS AND
UNCERTAINTIES NOT PRESENTLY KNOWN TO COMPUCREDIT OR THAT COMPUCREDIT CURRENTLY
CONSIDERS IMMATERIAL MAY ALSO IMPAIR COMPUCREDIT'S BUSINESS OPERATIONS OR
FINANCIAL CONDITION OR MAY CONTRIBUTE TO A DECREASE IN THE PRICE OF
COMPUCREDIT'S COMMON STOCK.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. COMPUCREDIT'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THE RISKS FACED BY COMPUCREDIT DESCRIBED BELOW AND ELSEWHERE
IN THIS PROSPECTUS.
COMPUCREDIT'S BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OF ITS LIMITED OPERATING
HISTORY.
THERE IS A LACK OF HISTORICAL INFORMATION AVAILABLE FOR COMPUCREDIT'S
INVESTORS. Because CompuCredit was formed in August 1996, investors have
limited information on which to evaluate CompuCredit's future operating results
and business prospects.
COMPUCREDIT HAS LIMITED EXPERIENCE WITH ITS RECEIVABLES. CompuCredit has
limited underwriting, servicing, delinquency and default experience with its
credit card receivables, which may limit the usefulness or reliability of its
historical information.
COMPUCREDIT'S PORTFOLIO PURCHASES MAY CAUSE FLUCTUATIONS IN REPORTED MANAGED
LOAN DATA.
CompuCredit's reported managed loan data may fluctuate substantially from
quarter to quarter as a result of recent and future portfolio acquisitions.
Portfolio acquisitions currently account for a significant portion of
CompuCredit's credit card receivables and may account for a significant portion
of CompuCredit's credit card receivables in the future. As of December 31, 1998,
purchased receivables represented 72.7% of CompuCredit's total portfolio.
Credit card receivables included in purchased portfolios may have been
originated using credit criteria different from CompuCredit's criteria. As a
result, some of these receivables have a different credit quality than
receivables originated by CompuCredit. Receivables included in any particular
purchased portfolio may have significantly different delinquency rates and
charge-off rates than the receivables previously originated and purchased by
CompuCredit. These receivables also may initially earn different interest rates
and fees than other similar receivables in CompuCredit's receivables portfolio.
To the extent these factors occur, CompuCredit's reported managed loan data may
fluctuate substantially in future periods.
COMPUCREDIT MAY BE EXPOSED TO LOSSES FROM RECEIVABLES IT PURCHASES.
The representations and warranties made to CompuCredit by sellers of
receivables purchased by CompuCredit may be inaccurate. CompuCredit relies on
these representations and warranties when it makes its own representations and
warranties to investors in the securitizations. If CompuCredit relies on an
inaccurate representation or warranty made by a seller, CompuCredit may be
required to pay to the investors an amount equal to the amount of the
securitized receivables. Although CompuCredit has rights to indemnification by
the sellers of the receivables for any of these payments it must make to
investors in its securitizations and may obtain similar indemnification rights
from sellers of portfolios purchased in the future, CompuCredit may not be able
to enforce its indemnification rights. Additionally, these indemnification
rights, if enforceable, may not be sufficient in each case to reimburse
CompuCredit fully for any of these payments.
5
<PAGE>
COMPUCREDIT MAY BE UNABLE TO MEET ITS FUTURE CAPITAL AND LIQUIDITY NEEDS.
CompuCredit will require additional capital in the future, and it may not be
able to sell debt or equity securities, securitize its receivables or borrow
additional funds on a timely basis or on terms that are acceptable to
CompuCredit. CompuCredit's cash requirements exceed cash generated from
operations. CompuCredit has financed substantially all of its originated and
purchased receivables through securitizations. If additional or future
securitization transactions are not available on terms acceptable to
CompuCredit, CompuCredit may have to rely on other potentially more expensive
funding sources, may not be able to grow or may have to reduce its managed loans
outstanding. Some of the factors which could make securitizations a less
attractive funding option include changes in the current favorable legal,
regulatory, accounting and tax environments for securitization transactions or
material disruptions in the financial markets.
COMPUCREDIT RELIES ON STRATEGIC RELATIONSHIPS WITH THIRD PARTIES.
Because CompuCredit does not have a bank charter, it currently cannot issue
credit cards other than through an agreement with a bank. CompuCredit issues its
Aspire credit card under an agreement with Columbus Bank and Trust and
outsources account processing functions for the Aspire accounts to Columbus Bank
and Trust and its affiliate, Total Systems. 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 credit
cards to CompuCredit's clients. If CompuCredit's agreement with Columbus Bank
and Trust were terminated or otherwise disrupted, there is also a risk that
CompuCredit would not be able to enter into an agreement with an alternate
provider on terms that CompuCredit considers favorable or in a timely manner
without disruption of CompuCredit's business. For additional information on
services provided to CompuCredit by third parties, see "Business--Account and
Portfolio Management."
A SIGNIFICANT PORTION OF COMPUCREDIT'S REPORTED INCOME IS BASED ON MANAGEMENT'S
ESTIMATES OF THE PERFORMANCE OF SECURITIZED RECEIVABLES.
Securitization income from the sale of receivables in CompuCredit's
securitization transactions and income from retained interests in credit card
receivables securitized have constituted, and are likely to continue to
constitute, a significant portion of CompuCredit's income. Portions of this
income are based primarily on management's estimates of cash flows it expects to
receive from the securitized receivables. Differences between actual and
expected performance of the receivables may cause fluctuations in CompuCredit's
net income. The expected cash flows are based on management's estimates of
interest rates, default rates, payment rates, new purchases, costs of funds paid
to investors in the securitizations, servicing costs and required amortization
payments. These estimates are based on a variety of factors, many of which are
not within the control of CompuCredit. As a result, these estimates will differ
from actual performance.
THE TIMING AND SIZE OF SECURITIZATIONS MAY CAUSE FLUCTUATIONS IN QUARTERLY
INCOME.
Substantial fluctuations in the timing or the volume of receivables
securitized will cause fluctuations in CompuCredit's quarterly income. Factors
that affect the timing or volume of securitizations include the growth in
CompuCredit's receivables, market conditions and the approval by all parties of
the terms of the securitization.
DEVIATIONS FROM EXPECTED LOSSES AND DELINQUENCIES MAY ADVERSELY AFFECT
COMPUCREDIT.
If the actual amounts of delinquencies and losses that occur in
CompuCredit's securitized receivables are greater than CompuCredit's
expectations, the performance of CompuCredit's securitization transactions may
be impaired. This could result in early amortization of these
6
<PAGE>
transactions. When early amortization occurs, investors in the securitizations
are repaid earlier than expected. Higher than expected delinquencies and losses
could also impact CompuCredit's ability to complete other securitization
transactions on acceptable terms, thereby decreasing CompuCredit's liquidity and
forcing it to rely on other funding sources to the extent available.
COMPUCREDIT MAY BE UNABLE TO SUSTAIN AND MANAGE ITS GROWTH.
If CompuCredit cannot sustain or manage its growth, it may experience
fluctuations in net income or sustain net losses. CompuCredit has rapidly and
significantly expanded its operations and its credit card receivables portfolio.
CompuCredit plans to continue to increase its credit card receivables portfolio.
CompuCredit may not be able to manage the following factors that affect its
growth:
- 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 credit losses;
- the availability of funding, including securitizations, on favorable
terms;
- CompuCredit's ability to attract new clients through originations or
portfolio purchases;
- management of costs of soliciting new clients;
- the level of response to CompuCredit's solicitations;
- CompuCredit's ability to employ and train new personnel;
- CompuCredit's ability to maintain adequate management systems, collection
procedures, internal controls and automated systems; and
- general economic and other factors beyond the control of CompuCredit.
COMPUCREDIT'S TARGET MARKET HAS HIGHER DELINQUENCIES, CREDIT LOSSES AND CREDIT
RISKS.
CompuCredit's target market generally has a higher risk of nonpayment,
higher frequencies of delinquencies and higher credit losses than consumers who
are served by more traditional providers of consumer credit. 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. CompuCredit may not successfully
evaluate the creditworthiness of these consumers and may not price its credit
products so as to remain profitable.
LACK OF SEASONING OF COMPUCREDIT'S CREDIT CARD PORTFOLIO MAY RESULT IN INCREASED
DELINQUENCIES AND DEFAULTS.
A portfolio of older accounts generally behaves more predictably than a
newly originated portfolio. As of December 31, 1998, all of CompuCredit's
originated receivables, representing 27.3% of its total portfolio, were less
than two years old. Until these originated accounts become more seasoned, it is
likely that delinquencies and credit losses will fluctuate as the average age of
CompuCredit's originated accounts increases.
7
<PAGE>
SEASONAL CONSUMER SPENDING MAY RESULT IN FLUCTUATIONS IN COMPUCREDIT'S NET
INCOME.
CompuCredit's quarterly income may substantially fluctuate as a result of
seasonal consumer spending. In particular, CompuCredit's clients may charge more
and carry higher balances during the year-end holiday season and before the
beginning of the school year, resulting in corresponding increases in managed
loans and receivables securitized during those periods.
DEPARTURE OF KEY PERSONNEL COULD HARM COMPUCREDIT'S OPERATIONS.
CompuCredit depends upon the skills and experience of its executive
officers. CompuCredit has entered into employment agreements with its executive
officers, which contain confidentiality and non-compete provisions, but cannot
be assured that these persons will not leave CompuCredit to pursue other
opportunities. The loss of the services of David G. Hanna, its President,
Richard W. Gilbert, its Chief Operating Officer, Brett M. Samsky, its Chief
Financial Officer or Richard R. House, Jr., its Chief Credit Officer could harm
CompuCredit's operations. CompuCredit does not maintain key-man life insurance
on any executive officer.
INCREASES IN INTEREST RATES MAY ADVERSELY AFFECT COMPUCREDIT'S OPERATIONS.
Increases in interest rates may increase CompuCredit's cost of funds, which
could significantly affect CompuCredit's results of operations and financial
condition. CompuCredit's credit card accounts have variable interest rates.
Significant increases in these variable interest rates may reduce the payment
performance of CompuCredit's clients.
ECONOMIC FACTORS COULD ADVERSELY AFFECT COMPUCREDIT'S BUSINESS.
Because CompuCredit's business is directly related to consumer spending, any
sustained period of economic slowdown or recession could harm CompuCredit's
results of operations or financial condition. During periods of economic
slowdown or recession, CompuCredit may experience a decreased demand for its
products and services and an increase in rates of delinquencies and the
frequency and severity of credit losses. CompuCredit's actual rates of
delinquencies and frequency and severity of credit losses may be higher in the
future under adverse economic conditions than those experienced in the consumer
finance industry generally because of CompuCredit's focus on the under-served
market.
COMPUCREDIT'S BUSINESS IS SUBJECT TO VARIOUS LAWS AND REGULATIONS.
FAILURE TO COMPLY WITH CONSUMER AND DEBTOR PROTECTION LAWS AND REGULATIONS
COULD ADVERSELY AFFECT COMPUCREDIT'S BUSINESS. 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 legal requirements could
significantly impair the ability of CompuCredit or Columbus Bank and Trust to
collect the full amount of the credit card account balances and may expose
CompuCredit or Columbus Bank and Trust to the risk of litigation under state and
federal consumer protection statutes, rules and regulations. The operations of
CompuCredit and of Columbus Bank and Trust are regulated by federal, state and
local government authorities and are subject to various laws, rules and
regulations, as well as judicial and administrative decisions imposing
requirements and restrictions on CompuCredit's business.
If CompuCredit completes the process of organizing a state-chartered "credit
card bank" under the laws of the State of Georgia, that banking subsidiary will
be subject to the various state and federal regulations generally applicable to
those institutions, including restrictions on the ability of the banking
subsidiary to pay dividends to CompuCredit. For more information regarding
consumer and debtor protection laws applicable to CompuCredit, see
"Business--Consumer and Debtor Protection Laws and Regulations."
8
<PAGE>
CHANGES IN LAW MAY SIGNIFICANTLY IMPAIR COMPUCREDIT'S BUSINESS. Numerous
legislative and regulatory proposals are advanced each year which, if adopted,
could harm CompuCredit's profitability or limit the manner in which CompuCredit
conducts its activities. Changes in federal and state bankruptcy and debtor
relief laws may increase CompuCredit's credit losses and administrative
expenses. More restrictive laws, rules and regulations may be adopted in the
future which 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 the terms on existing accounts or otherwise significantly harm
CompuCredit's business.
COMPUCREDIT FACES INTENSE COMPETITION FOR CREDIT CARD CUSTOMERS.
CompuCredit may lose entire accounts, or may lose account balances, to
competing card issuers who offer lower interest rates and fees or other more
attractive terms or features. 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's future growth depends largely upon the success of its marketing
programs and strategies. CompuCredit's competitors may already use or may begin
using many of the programs and strategies that CompuCredit has used to attract
new accounts. In addition, many of CompuCredit's competitors are substantially
larger than CompuCredit and have greater financial resources. 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.
ADVERSE PUBLICITY MAY IMPAIR ACCEPTANCE OF COMPUCREDIT'S PRODUCTS.
Critics of the credit card industry have in the past 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 significantly harm CompuCredit's business.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR COMPUCREDIT'S COMMON STOCK.
There has been no public market for CompuCredit's common stock prior to the
offering, and there is a risk that an active trading market will not develop.
Purchasers of the common stock may not be able to resell their common stock at
prices equal to or greater than the offering price. The offering price was
determined through negotiations between CompuCredit and the representatives of
the underwriters and may not reflect the market price of the common stock after
the offering. For a discussion of factors considered in determining the offering
price, see "Underwriting."
FUTURE SALES OF SHARES COULD AFFECT COMPUCREDIT'S STOCK PRICE.
The market price of CompuCredit's common stock could fall dramatically if
CompuCredit's shareholders sell large amounts of common stock in the public
market following this offering. These sales, or the possibility that these sales
may occur, could make it more difficult for CompuCredit to sell equity or
equity-related securities in the future.
After this offering, CompuCredit will have outstanding 41,938,628 shares of
common stock, or 43,157,378 shares if the underwriters' over-allotment option is
exercised in full. All of the 8,125,000 shares sold in this offering, or
9,343,750 shares if the underwriters' over-allotment option is exercised in
full, will be immediately eligible for sale in the public market without
limitation except for any of these
9
<PAGE>
shares that are held by "affiliates" of CompuCredit, as defined in Rule 144
under the Securities Act of 1933. Shares held by affiliates of CompuCredit will
be subject to the volume and other selling limitations of Rule 144.
In addition, CompuCredit's executive officers and directors, in the
aggregate, will own 31,828,766 shares of common stock following the offering.
Although the number of these shares that will be available for sale in the
public market will be limited by restrictions under federal securities laws and
by certain lock-up agreements with the underwriters, the underwriters may
release all or any portion of these shares from the restrictions of the lock-up
agreements at any time. If these holders cause a large number of shares to be
sold in the public market, CompuCredit's stock price could fall significantly.
COMPUCREDIT'S OFFICERS AND DIRECTORS WILL HAVE THE ABILITY TO CONTROL
SHAREHOLDER ACTIONS.
David G. Hanna, Frank J. Hanna, III and CompuCredit's executive officers and
directors, in the aggregate, will be able to significantly influence all matters
requiring shareholder approval, including the election of directors and the
approval of significant corporate transactions. Upon closing of the offering,
CompuCredit's executive officers and directors, in the aggregate, will
beneficially own 75.9% of CompuCredit's outstanding common stock. David G. Hanna
and Frank J. Hanna, III, who are brothers, will beneficially own, in the
aggregate, 63.7% of the outstanding common stock. This concentration of voting
power could have the effect of delaying or preventing a change in control of
CompuCredit, including a change in control that is favored by the other
shareholders, and may depress the market price of CompuCredit's common stock.
For information regarding the beneficial ownership of each of CompuCredit's
directors and executive officers, see "Principal Shareholders."
FUTURE ISSUANCES OF PREFERRED STOCK MAY DETER A CHANGE OF CONTROL OF
COMPUCREDIT.
The issuance of preferred stock could make it more difficult for a third
party to acquire, or discourage a third party from acquiring, a majority of the
outstanding voting stock of CompuCredit, including a transaction that may be
favored by CompuCredit's shareholders. CompuCredit will have no shares of
preferred stock outstanding as of the closing of the offering and has no current
plans to issue preferred stock. However, CompuCredit's Articles of Incorporation
will authorize CompuCredit to issue shares of preferred stock in the future
without shareholder approval and with the terms, conditions, rights, privileges
and preferences, including voting rights, as the Board of Directors of
CompuCredit may determine.
THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT COMPUCREDIT'S BUSINESS.
CompuCredit's software systems and the software systems of its outside
vendors may be hampered by deficiencies relating generally to formatting and
date calculations stemming from the year 2000, commonly known as the year 2000
problem. Any failure of CompuCredit's software systems or the software systems
of its outside vendors may significantly impair CompuCredit's business. 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, correction of the year 2000 problem could significantly harm
CompuCredit's results of operations or financial condition.
CompuCredit believes that its most significant year 2000 risks arise out of
the possibility that the 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 correct any year 2000 problems. In addition,
CompuCredit's year 2000 project team is participating in testing being performed
by Total Systems to ensure that Total Systems is year 2000 compliant. However,
any failure by Total Systems to fully remediate any year 2000 problems could
harm CompuCredit's business. For more detailed information on CompuCredit's year
2000 plan, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
10
<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, memberships in preferred buying clubs,
travel services and debt waiver programs.
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 December 31, 1998, CompuCredit had 95 employees.
All of its employees are based in Atlanta, Georgia.
USE OF PROCEEDS
Based on an offering price of $16.00 per share, the net proceeds to
CompuCredit from the sale of the shares of common stock offered by this
prospectus are estimated to be $119.6 million, after deducting underwriting
discounts and commissions and estimated offering expenses payable by
CompuCredit. If the underwriters' over-allotment option is exercised in full,
the net proceeds from the offering are estimated to be $137.8 million.
CompuCredit expects to use the net proceeds from the offering to finance the
growth of its business through the origination and purchase of credit card
receivables and for marketing costs, working capital and other general corporate
purposes. If CompuCredit receives the bank charter it has applied for,
CompuCredit may use a portion of the proceeds from the offering to fund all or
part of the cost of capitalizing the bank. CompuCredit currently intends to
capitalize the bank with $20.0 million in capital contributions and $5.0 million
in the form of a deposit. 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 to expand and
operate its business. CompuCredit does not anticipate paying dividends on the
common stock in the foreseeable future. CompuCredit's Board of Directors will
decide whether to pay dividends based on factors such as future earnings,
capital requirements, the general financial condition of CompuCredit and general
business conditions.
11
<PAGE>
DILUTION
The pro forma net tangible book value of CompuCredit at December 31, 1998
was $53.1 million, or $1.57 per share. These values give effect to (i) a
15.2-for-1 stock split to be effected at the same time as the offering and (ii)
the exchange of all of the outstanding shares of CompuCredit's preferred stock,
including accrued dividends, for 1,428,767 shares of common stock at the same
time as the offering. 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 net proceeds from
the sale of 8,125,000 shares of common stock at an assumed offering price of
$16.00 per share, the pro forma, as adjusted, net tangible book value of
CompuCredit at December 31, 1998 would have been $183.1 million, or $4.37 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.80 per share to the existing shareholders and an immediate dilution
of $11.63 to new investors purchasing shares in the offering. The following
table illustrates this per share dilution before deducting underwriting
discounts and commissions and estimated offering expenses payable by
CompuCredit:
<TABLE>
<S> <C>
Offering price per share............................................ $ 16.00
Pro forma net tangible book value per share as of December 31,
1998.......................................................... 1.57
Increase in pro forma net tangible book value per share
attributable to new investors................................. 2.80
Pro forma, as adjusted, net tangible book value per share after the
offering.......................................................... 4.37
Dilution per share to new investors................................. $ 11.63
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1998,
the differences between the existing shareholders and the new investors with
respect to the number of shares of common stock purchased from CompuCredit, the
total consideration paid and the average price per share. The consideration paid
is prior to deducting underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
SHARES OWNED AFTER THE
OFFERING TOTAL CONSIDERATION
------------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................ 33,813,628 80.6% $ 29,953,000 18.7% $ 0.89
New investors.................................... 8,125,000 19.4 130,000,000 81.3 16.00
Total...................................... 41,938,628 100.0 159,953,000 100.0 3.81
</TABLE>
12
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of CompuCredit (i)
on an actual basis at December 31, 1998, (ii) on a pro forma basis giving effect
to (a) the 15.2-for-1 stock split and (b) the exchange of all of the outstanding
shares of CompuCredit's preferred stock, including accrued dividends, for
1,428,767 shares of common stock, and (iii) on a pro forma basis, as adjusted to
reflect the sale of 8,125,000 shares of common stock by CompuCredit at an
assumed offering price of $16.00 per share. Capitalization shown below is 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>
AT DECEMBER 31, 1998
-----------------------------------
<S> <C> <C> <C>
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<CAPTION>
(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, 33,813,628 shares
issued and outstanding, pro forma; 41,938,628 shares issued and
outstanding pro forma, as adjusted....................................... -- -- --
Additional paid-in capital................................................. 9,953 29,953 149,578
Retained earnings.......................................................... 24,557 24,557 24,557
--------- ----------- -----------
Total shareholders' equity................................................. 54,510 54,510 174,135
--------- ----------- -----------
Total capitalization....................................................... $ 54,510 $ 54,510 $ 174,135
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
13
<PAGE>
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, except for the selected credit card data, for
the years ended December 31, 1998 and 1997 and the period from its inception on
August 14, 1996 to December 31, 1996 from its audited consolidated financial
statements, which have been audited by Ernst & Young LLP, independent auditors.
In August 1997, CompuCredit began securitizing its credit card receivables
by selling the receivables through its master trust or through special purpose
entities to third parties. In each securitization, CompuCredit receives cash,
retains certain ownership interests in the receivables that are sold, and has
limited rights to receive cash in the future as the sold receivables are
collected. CompuCredit removes the sold receivables from its balance sheet and
records a gain on the sale. The gain represents the estimated net present value
of the cash flows CompuCredit expects to receive in the future. CompuCredit's
balance sheet includes the ownership interests and the estimated net present
value of the expected cash flows. These amounts are classified on the balance
sheet as "Retained Interests in Credit Card Receivables." The securitization
transactions do not affect the relationship that CompuCredit has with its
clients, and CompuCredit continues to service the credit card receivables.
CompuCredit analyzes its financial performance on a "managed loan" portfolio
basis, as if the receivables securitized were still on its balance sheet because
the performance of those receivables will affect the future cash flows
CompuCredit actually receives on the receivables. The information in the
following table under "Selected Credit Card Data" is presented on this managed
loan basis.
During 1998, CompuCredit purchased two portfolios of credit card receivables
at substantial discounts from the face amount of the credit card receivables
outstanding. The discounts totaled $284.5 million at the time of purchase. A
portion of the discount relates to receivables identified by CompuCredit as
being at or near charge-off at the time of purchase. There were approximately
52,000 of these accounts, representing 25.9% of the accounts purchased, with
$137.2 million of outstanding receivables at the time of purchase. CompuCredit
has excluded these receivables from all managed loan data presented in this
prospectus. CompuCredit has divided the remaining portion of the $284.5 million
discount into two components. The first component of approximately $87.5 million
relates to the credit quality of the remaining receivables in the portfolios and
reflects the difference between the purchased face amount of the receivables and
the future cash collections that CompuCredit's management expects to receive
from the receivables. For purposes of reporting pro forma charge-off ratios on
managed loans, CompuCredit has used this discount related to credit quality to
offset a portion of actual net charge-offs. The second component of the
remaining discount, which was approximately $59.8 million, is unrelated to the
credit quality of the receivables, and this component is being added into
interest income for purposes of managed loan reporting.
The net interest margins presented below under "Selected Credit Card Data"
include CompuCredit's net interest and late fee income on a managed loan basis
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 the end of the period.
CompuCredit has computed the pro forma per share information presented below
by dividing net income or loss by the weighted average number of shares of
common stock outstanding during the
14
<PAGE>
period. CompuCredit has calculated the weighted average numbers of shares for
these purposes by giving effect to CompuCredit's anticipated stock split and
preferred stock exchange as if they occurred as of the beginning of the periods
presented.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1996 YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, ---------------------
1996 1997 1998
--------------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Interest income.......................................................... $ -- $ 2,658 $ 256
Interest expense......................................................... -- 361 536
----- --------- ----------
Net interest income (expense).......................................... -- 2,297 (280)
Provision for loan losses................................................ -- 1,422 --
Securitization income.................................................... -- 628 16,389
Income from retained interests in credit card receivables securitized.... -- -- 22,690
Other operating income................................................... -- 1,383 19,237
Other operating expense.................................................. 148 3,611 17,127
----- --------- ----------
Income (loss) before income taxes...................................... (148) (725) 40,909
Income taxes............................................................. -- -- (15,479)
----- --------- ----------
Net income (loss)........................................................ $ (148) $ (725) $ 25,430
----- --------- ----------
----- --------- ----------
Net income (loss) attributable to common shareholders.................... $ (1,341) $ 23,630
--------- ----------
--------- ----------
PRO FORMA STATEMENT OF OPERATIONS DATA:
Pro forma net income (loss) per share (unaudited)........................ $ (.02) $ .77
--------- ----------
--------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Retained interests in credit card receivables securitized....................... $ -- $ 15,037 $ 65,184
Total assets.................................................................... 253 20,215 87,583
Shareholders' equity............................................................ 152 19,127 54,510
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM AT OR FOR THE
AUGUST 14, 1996 YEAR ENDED DECEMBER
TO 31,
DECEMBER 31, ---------------------
1996 1997 1998
--------------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
SELECTED CREDIT CARD DATA:
Average managed loans................................................... $ -- $ 11,151 $ 306,706
Period-end managed loans................................................ -- 27,899 503,985
Period-end total accounts............................................... -- 45 343
Net interest margin..................................................... --% 19.4% 19.9%
Net charge-off ratio.................................................... -- 3.6 13.2
Pro forma charge-off ratio.............................................. -- 3.6 4.0
Delinquency ratio....................................................... -- 5.3 8.6
</TABLE>
15
<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 that originates and purchases credit
card receivables and markets products and services to its clients for which it
earns fees.
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, income from retained interests in credit card receivables
securitized, 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.
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 undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
CREDIT CARD SECURITIZATIONS
CompuCredit has securitized a substantial portion of its credit card
receivables. In each securitization, CompuCredit receives cash, retains certain
ownership interests in the receivables that are sold, and has limited rights to
receive cash in the future as the sold receivables are collected. The future
cash flows are commonly referred to as interest-only strips. Although
CompuCredit continues to service the underlying credit card accounts and
maintains the client relationships, these transactions are treated as sales and
the securitized receivables are not reflected on the consolidated balance sheet.
The retained ownership interests and the interest-only strips are included in
Retained Interests in Credit Card Receivables Securitized. Amounts Due from
Securitization on CompuCredit's balance sheet include payments recently received
on the securitized receivables that are still held by the securitization
structure but are payable to the Company in the next 30 days.
CompuCredit has adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" for all of its securitization transactions. Under Statement No.
125, gains are recognized at the time of each sale. These gains are based on the
estimated fair value of the retained interests, which are based on the estimated
present value of the cash flows the Company expects to receive over the
estimated outstanding life of the receivables. The expected cash flows are based
on estimates of finance charges and late fees, servicing fees, costs of funds
paid to investors, payment rates, credit losses, and required amortization
payments to investors.
16
<PAGE>
Retained Interests in Credit Card Receivables Securitized on CompuCredit's
balance sheet are calculated in accordance with the provisions of Statement No.
125. These retained interests are subsequently accounted for as trading
securities and reported at estimated fair market value with changes in fair
value included in income in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Estimates used in the determination of the gains and the related
fair values of interest-only strips and retained ownership interests are
influenced by factors outside the Company's control, and, as a result, these
estimates could materially change.
A substantial portion of CompuCredit's credit card receivables from accounts
CompuCredit has solicited are securitized through the CompuCredit Credit Card
Master Trust which was created in August 1997. Credit card receivables are
transferred to the master trust, which issues to third party investors
certificates representing ownership interests in the assets of the master trust.
CompuCredit also securitized two purchased portfolios of credit card receivables
through securitization structures with commercial paper conduits. A commercial
paper conduit is a company that issues short-term debt securities backed by
financial assets, including credit card receivables. The commercial paper
conduits associated with CompuCredit's securitization structures are
administered by major banking institutions. CompuCredit's transfers are treated
as sales in accordance with Statement No. 125, and the receivables are removed
from the consolidated balance sheet. The securitization transactions do not
affect the relationship CompuCredit has with its clients, and CompuCredit
continues to service the credit card receivables. CompuCredit receives servicing
fees ranging up to 6% per year of the securitized principal receivables and
CompuCredit either provides the servicing or contracts with third party service
providers.
The table below summarizes CompuCredit's securitization activity.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
(IN THOUSANDS)
Proceeds from securitizations.......................................... $ 12,650 $ 402,272
Excess cash flows received on retained interests....................... 995 36,667
Pretax securitization income........................................... 628 16,389
</TABLE>
Investors in the commercial paper conduits and the investors in the master
trust are entitled to receive periodic interest payments at a floating rate. In
general, CompuCredit's floating rate issuances are based on a spread over rates
issued in the commercial paper market.
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 credit losses on the underlying
receivables to the extent that credit losses, servicing fees and periodic
interest payments required by the investors exceed finance charges and past due
fees earned on the receivables and CompuCredit's retained interests in the
receivables pool. The investors in the commercial paper conduits and the
investors in the master trust have no recourse against CompuCredit for its
clients' failure to pay their credit card loans. However, most of CompuCredit's
retained interests are subordinated to the investors' interests until the
investors have been fully paid. 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 receivables are reinvested in new receivables
generated in accounts designated for the benefit of the applicable
securitization structure. During an amortization period, the investors receive
their share of principal payments until they are paid in full.
17
<PAGE>
As an additional credit enhancement on CompuCredit's securitization
structures associated with its purchased receivables, CompuCredit pays the
excess cash collected to the investors as an accelerated amortization payment.
This excess cash totaled $29.5 million for the year ended December 31, 1998.
Once the investors are repaid, any remaining receivables and funds held in the
special purpose entity are payable to CompuCredit. In each securitization
transaction, 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.
MANAGED LOAN PORTFOLIO
CompuCredit analyzes its financial performance on a "managed loan" portfolio
basis, as if the receivables securitized were still on CompuCredit's balance
sheet because the performance of its securitized receivables will affect the
future cash flows CompuCredit actually receives on the receivables.
The table set forth below indicates CompuCredit's net interest margin on a
managed loan basis. 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 1998, CompuCredit purchased two portfolios of credit card receivables
with outstanding receivables balances at the time of purchase in excess of $570
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 the
purchases, there were approximately 52,000 such accounts, representing 25.9% of
the accounts purchased and $137.2 million of the over $570 million outstanding
receivables purchased.
The portfolios acquired during 1998 were purchased at substantial discounts.
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 of the receivables 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.
18
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1998 1998 1998 1998
----------- ------------- ------------- ----------- --------- ------------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Period-end total managed loans.... $ 13,192 $ 17,325 $ 27,899 $ 44,089 $ 397,500 $ 406,297 $ 503,985
Period-end total managed
accounts........................ 17 19 45 51 202 249 343
Total average managed loan
portfolio....................... $ 7,798 $ 15,762 $ 20,983 $ 37,886 $ 337,161 $ 402,751 $ 449,028
Net interest margin on managed
loans, annualized............... 19.9% 22.0% 17.7% 13.9% 22.7% 19.3% 18.9%
</TABLE>
CompuCredit's net interest margins are influenced by a number of factors,
including the timing and size of portfolio purchases and the level of
CompuCredit's charge-offs. Purchased portfolios typically have lower interest
rates and late fees until CompuCredit converts the accounts to Aspire Visa
accounts. When it converts accounts to Aspire Visa accounts, CompuCredit
reprices the accounts to interest rates and fees that are similar to those on
accounts CompuCredit has originated through its solicitation process.
CompuCredit typically converts the accounts within six months of purchase.
Fluctuations in CompuCredit's charge-off ratios also affect CompuCredit's net
interest margins. At charge-off, the interest and late fees on an account are
deducted from interest income in the current period.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net income for the year ended December 31, 1998 was $25.4 million, an
increase of $26.1 million over a net loss of $725,000 for 1997. The increase in
net income was the result of increases in securitization income of $15.8
million, income from retained interests in credit card receivables securitized
of $22.7 million and other operating income of $17.8 million. These increases
were largely attributable to the growth in managed loans from $27.9 million at
December 31, 1997 to $504.0 million at December 31, 1998. The increase in
managed loans was the result of portfolio purchases completed in 1998, as well
as direct mail and telemarketing campaigns. The increases in income were
partially offset by increases in other operating expenses of $13.5 million and
income tax expense of $15.5 million.
Other operating income increased $17.8 million from $1.4 million for 1997 to
$19.2 million for 1998, primarily due to a $12.5 million increase in servicing
income and a $3.3 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 annual
membership, over-limit and cash advance fees.
Other operating expenses increased to $17.1 million for 1998, from $3.6
million for 1997. This increase primarily reflects the increase in the cost of
operations associated with the growth in CompuCredit's business, including $5.8
million of additional marketing and solicitation expenses and $3.9 million of
additional credit card servicing costs incurred during 1998.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO PERIOD FROM AUGUST 14, 1996 TO
DECEMBER 31, 1996
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 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 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
19
<PAGE>
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 interest income earned on cash and cash
equivalents, interest and late fees earned on CompuCredit's owned credit card
receivables prior to securitizations, less interest expense on borrowings to
fund those receivables. Prior to August 1997, CompuCredit earned interest income
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. CompuCredit began issuing credit
cards in 1997 and, therefore, did not recognize any interest income for the
period from August 14, 1996 to December 31, 1996. Interest income totaled $2.7
million for the year ended December 31, 1997 and $256,000 for the year ended
December 31, 1998.
Interest expense for 1998 increased to $536,000 from $361,000 for 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 related to short-term borrowings that were paid in full in
August 1997. Interest expense for the period from August 14, 1996 to December
31, 1996 was $0.
INCOME FROM RETAINED INTERESTS IN CREDIT CARD RECEIVABLES SECURITIZED
Retained Interests in Credit Card Receivables Securitized are calculated in
accordance with the provisions of Statement No. 125. These retained interests
are subsequently accounted for as trading securities and reported at estimated
fair market value in accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
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 to investors. This cash flow received on CompuCredit's
retained interests and changes in the fair value of the retained interests is
recorded as Income from Retained Interests in Credit Card Receivables
Securitized in accordance with Statement No. 115. Since quoted market prices are
generally not available, the fair value is based on the estimated present value
of future cash flows using management's best estimates of finance charges and
late fees, servicing fees, costs of funds paid to investors, payment rates,
credit losses, and required amortization payments to investors. The weighted
average key assumptions used to estimate the fair value of CompuCredit's
retained interests as of the end of each year are presented below. Changes in
any of these assumptions could impact the estimates of the fair value of the
retained interests as well as the realization of expected future cash flows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Payment rate (monthly)..................................................... 8.1% 5.5%
Expected credit loss rate (annualized)..................................... 5.8 15.1
Residual cash flows discount rate.......................................... 12.0 25.3
</TABLE>
The changes in the weighted average assumptions from December 31, 1997 to
December 31, 1998 are primarily due to the two portfolio purchases that occurred
during 1998. Management believes these two portfolios will have lower payment
rates and higher credit losses as compared to the receivables that were
securitized as of December 31, 1997. Management also uses higher discount rates
for the expected cash flows associated with the purchased portfolios. The
discount rates are based on management's estimates of returns that would be
required by investors in an investment with similar
20
<PAGE>
terms and credit quality. Interest rates received on the credit card receivables
are estimated based on the stated annual percentage rates in the credit card
agreements. Estimated default and payment rates are based on historical results,
adjusted for expected changes based on CompuCredit's credit risk models. The
returns to the investors in the securitizations are based on management's
estimates of forward yield curves.
NET SECURITIZATION INCOME
Net securitization income includes gains representing the estimated present
value at the time of initial securitization of cash flows CompuCredit expects to
receive over the estimated life of the receivables securitized. The present
value of the cash flows is estimated in the same manner as described above in
"--Income from Retained Interests in Credit Card Receivables Securitized" for
the fair value of the retained interests. Securitization income is recognized at
the time of the initial securitization. Net securitization income for 1998
increased to $16.4 million from $628,000 for 1997. Net securitization income was
$0 for the period from August 14, 1996 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.
OTHER OPERATING INCOME
Other operating income consists of the following for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
AUGUST 14, 1996 DECEMBER 31,
TO --------------------
DECEMBER 31, 1996 1997 1998
------------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Servicing income....................................................... $ -- $ -- $ 12,541
Other credit card fees................................................. -- 911 4,193
Interchange fees....................................................... -- 279 1,865
Ancillary products..................................................... -- 37 638
Other.................................................................. -- 156 --
------- --------- ---------
Total other operating income....................................... $ -- $ 1,383 $ 19,237
------- --------- ---------
------- --------- ---------
</TABLE>
CompuCredit had no other operating income from August 14, 1996 to December
31, 1996 and only $1.4 million for the year ended December 31, 1997. The
significant increase in other operating income to $19.2 million for 1998 relates
to the growth in CompuCredit's managed loan portfolio during 1998. CompuCredit's
managed loans grew from $27.9 million at December 31, 1997 to $504.0 million at
December 31, 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 per year. 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 products and
services that CompuCredit markets to its clients.
21
<PAGE>
OTHER OPERATING EXPENSE
Other operating expense consists of the following for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER
AUGUST 14, 1996 31,
TO --------------------
DECEMBER 31, 1996 1997 1998
------------------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Salaries and benefits.................................................. $ -- $ 429 $ 1,172
Credit card servicing.................................................. -- 1,008 4,948
Marketing and solicitation............................................. 27 1,081 6,865
Professional fees...................................................... 20 252 713
Data processing........................................................ -- 156 1,437
Net occupancy.......................................................... -- 35 195
Ancillary product expense.............................................. -- -- 443
Other.................................................................. 101 650 1,354
------- --------- ---------
Total other operating expense...................................... $ 148 $ 3,611 $ 17,127
------- --------- ---------
------- --------- ---------
</TABLE>
Other operating expense for the year ended December 31, 1998 increased to
$17.1 million from $3.6 million for the year ended December 31, 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 by $3.5 million from $148,000 for the period from August 14,
1996 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. As a limited
partnership, 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.
CompuCredit's provision for income taxes since merging into a corporation
includes both federal and state income taxes. Tax expense for the year ended
December 31, 1998 was $15.5 million. CompuCredit's effective tax rate was 37.8%
for 1998.
ASSET QUALITY
CompuCredit's delinquency and net loan charge-off rates at any point in time
reflect 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 pricing based on the risk of the credit card
accounts.
22
<PAGE>
DELINQUENCIES. Delinquencies have the potential to impact net income in the
form of net credit 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 % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
----------- ----- ----------- ----- ----------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Delinquent:
30 to 59 days.... $ 81 0.6% $ 500 2.9% $ 678 2.4% $ 928 2.1%
60 to 89 days.... -- 0.0 330 1.9 446 1.6 531 1.2
90 or more....... -- 0.0 314 1.8 1,021 3.7 1,135 2.6
-- -- -- --
----- ----------- ----------- -----------
Total 30 or
more......... $ 81 0.6% $ 1,144 6.6% $ 2,145 7.7% $ 2,594 5.9%
-- -- -- --
-- -- -- --
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Total 60 or
more......... $ -- 0.0% $ 644 3.7% $ 1,467 5.3% $ 1,666 3.8%
-- -- -- --
-- -- -- --
----- ----------- ----------- -----------
----- ----------- ----------- -----------
<CAPTION>
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998
---------------------- ---------------------- ----------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Loans Delinquent:
30 to 59 days.... $ 21,294 5.4% $ 27,186 6.7% $ 27,819 5.5%
60 to 89 days.... 12,824 3.2 17,119 4.2 14,249 2.8
90 or more....... 4,053 1.0 25,596 6.3 28,964 5.8
--
--------- --------- --- --------- ---
Total 30 or
more......... $ 38,171 9.6% $ 69,901 17.2% $ 71,032 14.1%
--
--
--------- --------- --- --------- ---
--------- --------- --- --------- ---
Total 60 or
more......... $ 16,877 4.2% $ 42,715 10.5% $ 43,213 8.6%
--
--
--------- --------- --- --------- ---
--------- --------- --- --------- ---
</TABLE>
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 during that period. CompuCredit converted the portfolio to Aspire Visa
accounts during the third quarter of 1998 and began using its account management
strategies on the portfolio at that time. Delinquency rates on the purchased
portfolio subsequently improved during the fourth quarter of 1998.
CompuCredit began originating accounts in February 1997. As the average age
of CompuCredit's originated portfolio increases, CompuCredit expects delinquency
rates to continue to increase, and then stabilize. CompuCredit is using its
account management strategies on its originated portfolio, which are intended to
reduce delinquency rates as its originated portfolio matures.
23
<PAGE>
The following table separately reports CompuCredit's loan delinquency trends
for its originated portfolio and for its purchased portfolio:
<TABLE>
<CAPTION>
AT 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
---------------------------------------------------------------------------------
<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> <C>
SEPTEMBER 30, DECEMBER 31,
1998 1998
----------------- -----------------
<S> <C> <C>
ORIGINATED PORTFOLIO
Loans Delinquent:
30 to 59 days................. 3.1% 2.5%
60 to 89 days................. 2.2 1.6
90 or more.................... 4.2 3.9
--- ---
Total 30 or more................ 9.5% 8.0%
--- ---
--- ---
Total 60 or more................ 6.4% 5.5%
--- ---
--- ---
PURCHASED PORTFOLIO (1)
Loans Delinquent:
30 to 59 days................. 7.8% 6.6%
60 to 89...................... 4.8 3.3
90 or more.................... 7.0 6.5
--- ---
Total 30 or more................ 19.6% 16.4%
--- ---
--- ---
Total 60 or more................ 11.8% 9.8%
--- ---
--- ---
</TABLE>
- ------------------------------
(1) Prior to the quarter ended June 30, 1998, CompuCredit did not have a
purchased 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 estate large enough to pay the debt in full are charged off
within 30 days of notification of the client's bankruptcy or death.
Approximately $87.5 million of the discount on CompuCredit's portfolio
purchases during 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. The following table presents
CompuCredit's net charge-offs for the periods indicated on a managed loan
portfolio basis:
24
<PAGE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1998 1998 1998 1998
----------- ------------- ------------- ----------- --------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL MANAGED LOAN
PORTFOLIO :
Average managed loan
portfolio.......... $ 7,798 $ 15,762 $ 20,983 $ 37,886 $ 337,161 $ 402,751 $ 449,028
Net charge-offs...... 1 70 334 928 3,600 11,833 24,075
Pro forma net charge-
offs............... 1 70 334 928 1,179 3,584 4,883
Net charge-off ratio
(annualized)....... 0.1% 1.8% 6.4% 9.8% 4.3% 11.8% 21.5%
Pro forma charge-off
ratio
(annualized)....... 0.1 1.8 6.4 9.8 1.7 4.2 5.0
</TABLE>
CompuCredit has experienced increases in its charge-off ratios due to the
higher delinquencies and charge-offs in its purchased portfolios. In addition,
as the average delinquency rates of CompuCredit's originated portfolio increase
and then stabilize as the portfolio matures, CompuCredit expects charge-off
rates to also increase and then stabilize. 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.
CREDIT LOSSES. For securitized receivables, anticipated credit 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, 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. 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.
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.
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 prevailing
interest rates, 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
25
<PAGE>
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.
At December 31, 1998, all of CompuCredit's credit card receivables and other
interest-bearing assets had variable rate pricing, with receivables carrying
annual percentage rates at a spread over the prime rate, subject to certain
interest rate floors. At December 31, 1998, CompuCredit's securitizations had
$308.4 million in variable rate, interest-bearing liabilities, payable to its
investors. 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 hedged its basis risk due to the cost of hedging
this 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. CompuCredit received proceeds of
$12.7 million during 1997 and $402.3 million during 1998 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.
The maturity terms of CompuCredit's securitizations vary. Once repayment
begins, payments from clients on credit card receivables are accumulated for the
special purpose entities' investors and are no longer reinvested in new credit
card receivables. At that time, CompuCredit's funding requirements for new
credit card receivables will increase accordingly. The occurrence of certain
events may also cause the securitization transactions to amortize earlier than
scheduled. In the case of CompuCredit's master trust, a decline in the
portfolio's annual yield below a base rate will cause early amortization. The
portfolio's annual yield typically includes finance charges and past due fees
earned on the receivables less servicing fees and credit losses. 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, an early amortization period 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 January 31, 1999, CompuCredit had total securitization facilities of
$517.1 million and had utilized approximately $306.5 million of such facilities.
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On February 10, 1999, third party investors purchased the outstanding
undivided interest in one of CompuCredit's securitization structures for cash.
The price paid by the purchasers exceeded the amounts required to be paid to the
selling investors, which was limited to the selling investors' outstanding
investment, accrued interest and unpaid fees. The excess totaled $31.4 million,
of which $5.0 million was deposited into a reserve account to serve as a credit
enhancement that was required by the new investors. The remaining $26.4 million
was remitted to CompuCredit's wholly owned subsidiary created in connection with
the securitization.
If CompuCredit receives the bank charter it has applied for, CompuCredit
intends to capitalize its bank subsidiary with $20.0 million in capital
contributions and $5.0 million in the form of a deposit. CompuCredit may use a
portion of the proceeds from the offering to fund all or part of the costs of
capitalizing its bank subsidiary.
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, non-information technology systems and systems interfaces,
for year 2000 compliance. Where necessary, CompuCredit upgraded these systems to
a format that CompuCredit believes will assure system and data integrity in the
year 2000 and thereafter. During 1998, CompuCredit spent approximately $50,000
to upgrade or replace non-compliant software. Although CompuCredit believes its
internal systems are year 2000 compliant, unforeseen problems could arise in the
year 2000 which could cause 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. CompuCredit believes its most critical outside
vendor is Total Systems, which provides services to CompuCredit, including card
embossing, transaction processing and cycle billing. 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. CompuCredit
will provide specific test code for Total Systems to incorporate in their year
2000 plan, and CompuCredit will receive and analyze Total Systems' year 2000
test results. 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's most likely worst case scenario is that its outside vendors
are not year 2000 compliant due to unforeseen or unexpected problems with their
systems that their year 2000 testing did not discover and that there are errors
or delays in processing or billing the credit card accounts. In this
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scenario, CompuCredit will have to assess the length of time it may take for its
vendors to correct their year 2000 problems. In the event of a significant
delay, CompuCredit would begin replacing its vendors.
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. CompuCredit
does not believe that these costs will have a material impact on its results of
operations or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
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 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
adopted the new standard for the year ended December 31, 1998. Based on the
criteria under Statement No. 131, CompuCredit operates in a single business
segment.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed For or Obtained For Internal Use." 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 American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting the Costs of Start Up Activities." 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," 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.
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BUSINESS
THE COMPANY
CompuCredit is a credit card company. CompuCredit uses analytical techniques
that it has developed and information provided by credit bureaus to identify
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.
HISTORY
CompuCredit was formed on August 14, 1996 by David G. Hanna, President, and
Richard W. Gilbert, Chief Operating Officer, after completing almost two years
of research and development in the area of consumer finance. 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
closing 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
50 years of experience in various aspects of consumer finance.
THE CREDIT CARD INDUSTRY
At the end of November 1998, American consumers held an aggregate of $1.3
trillion of debt, exclusive of home mortgages. The Federal Reserve System
estimates that the size of the revolving credit market in the United States was
in excess of $550 billion as of November 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 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. Securitizations have 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
organizations that are adept at using information and technology to market and
price their credit products.
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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 this type of credit card the
consumer typically completes an application that is reviewed by the issuer for
approval. In contrast, the larger issuers who control the vast majority of the
market use mass mailing of credit card offers to consumers as the most
cost-effective means of achieving the growth rates they seek. Often this process
is accomplished by obtaining from one of the national credit bureaus a list of
names of individuals who meet the issuer's credit guidelines, which are usually
based on widely used credit underwriting practices in the industry.
CompuCredit expects 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 anticipates 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.
[The omitted graphical material includes five rectangular boxes arranged
vertically with a downward arrow from each. The boxes are labeled (in order):
Target Marketing, Solicitation, Application Processing, Account Management, and
Collections and Delinquency Management.]
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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 for 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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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 have included the specific behavior of
CompuCredit's clients. CompuCredit's systems enable it to segment clients into
narrower ranges within each FICO score range. This sub-segmentation is designed
to enable CompuCredit to avoid unacceptable credit risk and to price its
products more effectively.
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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 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 1998, CompuCredit solicited more than
11.2 million potential clients and experienced a response rate that it believes
is significantly higher than the overall rate experienced by the credit card
industry. The key to CompuCredit's 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 that 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 estimates 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 an individual's credit characteristics change relative to CompuCredit's
criteria. 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 anticipates 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>
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
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revolving credit, demand for revolving credit, payment criteria and revenue
potential, among other factors.
TARGET MARKETING IN PORTFOLIO ACQUISITIONS
CompuCredit anticipates increasing 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 uses 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.
CompuCredit has completed two portfolio acquisitions and expects that it will
regularly evaluate other potential portfolio acquisitions.
CompuCredit's unique target marketing system is intended to provide 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 portfolio
sellers and many other companies that may bid on portfolio purchases. This risk
evaluation expertise is designed to enable CompuCredit to avoid portfolio
purchases in which the final purchase premium or discount does not accurately
reflect the credit risk of the portfolio. Conversely, CompuCredit may bid more
aggressively for portfolios in which the perceived credit risk, as reflected by
the FICO scores, is significantly higher than CompuCredit's forecast of credit
risk.
CompuCredit's 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, is designed
to provide CompuCredit 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. 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 for all
client segments as a group. Since its inception through December 31, 1998,
CompuCredit has solicited new accounts from approximately 11.2 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 any teaser-rate pricing. Third
party print production facilities produce its direct mail campaigns, and
CompuCredit contracts with third party telemarketing providers for its
telemarketing campaigns. Responses to both direct mail and telemarketing
campaigns are then
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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, such as 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. 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
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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's advisory program allows
CompuCredit to enhance 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. CompuCredit expects that 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 these services are currently being performed.
COLLECTIONS AND DELINQUENCY MANAGEMENT
Management considers its prior experience in successfully operating
professional collection agencies, coupled with its proprietary systems, to be a
significant competitive advantage in minimizing delinquencies, bad debt losses
and operating expenses associated with the collection process.
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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 operates from 8:00 a.m. until 9:00 p.m. Monday
through Friday and from 8:00 a.m. until 4:30 p.m. on 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
some of its 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 increase of its credit card receivables primarily
through securitizations. As CompuCredit generates or acquires credit card
receivables, it securitizes the receivables through its master trust or through
special purpose entities to third parties. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--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, rules and regulations, 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.
Changes in any of these laws or regulations, or in their interpretation or
application, could significantly harm CompuCredit's business. 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
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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 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 applicable statutes or
regulations could significantly harm 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 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 significantly harm
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, including restrictions on the ability
of the bank to pay dividends to CompuCredit.
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, including
interest rates and fees, credit limit and other product features. For 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 using the name of a sports team or a professional association on
their credit cards, or "co-branding." In response to competition, some issuers
of credit cards have lowered interest rates and offered incentives to retain
existing clients and attract new ones.
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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, comprising approximately 6,000
square feet, and its operations center, comprising approximately 12,000 square
feet, are located in leased premises 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 December 31, 1998, CompuCredit had 95 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 these 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 this 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. The 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 closing of the offering, as well as certain key
employees, and their ages as of January 31, 1999, 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...................................... 34 Chief Financial Officer
Ashley L. Johnson.................................... 30 Controller
Richard R. House, Jr................................. 35 Chief Credit Officer
Rohit H. Kirpalani................................... 38 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.................................... 68 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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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 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 of the
offering, 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 these non-employee directors a fee of $2,500 for each
board or committee meeting attended. These non-employee 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 1998 fiscal year exceeded
$100,000. 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. This approach to compensation, combined with the executive
officers' existing stock ownership, is intended to provide an incentive for
these executive officers to focus on the appreciation of the value of the common
stock. For each executive officer's existing stock ownership, see "Principal
Shareholders."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------------------ ----------- --------- --------- ---------------
David G. Hanna, President............................................... 1998 $ 25,000(1) $ -- $ --
1997 50,000(2) -- --
Richard W. Gilbert, Chief Operating Officer............................. 1998 175,000 -- --
1997 175,000(2) -- --
Richard R. House, Jr., Chief Credit Officer............................. 1998 187,880 -- --
1997 108,615(3) -- --
</TABLE>
- ------------------------
(1) Reflects compensation for the period from July 1, 1998, when Mr. Hanna began
receiving compensation, through December 31, 1998.
(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.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS
CompuCredit has entered into Employment Agreements with each of its
executive officers. Each agreement provides for the payment of an annual salary
and requires the employee to devote substantially all of his or her business
efforts toward performing the services delegated to him or her by CompuCredit's
Chief Executive Officer, which must constitute no less than 40 hours per week of
work for CompuCredit or any of its subsidiaries. Each agreement is for a one
year initial term beginning on January 1, 1999. Each agreement includes
provisions protecting the confidentiality of CompuCredit's
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proprietary information, transferring and assigning to CompuCredit specified
employee work product, and prohibiting the employee from competing with
CompuCredit in certain specified manners during a period of one year after the
termination of the employee's employment with CompuCredit.
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 and 1998. 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. CompuCredit will receive no consideration for stock options granted
under the 1998 Stock Option Plan.
MAJOR PROVISIONS OF THE 1998 STOCK OPTION PLAN. The following summary of
the 1998 Stock Option Plan outlined below is qualified in its entirety by
reference to the full text of the 1998 Stock Option Plan, which is filed as an
exhibit to the Registration Statement of which this prospectus is a part. The
major provisions of the 1998 Stock Option Plan are as follows:
PURPOSE. The purpose of the 1998 Stock Option Plan is to maximize the
long-term success of the Company, to ensure a balanced emphasis on both current
and long-term performance, to enhance participants' identification with
shareholders' interests and to facilitate the attraction and retention of key
individuals with outstanding abilities.
ADMINISTRATION. Through the date of this prospectus, the 1998 Stock
Option Plan has been administered by the Board of Directors. Upon the
consummation of the offering, 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 of CompuCredit, 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
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<PAGE>
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 non-qualified stock option, 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 a non-qualified stock option, an
optionee will normally recognize ordinary compensation income for federal tax
purposes equal to the excess, if any, of the then fair market value of the
shares over the exercise price. Optionees who are employees will be subject to
withholding with respect to income recognized upon exercise of a non-qualified
stock option.
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 a non-qualified
stock option, 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 upon closing 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
closing of the offering and executive officers of CompuCredit as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange 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. An asterisk indicates
beneficial ownership of less than 1% of the common stock outstanding.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------------ ---------------------- -----------------
<S> <C> <C>
Bravo Trust One (1)(2).................................................. 6,936,169 16.54%
Bravo Trust Two (1)(3).................................................. 6,936,169 16.54
Frank J. Hanna, III (1)(4).............................................. 13,508,133 32.21
David G. Hanna (1)(5)................................................... 13,508,133 32.21
Richard W. Gilbert (1).................................................. 2,971,600 7.09
Brett M. Samsky......................................................... 1,474,581 3.52
Richard R. House, Jr.................................................... 608,000 1.45
Ashley L. Johnson....................................................... 76,000 *
Richard E. Huddleston................................................... -- *
Gail Coutcher Hughes.................................................... -- *
James P. Kelly, III..................................................... -- *
Mack F. Mattingly....................................................... -- *
Directors and executive officers as a group (10 persons)................ 31,828,766 75.89
</TABLE>
- ------------------------
(1) The address of the indicated holders is c/o CompuCredit Corporation, Two
Ravinia Drive, Suite 1750, Atlanta, Georgia 30346.
(2) Frank J. Hanna, III serves as sole trustee of the trust, whose beneficiaries
are members of Frank J. Hanna, III's immediate family.
(3) David G. Hanna serves as sole trustee of the trust, whose beneficiaries are
members of David G. Hanna's immediate family.
(4) Includes 6,936,169 shares of common stock held by Bravo Trust One. Includes
317,681 shares of common stock held by CompuCredit Management Corp., of
which Frank J. Hanna, III is a 50% owner.
(5) Includes 6,936,169 shares of common stock held by Bravo Trust Two. Includes
317,681 shares of common stock held by CompuCredit Management Corp., of
which David G. Hanna is a 50% owner.
46
<PAGE>
CERTAIN TRANSACTIONS
Under a stockholders agreement that CompuCredit has entered into with its
existing stockholders, (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. 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.
CompuCredit anticipates that the existing stockholders agreement will be
terminated by agreement of the parties immediately prior to the closing of the
offering and that CompuCredit will enter into a registration rights agreement
with Atlantic Equity Corporation and a new stockholders agreement with certain
of its stockholders. CompuCredit anticipates that the registration rights
agreement with Atlantic Equity Corporation will provide Atlantic Equity
Corporation with the same registration rights as it has under the existing
stockholders agreement. Compucredit anticipates that the shareholders who will
be party to the new stockholders agreement will include David G. Hanna, a trust
of which David G. Hanna is the sole trustee, Frank J. Hanna, III, a trust of
which Frank J. Hanna, III is the sole trustee, Richard R. House, Jr. and Richard
W. Gilbert. CompuCredit expects the new stockholders agreement to provide for
substantially the same "tag-along" and "bring-along" rights as are summarized in
the first sentence of the description of the existing stockholders agreement
above.
At the same time as the closing of the offering, shares of CompuCredit's
preferred stock held by the following shareholders will be exchanged with
CompuCredit for common stock under a plan of recapitalization. Each share of
preferred stock has a stated value of $100 per share and accrues dividends at a
rate of 9% per annum. The number of shares of common stock each shareholder will
receive will be determined by dividing the liquidation preference amount,
including accrued dividends, on the closing date of the offering by the offering
price per share of the common stock.
<TABLE>
<CAPTION>
LIQUIDATION
PREFERENCE, INCLUDING
ACCRUED DIVIDENDS, AS
OF
STOCKHOLDER PREFERRED SHARES HELD MARCH 31, 1999
- ---------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Trust of which David G. Hanna is a trustee................ 95,451 $ 10,910,180
Trust of which Frank J. Hanna, III is a trustee........... 95,451 10,910,180
CompuCredit Management Corp. (50% owned by each of David
G. Hanna and Frank J. Hanna, III)....................... 2,298 262,665
Brett M. Samsky........................................... 6,800 777,249
</TABLE>
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
47
<PAGE>
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.
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. 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., or 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 would constitute two-thirds of the issued and outstanding
capital stock of VSI. Each of Messrs. House and Gilbert has agreed that, as long
as he continues to be employed by CompuCredit and the current agreement between
CompuCredit and VSI or any other agreement between CompuCredit and VSI or any of
its affiliates remains in effect, this conversion right will not be exercisable.
Each of Messrs. Gilbert and House has also agreed that, as long as he continues
to be employed by CompuCredit, he will not, as a result of his creditor
relationship with VSI or the conversion right, derive any economic benefit from
any business relationship or arrangement between CompuCredit and VSI or any of
its affiliates. However, this provision will not prohibit Mr. Gilbert or Mr.
House from receiving any benefit that may arise out of their stock ownership in
CompuCredit and any other benefit that Mr. Gilbert or Mr. House may receive from
CompuCredit as employees of CompuCredit.
DESCRIPTION OF CAPITAL STOCK
Following the closing 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 of certain provisions of CompuCredit's capital stock
describes all material provisions of CompuCredit's Articles of Incorporation and
Bylaws relating to the capital stock and certain provisions of the Georgia
Business Corporation Code. However, there may be other provisions of the
Articles of Incorporation and Bylaws or of the Georgia Business Corporation Code
relating to the rights of shareholders that potential investors may consider
important. This summary is not intended to be complete and is qualified in its
entirety by reference to the provisions of the Georgia Business Corporation Code
and judicial decisions interpreting and applying those statutes and to
48
<PAGE>
CompuCredit's Articles of Incorporation and Bylaws filed as exhibits to the
Registration Statement of which this prospectus is a part.
COMMON STOCK
After giving effect to the offering and the exchange of all of the
outstanding shares of CompuCredit's preferred stock for common stock, there will
be 41,938,628 shares of common stock outstanding, or 43,157,378 shares if the
underwriters exercise their over-allotment option. Immediately following the
offering, there will be 270,724 outstanding options to purchase shares of common
stock.
Except as described below under "Preferred Stock," each outstanding share of
common stock is entitled to one vote on all matters submitted to a vote of
shareholders, including the election of directors. Shares of common stock do not
have cumulative voting rights. Holders of common stock are entitled to receive
ratably any dividends declared by the Board of Directors out of funds legally
available therefor, subject to 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 will have no preemptive, subscription, redemption or conversion
rights and are not entitled to the benefit of any sinking fund. The outstanding
shares of common stock are, and the shares of common stock offered by this
prospectus will be validly issued, fully paid and nonassessable upon payment for
the shares.
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 shares of common stock upon the
closing of the offering, which will leave no shares of preferred stock
outstanding.
Following the closing 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 series of preferred stock will have the
number of shares, designations, preferences, voting powers, qualifications and
special or relative rights or privileges as determined by the Board of
Directors, such as dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights.
Following the closing of the offering, CompuCredit's Board of Directors will
have the authority to issue the preferred stock and to determine its rights and
preferences without obtaining 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. This type of preferred
stock is commonly referred to as "blank check" preferred stock. The issuance of
this "blank check" 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 delay, defer or
prevent a change in control of CompuCredit. CompuCredit has no present plans to
issue any shares of this "blank check" preferred stock.
GEORGIA ANTI-TAKEOVER STATUTES
The Georgia Business Corporation Code restricts certain business
combinations with "interested shareholders" and contains fair price requirements
applicable to certain mergers with "interested shareholders" that are summarized
below. The restrictions imposed by these statutes will not apply to a
49
<PAGE>
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 that
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 these directors of the
Georgia corporation and approved by a majority of the votes entitled to be cast
by voting shares, other than those shares beneficially owned by the "interested
shareholder," or (iv) the "interested shareholder" has been an "interested
shareholder" 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
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.
Upon closing of the offering, there will be 41,938,628 outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option.
The shares of common stock to be sold in the offering, which will total
9,343,750 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 of 1933, as amended (the
"Securities Act"), except for shares purchased by affiliates of CompuCredit,
which shares will be subject to the resale limitations of Rule 144 under the
Securities Act. The remaining 33,813,628 shares of common stock held by existing
shareholders are "restricted" shares within the meaning of Rule 144 under the
Securities Act. These 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
50
<PAGE>
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 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, which would be approximately
419,386 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 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 these shares under Rule 144(k) without regard to the volume
limitation, manner of sale provisions, public information requirements or notice
requirements. As defined in Rule 144, an "affiliate" of an issuer is a person
who, directly or indirectly, controls or is controlled by, or is under common
control with, the issuer.
Upon completion of the offering, the holders of a total of 1,984,862 shares
of common stock will be entitled to registration rights with respect to those
shares. Atlantic Equity Corporation has piggyback registration rights with
respect to the 940,196 shares of common stock it holds 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 that registration. Under its
agreement with Atlantic Equity Corporation, CompuCredit must pay the fees, costs
and expenses of each registration of shares held by Atlantic Equity Corporation.
Atlantic Equity Corporation must pay all underwriting discounts and selling
commissions applicable to the sale of its common stock.
Under a stock purchase agreement between an unrelated private investor and
CompuCredit, the investor has demand and piggyback registration rights with
respect to the 1,044,666 shares of common stock it holds. At any time at least
12 months after the closing of the offering, 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, the investor will have the right to require that any shares of
common stock held by it be included in that registration, subject to limitations
set forth in the stock purchase agreement. In addition, at any time beginning at
least 12 months after closing 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
limitations set forth in the stock purchase agreement. Under the stock purchase
agreement, CompuCredit must pay the fees, costs and expenses of each
registration of the investor's shares. The investor must pay all underwriting
discounts and selling commissions applicable to the sale of its common stock.
CompuCredit and all of its existing shareholders prior to the offering 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 pursuant to employee stock option plans or agreements
or the exercise of options granted under these plans or agreements or in
connection with other employee incentive compensation arrangements or in
connection with a merger involving CompuCredit or a sale of all of its capital
stock.
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<PAGE>
PaineWebber Incorporated may, however, in its sole discretion, release all or
any portion of these shares from the restrictions in the lock-up agreements at
any time.
Promptly following the closing 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 1,200,000 shares of common 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 any
vesting requirements have been met. CompuCredit has granted options to purchase
60,724 shares of common stock under its 1998 Stock Option Plan and intends to
grant options to purchase 210,000 additional shares upon the completion of the
offering to its non-employee directors and to employees of CompuCredit who are
not executive officers.
52
<PAGE>
UNDERWRITING
PaineWebber Incorporated, Bear, Stearns & Co. Inc. and NationsBanc
Montgomery Securities LLC are serving as representatives of the underwriters
named below. The underwriters have severally agreed to purchase, and CompuCredit
has agreed to sell, subject to the terms and conditions set forth in an
Underwriting Agreement, the 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 under 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 shares of common stock are subject
to conditions precedent outlined in the Underwriting Agreement. 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 of this prospectus to purchase up to 1,218,750 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 conditions outlined in
the Underwriting Agreement, to purchase approximately the same pro rata
percentage of additional shares of common stock as each underwriter purchases in
the offering. The underwriters may purchase these 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 as a
result of these liabilities.
CompuCredit and all of its existing shareholders prior to the offering 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 pursuant to
employee stock option plans or agreements or the exercise of options granted
under these plans or agreements or in connection with other employee incentive
compensation arrangements or in connection with a merger involving CompuCredit
or a sale of all of its capital stock.
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 included 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 and the demand for similar securities of companies considered
comparable to CompuCredit.
53
<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 expects that the shares of common stock will be ready for
delivery in New York, New York on or about , 1999.
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 some 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 transactions that
stabilize the price of common stock. These 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 sell more shares of common stock than
are set forth on the cover page of this prospectus, or "over-allot," 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.
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 these 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 these transactions,
once commenced, will not be discontinued without notice.
Atlantic Equity Corporation, an affiliate of NationsBanc Montgomery
Securities LLC, an underwriter of the offering, is a shareholder of CompuCredit
and has registration rights applicable to its shares of common stock. See
"Shares Eligible for Future Sale." In addition, NationsBank, N. A., an affiliate
of NationsBanc Montgomery Securities LLC, administers two of the commercial
paper conduits with which CompuCredit has engaged in securitization
transactions.
54
<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, you should refer
to the Registration Statement and the exhibits and schedules thereto. You may
inspect a copy of the Registration Statement 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. You can obtain copies of all or any
part of the Registration Statement, or any materials CompuCredit has filed with
the Commission, 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. You can obtain further information regarding the operation of
the Public Reference Room 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 CompuCredit's
consolidated financial statements at December 31, 1998 and 1997, and for each of
the two years in the period ended December 31, 1998 and the period from August
14, 1996 to December 31, 1996, as set forth in their report. CompuCredit
included the financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
55
<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, 1997 and 1998............................................... F-3
Consolidated Statements of Operations for the Period from August 14, 1996 (inception) to December 31, 1996
and for the Years ended December 31, 1997 and 1998....................................................... F-4
Consolidated Statements of Shareholders' Equity for the Period from August 14, 1996 (inception) to December
31, 1996 and for the Years ended December 31, 1997 and 1998.............................................. F-5
Consolidated Statements of Cash Flows for the Period from August 14, 1996 (inception) to December 31, 1996
and for the Years ended December 31, 1997 and 1998....................................................... F-6
Notes to Consolidated Financial Statements for the Period from August 14, 1996 (inception) to December 31,
1996 and for the Years ended December 31, 1997 and 1998.................................................. 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, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1998 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, 1998 and 1997 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998 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
February 19, 1999
F-2
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
ASSETS
Cash and cash equivalents............................................................... $ 1,678 $ 12,256
Retained interests in credit card receivables securitized............................... 15,037 65,184
Accrued interest and fees............................................................... 461 1,979
--------- ---------
Net credit card receivables............................................................. 15,498 67,163
Amounts due from securitization......................................................... 517 3,243
Deferred costs, net..................................................................... 1,276 1,375
Software, furniture, fixtures and equipment, net........................................ 677 1,736
Prepaid expenses........................................................................ 423 195
Other assets............................................................................ 146 1,615
--------- ---------
Total assets.................................................................... $ 20,215 $ 87,583
--------- ---------
--------- ---------
LIABILITIES
Amounts due to securitization........................................................... $ 124 $ 10,774
Accrued expenses........................................................................ 841 4,745
Deferred revenue........................................................................ 123 2,075
Income taxes payable.................................................................... -- 9,401
Deferred tax liability.................................................................. -- 6,078
--------- ---------
Total liabilities............................................................... 1,088 33,073
SHAREHOLDERS' EQUITY
Preferred stock, $100 par value:
Cumulative and nonparticipating; 500,000 shares authorized, 200,000 shares issued
and outstanding at December 31, 1997 and 1998..................................... 20,000 20,000
Common stock, no par value:
3,000,000 shares authorized; 2,061,855 and 2,130,583 shares issued and outstanding
at December 31, 1997 and 1998, respectively....................................... -- --
Additional paid-in capital............................................................ -- 9,953
Retained earnings (deficit)........................................................... (873) 24,557
--------- ---------
Total shareholders' equity...................................................... 19,127 54,510
--------- ---------
Total liabilities and shareholders' equity...................................... $ 20,215 $ 87,583
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR ENDED
AUGUST 14, 1996 DECEMBER 31,
(INCEPTION) TO --------------------------
DECEMBER 31, 1996 1997 1998
------------------- ------------ ------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Interest income:
Interest........................................................ $ -- $ 33 $ 256
Finance charges, including fees................................. -- 2,625 --
----- ------------ ------------
Total interest income............................................. -- 2,658 256
Interest expense:
Short-term borrowings........................................... -- 361 536
----- ------------ ------------
Total interest expense.................................... -- 361 536
Net interest income (expense)..................................... -- 2,297 (280)
Provision for loan losses......................................... -- 1,422 --
----- ------------ ------------
Net interest income (expense) after provision for loan losses..... -- 875 (280)
Other operating income:
Securitization income, net...................................... -- 628 16,389
Income from retained interests in credit card receivables
securitized................................................... -- -- 22,690
Servicing income................................................ -- -- 12,541
Other credit card fees.......................................... -- 911 4,193
Interchange fees................................................ -- 279 1,865
Ancillary products.............................................. -- 37 638
Other........................................................... -- 156 --
----- ------------ ------------
Total other operating income.............................. -- 2,011 58,316
Other operating expense:
Salaries and benefits........................................... -- 429 1,172
Credit card servicing........................................... -- 1,008 4,948
Marketing and solicitation...................................... 27 1,081 6,865
Professional fees............................................... 20 252 713
Data processing................................................. -- 156 1,437
Net occupancy................................................... -- 35 195
Ancillary product expense....................................... -- -- 443
Other........................................................... 101 650 1,354
----- ------------ ------------
Total other operating expense............................. 148 3,611 17,127
Income (loss) before income taxes................................. (148) (725) 40,909
Income tax expense................................................ -- -- 15,479
----- ------------ ------------
Net income (loss)................................................. $ (148) $ (725) $ 25,430
----- ------------ ------------
----- ------------ ------------
Net income (loss) attributable to common shareholders............. $ -- $ (1,341) $ 23,630
Average number of shares outstanding.............................. -- 2,061,855 2,086,898
Net income (loss) per common share................................ $ -- $ (0.65) $ 11.32
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD AUGUST 14, 1996 (INCEPTION) TO DECEMBER 31, 1996,
AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------- PAID-IN PREFERRED EARNINGS SHAREHOLDERS'
SHARES AMOUNT CAPITAL STOCK (DEFICIT) EQUITY
---------- --------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Balance at August 14, 1996 (inception).... -- $ -- $ -- $ -- $ -- $ --
Contributed capital, units A and C
holders................................. -- -- 300 -- -- 300
Net loss.................................. -- -- -- -- (148) (148)
---------- --------- ----------- ----------- --------- -------------
Balance at December 31, 1996.............. -- -- 300 -- (148) 152
Contributed capital....................... -- -- 19,700 -- -- 19,700
Issuance of preferred stock............... -- -- (20,000) 20,000 -- --
Issuance of common stock.................. 2,061,855 -- -- -- -- --
Net loss.................................. -- -- -- -- (725) (725)
---------- --------- ----------- ----------- --------- -------------
Balance at December 31, 1997.............. 2,061,855 -- -- 20,000 (873) 19,127
Issuance of common stock.................. 68,728 -- 9,953 -- -- 9,953
Net income................................ -- -- -- -- 25,430 25,430
---------- --------- ----------- ----------- --------- -------------
Balance at December 31, 1998.............. 2,130,583 $ -- $ 9,953 $ 20,000 $ 24,557 $ 54,510
---------- --------- ----------- ----------- --------- -------------
---------- --------- ----------- ----------- --------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR ENDED
AUGUST 14, 1996 DECEMBER 31,
(INCEPTION) TO -----------------------
DECEMBER 31, 1996 1997 1998
------------------- ---------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)..................................................... $ (148) $ (725) $ 25,430
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation expense................................................ -- 79 444
Amortization expense................................................ -- 215 828
Loan loss provision................................................. -- 1,422 --
Securitization income............................................... -- (628) (16,389)
Income from retained interests on credit card receivables
securitized....................................................... -- (212) (14,301)
Deferred tax expense................................................ -- -- 6,078
Changes in assets and liabilities:
Increase in accrued interest and fees............................. -- (461) (1,518)
Increase in deferred costs........................................ -- (1,475) (869)
(Increase) decrease in prepaid expenses........................... (127) (443) 228
Increase in amounts due from securitization....................... -- (517) (2,726)
Increase in accrued expenses...................................... 101 740 3,904
Increase in income taxes payable.................................. -- -- 9,401
Increase in deferred revenue...................................... -- 123 1,952
Other............................................................. (73) 58 (1,528)
----- ---------- -----------
Net cash (used in) provided by operating activities................. (247) (1,824) 10,934
INVESTING ACTIVITIES
Net loans originated or purchased..................................... -- (28,269) (421,813)
Recoveries of loans previously charged off............................ -- -- 85
Net proceeds from securitization of loans............................. -- 12,650 372,797
Proceeds from retained interests on credit card receivables
securitized......................................................... -- -- 29,475
Purchases of property and equipment................................... -- (186) (487)
Software development costs............................................ -- (570) (1,016)
----- ---------- -----------
Net cash used in investing activities................................. -- (16,375) (20,959)
FINANCING ACTIVITIES
Increase in amounts due to securitization............................. -- 124 10,650
Proceeds from capital contributions................................... 300 19,700 9,953
Proceeds from short-term borrowings................................... -- 19,700 13,000
Payment of short-term borrowings...................................... -- (19,700) (13,000)
----- ---------- -----------
Net cash provided by financing activities............................. 300 19,824 20,603
NET INCREASE IN CASH 53 1,625 10,578
Cash and equivalents at beginning of period........................... -- 53 1,678
----- ---------- -----------
Cash and equivalents at end of period................................. $ 53 $ 1,678 $ 12,256
----- ---------- -----------
----- ---------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest................................................ $ -- $ 361 $ 536
Cash paid for income taxes............................................ -- -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 two portfolios of credit
cards from third parties in 1998. The Company has contracted with third party
financial institutions to issue credit cards and to perform certain services for
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, payment and discount rates
have a significant impact on the gains recorded on securitizations.
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.
ASSET SECURITIZATION
The Company has securitized a substantial portion of its credit card
receivables. When the Company sells receivables in securitizations, it retains
certain undivided ownership interests, interest-only strips and servicing
rights. 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 receivables are not reflected on the consolidated
balance sheet. The retained ownership interests are included in Retained
Interests in Credit Card Receivables Securitized. Amounts Due from
Securitization include payments recently received on the securitized receivables
that are still held by the securitization structure but are payable to the
Company in the next 30 days.
Under Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("Statement No. 125"), gains are
F-7
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized at the time of each sale. These gains are based on the estimated fair
value of the retained interests which are based on the estimated present value
of the cash flows the Company expects to receive over the estimated outstanding
life of the receivables. These cash flows represent estimates of finance charges
and late fees, servicing fees, costs of funds paid to investors, payment rates,
credit losses, and required amortization payments to investors.
The retained interests are subsequently accounted for as trading securities
and reported at estimated fair market value with changes in fair value included
in income in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"). Certain estimates used in the determination of the gains
and the related fair values of interest-only strips and retained ownership
interests are influenced by factors outside the Company's control, and, as a
result, such estimates could materially change in the near term.
DEFERRED COSTS
The Company capitalizes certain costs paid to third parties related to its
credit card receivables 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 used for future
securitizations, which result in ongoing securitization income to the Company.
These capitalized securitization costs are amortized over periods of two to
three years. The accumulated amortization of these costs was $199,000 and
$615,000 at December 31, 1997 and 1998, respectively.
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.
AMOUNTS DUE TO 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.
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
F-8
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 adopted the new standard for the year ended December 31,
1998. Based on the criteria under Statement No. 131, the Company operates in a
single business segment.
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 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 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.
F-9
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
were $616,000 and $2,416,000 of unpaid dividends in arrears related to the
preferred stock at December 31, 1997 and 1998, 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 $9,953,000.
4. SECURITIZATIONS
The Company securitizes a substantial portion of its company issued credit
card receivables through the CompuCredit Credit Card Master Trust (the "Master
Trust"). Credit card receivables are transferred to the Master Trust, which
issues certificates representing undivided ownership interests in the assets of
the Master Trust. The Company also securitized two purchased portfolios of
credit card receivables through securitization structures with third party
commercial paper conduits. The Company's transfers are treated as sales as they
satisfy the requirements of Statement No. 125 and the receivables are removed
from the consolidated balance sheet. The securitization transactions do not
affect the relationship the Company has with its clients and the Company
continues to service the credit card receivables. The Company receives servicing
fees ranging up to 6% per year of the securitized principal receivables and the
Company either provides the servicing or contracts with third party service
providers.
During 1997, the Company began securitizing credit card receivables through
the Master Trust. During 1998, the Company continued to securitize receivables
through its Master Trust and also securitized its two purchased portfolios. The
table below summarizes all of the Company's securitization activity:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1998
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Proceeds from securitizations....................................... $ 12,650 $ 402,272
Excess cash flows received on retained interests.................... 995 36,667
Pretax securitization income........................................ 628 16,389
</TABLE>
F-10
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SECURITIZATIONS (CONTINUED)
The investors in the Company's securitization transactions have no recourse
against the Company for its clients' failure to pay their credit card loans.
However, most of the Company's retained interests are subordinated to the
investors' interests until the investors have been fully paid.
As an additional credit enhancement on CompuCredit's securitization
structures associated with its purchased receivables, CompuCredit pays the
excess cash collected on the receivables to the investors as an accelerated
amortization payment. This excess cash that the Company paid to the investors
totaled $29.5 million for the year ended December 31, 1998. The Company's
valuation of its retained interests incorporates this credit enhancement, and
the Company estimates that it takes approximately three to five years from the
inception of each securitization structure to completely repay the investors
using excess cash collected on the receivables. Once the investors are repaid,
any remaining receivables and funds held in the securitization structure will be
payable to the Company.
The pretax securitization income recorded by the Company and the measurement
of the Company's retained interests are dependent upon management's estimates of
future cash flows using the cash-out method. Under the cash-out method, the
future cash flows (including the release of any cash related to credit
enhancements) are recorded at a discounted value. The cash flows are discounted
based on the timing of when the Company expects to receive the cash flows. The
discount rates are based on management's estimates of returns that would be
required by investors in an investment with similar terms and credit quality.
Interests rates received on the credit card receivables are estimated based on
the stated annual percentage rates in the credit card agreements. Estimated
default and payment rates are based on historical results, adjusted for expected
changes based on the Company's credit risk models. 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
typically charged off within 30 days of verification.
Subsequent to each sale, the Company's retained interests are carried at
estimated fair market value with changes in fair value included in income as
they are classified as trading securities. Since quoted market prices are
generally not available, the Company estimates fair value based on the estimated
present value of future cash flows using management's best estimates of key
assumptions. Changes in any of these assumptions could impact the fair value
estimates and the realization of future cash flows. The weighted average key
assumptions used to estimate the fair value of the Company's retained interests
as of the end of each year are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Payment rate (monthly)............................................... 8.1% 5.5%
Expected credit loss rate (annualized)............................... 5.8 15.1
Residual cashflows discount rate..................................... 12.0 25.3
</TABLE>
The return to the investors in the securitization is based on management's
estimates of forward yield curves. The changes in the weighted average
assumptions from December 31, 1997 to December 31, 1998 are primarily due to the
two portfolio purchases that occurred during 1998. Management believes these two
portfolios will have lower payment rates and higher credit losses as compared to
the receivables that were securitized as of December 31, 1997.
F-11
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SOFTWARE, FURNITURE, FIXTURES, AND EQUIPMENT
Software, Furniture, Fixtures and Equipment consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Software.................................................................................. $ 570 $ 1,586
Furniture and fixtures.................................................................... 32 90
Data processing and telephone equipment................................................... 154 583
--------- ---------
Total cost................................................................................ 756 2,259
Less accumulated depreciation............................................................. (79) (523)
--------- ---------
Software, furniture, fixtures, and equipment, net......................................... $ 677 $ 1,736
--------- ---------
--------- ---------
</TABLE>
6. 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 $35,000 and $186,000 for the years ended December 31, 1997 and 1998,
respectively. As of December 31, 1998, the future minimum rental commitments for
all noncancelable leases with initial or remaining terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999.......................................... $ 200
2000.......................................... 209
2001.......................................... 217
2002.......................................... 225
2003.......................................... 234
Thereafter.................................... 109
-------
$ 1,194
-------
-------
</TABLE>
7. 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, 2000 and contains an option to renew each year. The
agreement contains provisions allowing the subservicer of the receivables to
draw under the letter of credit as needed. As of December 31, 1997 and 1998, the
letter of credit agreement was unused.
8. 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
F-12
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
credit at any given point in time. The Company has the right to reduce or cancel
these available lines of credit at any time.
9. INCOME TAXES
As described in Note 3, 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.
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 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 current and deferred portions of federal and state income tax expense
are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR ENDED
AUGUST 14, 1996 DECEMBER 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
----------------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal income tax expense:
Current tax expense................................................. $ -- $ -- $ 8,436
Deferred tax expense................................................ -- -- 5,419
------ --------- ---------
Total federal income tax expense...................................... -- -- 13,855
State income tax expense:
Current tax expense................................................. -- -- 965
Deferred tax expense................................................ -- -- 659
------ --------- ---------
Total state income tax expense........................................ -- -- 1,624
------ --------- ---------
Total income tax expense.............................................. $ -- $ -- $ 15,479
------ --------- ---------
------ --------- ---------
</TABLE>
F-13
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
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 PERIOD FOR THE YEAR ENDED
AUGUST 14, 1996 DECEMBER 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
------------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Taxes at statutory rate.................................................... $ -- $ -- $ 14,318
Increase in income taxes resulting from:
State income tax expense, net of federal income tax benefit.............. -- -- 1,042
Change in valuation allowance............................................ -- -- 82
Other, net............................................................... -- -- 37
------ --------- ---------
Total income tax expense................................................... $ -- $ -- $ 15,479
------ --------- ---------
------ --------- ---------
</TABLE>
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 1998 are presented below:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Depreciation and amortization......................................................... $ 15 $ 79
Loan loss provision................................................................... 368 --
Net operating loss carryforwards...................................................... 795 --
Other, net............................................................................ -- 146
--------- ---------
Total deferred tax asset................................................................ 1,178 225
Deferred tax liabilities:
Loan loss provision................................................................... -- (2,447)
Cash advance fees..................................................................... -- (486)
Software development costs............................................................ (164) (550)
Deferred costs........................................................................ (585) (415)
Gain on securitization................................................................ (347) (2,405)
--------- ---------
Total deferred tax liability............................................................ (1,096) (6,303)
Valuation allowance..................................................................... (82) --
--------- ---------
Net deferred tax (liability) asset...................................................... $ -- $ (6,078)
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Numerator:
Net income (loss)......................................................................... $ (725) $ 25,430
Preferred stock dividends................................................................. (616) (1,800)
--------- ---------
Numerator for basic earnings per share--income (loss) attributable to common shareholders... (1,341) 23,630
Denominator:
Denominator for basic earnings per share--weighted average shares outstanding............... 2,062 2,087
--------- ---------
Basic earnings (loss) per share............................................................. $ (0.65) $ 11.32
--------- ---------
--------- ---------
</TABLE>
There are no differences between diluted and basic earnings per share.
11. STOCK OPTIONS
The Company has an Amended and Restated 1998 Stock Option Plan ("1998 Plan")
under which the Company may grant an aggregate of 78,947 shares of the Company's
common stock to members of the Board of Directors, employees, consultants and
advisors of the Company. The exercise price per share of the options may be less
than, equal to or greater than the market price on the date the option is
granted. The option period will not exceed 10 years from the date of grant.
Information related to options outstanding under the 1998 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
----------- ---------
<S> <C> <C>
For the year ended December 31, 1998
Under option, beginning of year.......................................... -- $ --
Granted.............................................................. 3,995 187.74
Exercised............................................................ -- --
Expired.............................................................. -- --
----- ---------
Under option, end of year................................................ 3,995 $ 187.74
----- ---------
----- ---------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING
AVERAGE CONTRACTUAL
EXERCISE LIFE IN
NUMBER PRICE YEARS
----------- --------- ------------
<S> <C> <C> <C>
Options outstanding not exercisable, end of year........... 3,995 $ 187.74 1
</TABLE>
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), the Company recognizes compensation cost for
stock-based employee compensation awards in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
F-15
<PAGE>
COMPUCREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS (CONTINUED)
to Employees." The Company did not recognize any compensation expense for
stock-based employee compensation awards for the years ended December 31, 1997
and 1998.
If the Company had recognized compensation expense in accordance with
Statement 123, net income and net income per share would have been $25,427,000
and $11.32, respectively, for the year ended December 31, 1998. The per share
weighted average fair value of stock options granted during 1998 was $6.42,
using the Minimum Value option pricing model. The fair value of the options
granted during the year was based upon the discounted value of future cash flows
of the options using the following assumptions for 1998: Risk free interest rate
- -6.0%, expected life of the options - 5.0 years and expected dividends (as a
percent of the fair value of the stock) - 0%.
12. RELATED PARTY TRANSACTIONS
During 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
accrued at a rate of 2.0% per month and was payable monthly in arrears. In July
1998, the promissory note and all accrued interest was paid in full.
13. SUBSEQUENT EVENTS
On February 10, 1999, third party investors purchased the outstanding
undivided interest in one of the Company's securitization structures for cash.
The price paid by the purchasers exceeded the amounts required to be paid to the
selling investors, which was limited to the selling investors' outstanding
investment, accrued interest and unpaid fees. The excess totaled $31.4 million,
of which $5.0 million was deposited into a reserve account to serve as a credit
enhancement that was required by the new investors. The remaining $26.4 million
was remitted to the Company's wholly owned subsidiary created in connection with
the securitization.
The Company expects to file Amendment No. 2 to its Form S-1 to register
8,125,000 shares of its common stock to be issued in an initial public offering
on or about February 24, 1999.
F-16
<PAGE>
[DESCRIPTION OF OMITTED GRAPHICAL MATERIAL
Clockwise from the top left corner of the page, there are photographs of a
computer chip, a magnetic computer reel, a hand holding a fiber optic cable and
the dial pad of a touch tone phone. The CompuCredit logo and the text
"transforming information into value" is superimposed on the photographs at the
left top corner of the page.]
<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........................................... 5
The Company............................................ 11
Use of Proceeds........................................ 11
Dividend Policy........................................ 11
Dilution............................................... 12
Capitalization......................................... 13
Selected Consolidated Financial Data................... 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 16
Business............................................... 29
Management............................................. 40
Principal Shareholders................................. 46
Certain Transactions................................... 47
Description of Capital Stock........................... 48
Shares Eligible for Future Sale........................ 50
Underwriting........................................... 53
Available Information.................................. 55
Legal Matters.......................................... 55
Experts................................................ 55
Index to Financial Statements.......................... F-1
</TABLE>
-------------------
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS 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.......... $ 82,000
National Association of Securities Dealers, Inc. filing fee..... 29,300
NASDAQ National Market Listing fee.............................. 96,000
Transfer Agent's and Registrar's fees........................... 3,500
Printing and engraving costs.................................... 225,000
Accounting fees and expenses.................................... 150,000
Legal fees and expenses......................................... 350,000
Directors and officers liability insurance...................... 270,000
Miscellaneous expenses.......................................... 69,200
---------
Total........................................................... $1,275,000
</TABLE>
The foregoing items, except for the registration fee to the Securities and
Exchange Commission, are estimated. All of the above items include amounts paid
in connection with CompuCredit Corporation's Registration Statement on Form S-1
(File No. 333-62327) filed with the Securities and Exchange Commission on August
27, 1998.
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 directors of CompuCredit Corporation (the "Company") 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
II-1
<PAGE>
any such proceeding; provided that, such person furnishes the Company with (i) a
written affirmation 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
The share numbers provided in this Item 15 do not reflect the 15.2-for-1
stock split to be effected by the Company upon closing of the offering.
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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 Form of Employment Agreement with Schedule of Terms.
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.
10.7.5++ Amendment to Affinity Card Agreement and Facilities Management Agreement, dated
as of November 11, 1998, by and among Columbus Bank and Trust Company,
CompuCredit Corporation, as successor to CompuCredit, L.P., and CompuCredit
Acquisition Corp.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.8**++ Transfer and Administration Agreement, dated as of November 30, 1998, among
Sheffield Receivables Corporation, as Buyer, CompuCredit Acquisition Funding
Corp. II, as Transferor, CompuCredit Corporation, as Servicer and Guarantor,
and Barclays Bank PLC, as Agent.
10.9** Transfer and Administration Agreement, dated as of February 10, 1999, among
Sheffield Receivables Corporation, as Buyer, CompuCredit Acquisition Funding
Corp., as Transferor, CompuCredit Corporation, individually and as the 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 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 24th day of
February, 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 February 24, 1999
David G. Hanna Officer)
/s/ BRETT M. SAMSKY Chief Financial Officer
- ------------------------------ (Principal Financial February 24, 1999
Brett M. Samsky Officer)
/s/ ASHLEY L. JOHNSON Controller (Principal
- ------------------------------ Accounting Officer) February 24, 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 Form of Employment Agreement with Schedule of Terms.
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.
10.7.5++ Amendment to Affinity Card Agreement and Facilities Management Agreement, dated
as of November 11, 1998, by and among Columbus Bank and Trust Company,
CompuCredit Corporation, as successor to CompuCredit, L.P., and CompuCredit
Acquisition Corp.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.8**++ Transfer and Administration Agreement, dated as of November 30, 1998, among
Sheffield Receivables Corporation, as Buyer, CompuCredit Acquisition Funding
Corp. II, as Transferor, CompuCredit Corporation, as Servicer and Guarantor,
and Barclays Bank PLC, as Agent.
10.9** Transfer and Administration Agreement, dated as of February 10, 1999, among
Sheffield Receivables Corporation, as Buyer, CompuCredit Acquisition Funding
Corp., as Transferor, CompuCredit Corporation, individually and as the 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 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of the 1st day of January, 1999, by and between CompuCredit Corporation, a
Georgia corporation ("CompuCredit"), and ______________, an individual resident
of the State of Georgia ("Employee").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to enter into a written agreement
for the continued employment of Employee by CompuCredit on the terms and
conditions hereinafter stated which shall supersede any and all written or oral
arrangements between the parties concerning the subject matter hereof;
NOW, THEREFORE, for and in consideration of the Employee's continued
employment with the Company and the premises and the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, CompuCredit and
Employee agree as follows:
1. RELATIONSHIP ESTABLISHED. Upon the terms and subject to the
conditions of this Agreement, CompuCredit hereby employs Employee to provide
efforts (the "Services") to CompuCredit as delegated to him from time to time by
the Chief Executive Officer, or his designee consistent with those generally
associated with an executive officer. Employee hereby agrees to devote
substantially all of his business efforts toward performing the Services, which
efforts shall constitute not less than a minimum average of forty (40) hours per
week for CompuCredit or one of it subsidiaries. In his performance of the
Services, Employee shall comply with applicable CompuCredit policies and
procedures.
2. TERM; TERMINATION.
2.1 TERM OF EMPLOYMENT. The term of Employee's employment under this
Agreement shall commence on January 1, 1999 and shall continue for an initial
term (the "Initial Term") of one (1) year, unless sooner terminated in
accordance with Section 2.2. Upon expiration of the Initial Term, Employee's
employment hereunder shall be continued (upon the same terms, subject to the
same conditions and at the same salary or at a salary agreed to by both
CompuCredit and Employee) after such expiration indefinitely on an at will
basis, subject to termination at any time by either party on not less than
thirty (30) days prior written notice by either party, or as otherwise provided
pursuant to Section 2.2 of this Agreement. The Initial Term and any additional
period of time employee is employed by CompuCredit thereafter shall be
collectively referred to as the "Term."
<PAGE>
2.2 TERMINATION OF EMPLOYMENT.
(a) This Agreement shall automatically and immediately
terminate upon the death of Employee; or
(b) Either party may terminate this Agreement upon the
Complete Disability of Employee. "Complete Disability", as used herein, shall
mean the inability of Employee by reason of any physical or mental impairment to
perform fully and effectively, as determined in the reasonable judgment of a
competent physician selected in good faith by CompuCredit, the Services on a
full time basis for an aggregate of 90 days in any period of 180 consecutive
days.
(c) TERMINATION BY COMPUCREDIT. In addition to any other
rights or remedies available to CompuCredit, CompuCredit may, in its sole
discretion, terminate Employee's employment for Cause effective immediately upon
delivery of written notice to Employee. In this Agreement, "Cause" means the
reasonable, good faith determination of a majority of the Board of Directors of
CompuCredit that:
(i) (A) Employee has committed an act constituting
fraud, deceit or intentional material misrepresentation with
respect to CompuCredit or any client, customer or supplier of
CompuCredit; (B) Employee has embezzled funds or assets from
CompuCredit or any client or customer of CompuCredit; or (C)
Employee has engaged in willful misconduct or gross negligence
in the performance of the Services;
(ii) Employee has breached or defaulted in the
performance of any material provision of this Agreement and
has not cured such breach or default to CompuCredit's
reasonable satisfaction within thirty (30) days after
receiving notice thereof (provided that any breach by Employee
of any obligation under Section 9 will be grounds for
immediate termination for "Cause" without any notice or right
to cure); or
(iii) Employee's conduct is materially detrimental to
the reputation of CompuCredit which Employee has not cured (if
such conduct is curable in Employer's reasonable opinion) to
CompuCredit's reasonable satisfaction within ten (10) days
after receiving notice thereof.
(d) The date on which Employee's employment expires or
terminates for any reason is referred to herein as the "Termination Date."
(e) Employee may terminate the Term following a Change of
Control (as defined below), by providing CompuCredit at least thirty (30) days
prior written notice of termination. For purposes of this Agreement, "Change of
Control" shall mean the acquisition by any single person or entity or related
persons or entities of either substantially all the assets of the CompuCredit or
more than fifty percent (50%) of the outstanding and issued common stock of
CompuCredit following an initial public offering of CompuCredit's common stock.
<PAGE>
3. COMPENSATION.
(a) During the Term, CompuCredit shall pay Employee as
compensation for the Services an annual salary as set forth on EXHIBIT A hereto
and incorporated herein by reference. Such compensation shall be payable in
substantially equal semi-monthly installments or in such other installments or
at such other intervals as may be the policy of CompuCredit from time to time,
and shall be subject to such deductions and withholdings as are required by law
or policies of CompuCredit in effect from time to time. Employee's salary per
annum may from time to time be adjusted as agreed in writing by both CompuCredit
and Employee.
(b) Notwithstanding anything to the contrary herein, if this
Agreement is terminated for any of the reasons set forth in Section 2 hereof,
CompuCredit shall be released of its obligation to pay further compensation or
benefits to Employee as set forth in this Agreement (except for salary already
earned under Section 3(a) hereof) and Employee will not be entitled to any
severance or other benefits upon any termination of his employment hereunder.
(c) If, during the Initial Term, CompuCredit defaults
hereunder by terminating Employee's employment (other than pursuant to Section 2
hereof), Employee shall be entitled to compensation paid in accordance with this
Section 3 for the remainder of the Initial Term.
4. VACATION. Employee shall be entitled to such number of weeks of paid
vacation in each calendar year of the Term as is provided in, and in accordance
with, CompuCredit's policies in effect from time to time for management
employees.
5. BENEFITS. Employee shall be entitled to participate in executive
employee benefit plans generally provided by CompuCredit to its executives, but
only if and to the extent provided from time to time in such executive benefits
plans and for so long as CompuCredit provides or offers such benefit plans.
6. REIMBURSEMENT FOR EXPENSES. CompuCredit shall reimburse Employee for
reasonable out-of-pocket expenses incurred by Employee in connection with the
performance of the Services hereunder for travel, entertainment and other
miscellaneous expenses to the extent such expenses are consistent with
CompuCredit's reimbursement policy as the same shall be in effect from time to
time. Reimbursement shall be made only against an itemized list of such expenses
submitted to CompuCredit by Employee within thirty (30) days after being
incurred, and, to the extent requested by CompuCredit, receipts and invoices
evidencing such expenses.
7. CONFIDENTIALITY.
(a) PROPRIETARY INFORMATION. Employee acknowledges that as an
employee of CompuCredit, he may from time to time have access to and be provided
with trade secrets (as defined under applicable law), and other confidential,
secret and proprietary information including without limitation, financial
statements or information, technical or nontechnical data, formulae,
compilations, programs, methods, data, financial plans, models, product plans,
marketing or sales strategies, portfolio information, or lists of actual or
potential borrowers, loan
<PAGE>
program participants or other customers not generally available to the public
concerning any aspect of the products, services or businesses of CompuCredit,
its affiliates, or its and their officers, directors, employees, advisers,
agents or other personnel (collectively, "Proprietary Information"). Employee
agrees that he will not, directly or indirectly, disclose, publish, disseminate
or use any confidential information except as authorized herein. Employee may
use confidential information to perform the Services but in doing so will only
allow dissemination of confidential information to any individual, corporation,
partnership, limited liability company, joint venture, association, joint stock
company, government agency, trust, trustee, entity, unincorporated organization
or any other entity on a strict need-to-know basis (provided such persons are
first informed of the confidential nature of such information and directed to
use or disclose it only as permitted herein). If disclosure of any Confidential
Information is required by law, a court or agency of the government, then you
may make such disclosure after providing CompuCredit with reasonable notice, to
the extent that providing such notice to CompuCredit is legally permissible, so
that CompuCredit may seek protective relief.
(b) Notwithstanding the provisions of Section 7(a) above, the
following shall not be considered to be Proprietary information: (i) any
information that was in the public domain through no fault or act of Employee
prior to the disclosure thereof to Employee; (ii) any information that comes
into the public domain through no fault or act of Employee; (iii) any
information that is disclosed without restriction to Employee by a third party
(which term shall not include any equity holder, affiliate, or counsel,
accountants and other non-employee representatives of affiliated entitles, or of
any of their respective equity holders, affiliates or related Persons) having
the legal right to make such disclosure, and (iv) any confidential business
information that is not a trade secret on the three (3) year anniversary of the
Termination Date; PROVIDED, HOWEVER, that the limited duration of the
confidentiality obligation with regard to Proprietary Information not
constituting a trade secret shall not operate or be construed as affording
Employee any right or license thereafter to use Proprietary Information, or as a
waiver by CompuCredit of the rights and benefits otherwise available to
CompuCredit under the laws governing the protection and enforceability of
patents, trade secret and other intellectual property.
(c) RETURN OF MATERIALS. On or before the Termination Date, or
when otherwise requested by CompuCredit, Employee will deliver promptly to
CompuCredit all Proprietary Information and all other files, customer lists,
management reports, drawings, memoranda, forms, financial data and reports and
other materials or documents and equipment provided to, or obtained or created
by Employee in connection with the Services (including all copies of the
foregoing, and including all notes, records and other materials of or relating
to CompuCredit or their respective customers) in his possession or control and
shall destroy all other Proprietary Information in his possession.
8. TRANSFER AND ASSIGNMENT TO COMPUCREDIT.
(a) To the greatest extent possible, any Work Product will be
"work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss. 101 eT
Seq., as amended) and owned exclusively by CompuCredit. In this Agreement, "Work
Product" means work product, property, data, documentation, "know-how,"
concepts, plans, inventions, improvements, techniques,
<PAGE>
processes or information of any kind, prepared, conceived, discovered, developed
or created by Employee in connection with the performance of the Services.
Employee hereby unconditionally and irrevocably transfers and assigns to
CompuCredit all right, title and interest Employee has or will have, by
operation of law or otherwise, in or to any Work Product, including, without
limitation, all patents, copyrights, trademarks, service marks, trade secrets
and other intellectual property rights. Employee agrees to execute and deliver
to CompuCredit any transfers or other instruments which CompuCredit may deem
necessary or appropriate to vest complete title and ownership of any Work
Product, and all rights therein, exclusively in CompuCredit.
(b) POWER OF ATTORNEY. Employee hereby irrevocably constitutes
and appoints CompuCredit as his agent and attorney-in-fact, with full power of
substitution, in the name, place and stead of Employee, to execute and deliver
any and all assignments or other instruments described in Section 8(a) above
that Employee fails or refuses promptly to execute and deliver. The foregoing
power and agency are coupled with an interest and are irrevocable.
9. COVENANT AGAINST COMPETITION.
(a) Employee acknowledges that the Proprietary Information
that he has acquired and will acquire, prior to and during the Term, includes
and will include information that could be used by Employee on behalf of a
Competitor (as hereinafter defined), its affiliates or others to the substantial
detriment of CompuCredit. Moreover, the parties recognize that Employee during
the course of his employment with CompuCredit will develop important
relationships with customers and others having valuable business relationships
with CompuCredit. In view of the foregoing, Employee acknowledges and agrees
that the restrictive covenants contained in this Agreement are reasonably
necessary to protect CompuCredit's legitimate business interests and goodwill.
If Employee is terminated without cause, he will only be bound by the covenant
against competition if he is paid at his then current salary for the one (1)
year period of time from and after the Termination Date.
(b) DEFINITIONS.
(i) "COMPETITIVE POSITION"- (A) the direct or
indirect equity ownership (excluding ownership of less than 2%
of the equity of an entity listed on a major U.S. exchange or
traded on a NASDAQ over-the-counter market) or control of all
or any portion of a "Competitor" (as hereinafter defined), or
(B) any employment, consulting, partnership, advisory,
directorship, agency, promotional or independent contractor
arrangement between Employee and any Competitor whereby
Employee is required to perform services substantially similar
to the Services
(ii) "COMPETITOR"- Any person or entity who provides
services substantially similar to Company Services.
(iii) "CUSTOMERS"- All Persons within the Territory
during the one-year period prior to the Termination Date (A)
to whom Employee offered or sold any
<PAGE>
of the CompuCredit's products or services (including, without
limitation, any opportunity to participate in any loan program
established by CompuCredit), (B) to whom were offered or sold
any of CompuCredit's products or services or about whom
Employee had Proprietary Information, (C) who were approached
by CompuCredit with regard to a product, or (D) who were
identified as potential customers by CompuCredit's models or
processes.
(iv) "COMPANY SERVICES"- (A) purchasing, holding, and
selling credit card and home equity loans (purchased, held or
sold by CompuCredit), or portfolios thereof, or both, (B)
servicing services, and (C) engaging in the business of making
credit card and home equity loans to consumers.
(v) "TERRITORY"- The United States, which is the
territory within which customers and accounts of CompuCredit
will be located and where Employee will provide Services
during the term of his employment under this Agreement.
(c) COVENANTS OF EMPLOYEE. In consideration of Employee's
employment by CompuCredit and CompuCredit's providing to Employee the
consideration described in Section 3 above, and based on and subject to the
provisions set forth in Section 9(a) above, Employee agrees that, during the
Term and for a period of one (1) year from and after the termination of
Employee's employment hereunder for any reason, Employee will not, without the
prior written consent of CompuCredit, directly or indirectly for or on behalf of
any Person other than CompuCredit, as principal, agent or otherwise:
(i) take any action in furtherance of a
Competitive Position; or
(ii) solicit Customers for the purpose of providing
services competitive with any of the Company Services; or
(iii) solicit or induce (or attempt to do so) to
leave employment with CompuCredit anyone who is or was, during
the last year of Employee's relationship with CompuCredit, an
employee of CompuCredit or an affiliated entity who would
provide similar services to a Competitor.
(d) Employee hereby represents and warrants to CompuCredit
that he is not now a party to any agreement, court order, decree or other
restriction which restricts him from using or disclosing to any party any
information deemed to be proprietary or confidential or deemed to be a trade
secret, of which in any way restricts Employee from engaging in or rendering any
of the Services.
10. INTERPRETATION; SEVERABILITY. All rights and restrictions contained
in this Agreement may be exercised and shall be applicable and binding only to
the extent that they do not violate any applicable laws and are intended to be
limited to the extent necessary so that they will not render this Agreement
illegal, invalid or unenforceable.
<PAGE>
It is understood and agreed that the provisions hereof are severable; if such
provisions shall be deemed invalid or unenforceable as to any period of time,
territory, or business activity, such provisions shall be deemed limited to the
extent necessary to render it valid and enforceable, and the unenforceability of
any provisions hereof shall not in any event cause any other provision hereof to
be unenforceable. No provision of this Agreement shall be construed against or
interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.
11. RELIEF. In the event of any threatened or actual breach of the
provisions of this Agreement by either party, the other party shall be entitled
to injunctive relief in addition to any other remedies it may have at law or in
equity.
12. NONWAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by or on behalf of both parties.
13. NOTICES. Any notice or other communication required or permitted
hereunder shall be deemed sufficiently given if delivered by hand or sent by
registered or certified mail, return receipt requested, postage and fees
prepaid, addressed to the party to be notified as follows:
(a) If to CompuCredit: CompuCredit Corporation
Two Ravinia Drive
Suite 1750
Atlanta, Georgia 30346
Attn: David G. Hanna
(b) If to Employee: [Employee's Name]
[Employee's Address]
or in each case to such other address as either party may from time to time
designate in writing to the other. Such notice or communication shall be deemed
to have been given as of the date so delivered or five (5) days after the date
so mailed.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia.
15. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the sole and
entire agreement between the parties hereto with respect to CompuCredit's
employment of Employee and supersedes all prior discussions and agreements
between the parties relating to such employment and any such prior agreements
shall, from and after the date hereof, be null and void. Employee is a
sophisticated businessperson and has received such documents and other
information as he has deemed necessary to make his own independent judgment as
to the merits
<PAGE>
of this Agreement and the remuneration that he will receive as a result hereof;
further, it is hereby agreed by Employee that neither CompuCredit nor any
affiliated entities have made any representation to Employee other than those
specifically set forth in this Agreement. This Agreement shall not be modified
or amended except by an instrument in writing signed by or on behalf of the
parties hereto.
16. PARTIES BENEFITED. This Agreement shall inure to the benefit of,
and be binding upon Employee, CompuCredit, and its respective heirs, legal
representatives, successors and assigns; provided that, as to Employee, this is
a personal service contract and Employee may not assign this Agreement or any
part hereof.
17. TAX CONSEQUENCES. CompuCredit shall have no obligation to Employee
with respect to any tax obligation Employee incurs as a result of or
attributable to this Agreement, including all supplemental agreements and
employee benefit plans, if any, in which Employee may hereafter participate, or
arising from any payments made or to be made hereunder or thereunder.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall for all purposes be deemed an original, and all of such
counterparts shall together constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CompuCredit Corporation
By:
-------------------------------------------
David G. Hanna, President
By:
--------------------------------------------
Employee
<PAGE>
SCHEDULE
This schedule sets forth the annual salary information for each officer
with whom the Company has entered into an Employment Agreement.
<TABLE>
<S> <C>
David G. Hanna................................................................$50,000
Brett M. Samsky................................................................$50,000
Richard House.................................................................$200,000
Richard W. Gilbert............................................................$175,000
Ashley L. Johnson.............................................................$50,000
</TABLE>
<PAGE>
EXECUTION COPY
Exhibit 10.9
- --------------------------------------------------------------------------------
TRANSFER AND ADMINISTRATION AGREEMENT
among
SHEFFIELD RECEIVABLES CORPORATION,
as Buyer,
COMPUCREDIT ACQUISITION FUNDING CORP.,
as the Transferor,
COMPUCREDIT CORPORATION,
individually and
as the Servicer
and the Guarantor
and
BARCLAYS BANK PLC
as the Agent
Dated as of February 10, 1999
- --------------------------------------------------------------------------------
<PAGE>
EXHIBITS
EXHIBIT A Form of Credit Card Agreement
EXHIBIT B [Reserve]
EXHIBIT C Form of Statement of Estimated Amounts
EXHIBIT D Form of Independent Accountants Report
EXHIBIT E [Reserve]
EXHIBIT G [Reserve]
EXHIBIT H List of Actions and Suits
EXHIBIT I [Reserve]
EXHIBIT J List of Subsidiaries, Divisions and Tradenames
EXHIBIT K Form of Investment Letter
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
SECTION 1.1. Certain Defined Terms............................................................1
SECTION 1.2. Other Terms.....................................................................26
SECTION 1.3. Computation of Time Periods.....................................................26
ARTICLE II TRANSFERS AND SETTLEMENTS............................................................................26
SECTION 2.1. Facility........................................................................26
SECTION 2.2. Transfers.......................................................................26
SECTION 2.3. Selection of Interest Rates and Collection Periods..............................29
SECTION 2.4. [Reserved]......................................................................29
SECTION 2.5. Allocation of Collections.......................................................29
SECTION 2.6. Reserve Account.................................................................30
SECTION 2.7. Fees............................................................................31
SECTION 2.8. Protection of Transferred Interest of the Owners................................31
SECTION 2.9. Deemed Collections; Application of Payments.....................................33
SECTION 2.10. Payments and Computations, Etc..................................................35
SECTION 2.11. Reports.........................................................................35
SECTION 2.12. Collection Account..............................................................36
SECTION 2.13. Sharing of Payments, Etc........................................................37
SECTION 2.14. Defaulted Receivables...........................................................37
SECTION 2.15. Optional Amortization...........................................................38
ARTICLE III REPRESENTATIONS AND WARRANTIES......................................................................38
SECTION 3.1. Representations and Warranties of the Transferor................................38
SECTION 3.2. [Reserved]......................................................................41
SECTION 3.3. Representations and Warranties of the Servicer..................................41
SECTION 3.4. Reaffirmation of Representations and Warranties by the Servicer.................43
ARTICLE IV CONDITIONS PRECEDENT.................................................................................43
SECTION 4.1. Conditions to Closing...........................................................43
ARTICLE V COVENANTS.............................................................................................46
SECTION 5.1. Affirmative Covenants of Transferor.............................................46
i
<PAGE>
SECTION 5.2. Negative Covenants of the Transferor............................................53
SECTION 5.3. Affirmative Covenants of the Servicer...........................................55
SECTION 5.4. Negative Covenants of the Servicer..............................................57
ARTICLE VI ADMINISTRATION AND COLLECTIONS.......................................................................58
SECTION 6.1. Appointment of Servicer.........................................................58
SECTION 6.2. Duties of Servicer..............................................................58
SECTION 6.3. Rights After Designation of New Servicer........................................59
SECTION 6.4. Servicer Default................................................................60
SECTION 6.5. Responsibilities of the Transferor..............................................60
ARTICLE VII TERMINATION EVENTS..................................................................................61
SECTION 7.1. Termination Events..............................................................61
SECTION 7.2. Termination.....................................................................64
SECTION 7.3. Optional Repurchase.............................................................65
ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS.........................................................66
SECTION 8.1. Indemnities by the Transferor...................................................66
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses......................................69
SECTION 8.3. Taxes...........................................................................72
SECTION 8.4. Other Costs, Expenses and Related Matters.......................................73
SECTION 8.5. Amounts Limited to Available Funds..............................................74
SECTION 8.6. Indemnification by Servicer.....................................................74
ARTICLE IX THE AGENT............................................................................................75
SECTION 9.1. Authorization and Action........................................................75
SECTION 9.2. Agent's Reliance, Etc...........................................................76
SECTION 9.3. Termination Events..............................................................76
SECTION 9.4. Agents and Affiliates...........................................................77
SECTION 9.5. Indemnification of the Agent....................................................77
SECTION 9.6. Non-Reliance....................................................................78
ii
<PAGE>
SECTION 9.7. Resignation of Agent............................................................78
SECTION 9.8. Payments by the Agent...........................................................78
SECTION 9.9. UCC Filings.....................................................................78
ARTICLE X GUARANTY AND GUARANTOR COVENANTS......................................................................79
SECTION 10.1. Guaranty........................................................................79
SECTION 10.2. Waivers.........................................................................79
SECTION 10.3. Reinstatement...................................................................80
SECTION 10.4. Subrogation.....................................................................80
SECTION 10.5. Net Worth Ratio.................................................................81
SECTION 10.6. Financial Reporting.............................................................81
SECTION 10.7. Notices.........................................................................82
SECTION 10.8. Sub-Servicing Fee...............................................................82
SECTION 10.9. Co-Beneficiary Designations.....................................................82
ARTICLE XI MISCELLANEOUS........................................................................................83
SECTION 11.1. Term of Agreement...............................................................83
SECTION 11.2. Waivers; Amendments.............................................................83
SECTION 11.3. Notices.........................................................................84
SECTION 11.4. Governing Law; Submission to Jurisdiction; Integration..........................85
SECTION 11.5. Severability; Counterparts......................................................86
SECTION 11.6. Successors and Assigns..........................................................86
SECTION 11.7. Disclosure......................................................................86
SECTION 11.8. Confidentiality Agreement.......................................................87
SECTION 11.9. No Bankruptcy Petition..........................................................87
SECTION 11.10. No Recourse Against Stockholders, Officers or Directors.........................87
SECTION 11.11. Tax Matters.....................................................................88
SECTION 11.12. Tax Treatment...................................................................92
</TABLE>
iii
<PAGE>
TRANSFER AND ADMINISTRATION AGREEMENT
TRANSFER AND ADMINISTRATION AGREEMENT (this "AGREEMENT"),
dated as of February 10, 1999, by and among SHEFFIELD RECEIVABLES CORPORATION, a
Delaware corporation (the "BUYER"), COMPUCREDIT ACQUISITION FUNDING CORP., a
Nevada corporation, as transferor (in such capacity, the "TRANSFEROR"),
COMPUCREDIT CORPORATION, a Georgia corporation, individually, as servicer (in
such capacity, the "Servicer") and as guarantor (in such capacity, the
"GUARANTOR"), and BARCLAYS BANK PLC, as agent for the Buyer and the other
"Owners" (as defined below) (the "AGENT").
PRELIMINARY STATEMENTS
WHEREAS, the Transferor may desire to convey, transfer and
assign, from time to time, undivided percentage interests in certain accounts
receivable, and Buyer shall accept such conveyance, transfer and assignment of
such undivided percentage interests, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ACCOUNTS" means each credit card account established pursuant
to a Credit Card Agreement with an Obligor as of the Cut-Off Date, which account
(i) (a) was sold to CB&T pursuant to the Sale and Purchase Agreement by the
Original Sellers, (b) is a Transferred Account or (c) is a Related Account, and
(ii) is identified by account number and by the principal receivables thereof as
of the Cut-Off Date and referred to in the Account Schedule delivered to the
Agent on the Closing Date pursuant to Section 2.8(b), as such schedule is
amended, modified or supplemented thereafter pursuant to Section 2.8(b).
"ACCOUNT OWNER" means CB&T or any other entity which is the
issuer of the credit card relating to an Account pursuant to a Credit Card
Agreement, subject to Section 5.2(h) hereof.
"ACCOUNT SCHEDULE" means the schedule of Accounts (which
schedule may be in the form of a computer file or microfiche) of the Transferor
delivered to the Agent on the Closing Date, as amended or modified from time to
time pursuant to the terms of this Agreement.
1
<PAGE>
"ADVERSE CLAIM" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person (including any UCC financing statement
or any similar instrument filed against such Person's assets or properties)
excluding, however, Permitted Liens.
"AFFECTED ASSETS" means, collectively, the Receivables and the
Related Security, Collections and Proceeds relating thereto.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of voting stock, by contract or
otherwise.
"AFFINITY CARD AGREEMENT" means the Affinity Card Agreement,
dated January 6, 1997, among CB&T, CompuCredit and CAC, and all schedules and
exhibits thereto, as the same has been and may hereafter be amended, modified or
supplemented and in effect from time to time.
"AGENT" means Barclays Bank PLC, in its capacity as agent for
the Buyer and the other Owners, and any successor thereto appointed pursuant to
Article IX.
"AGGREGATE UNPAIDS" means, at any time, an amount equal
(without duplication) to the sum of (i) the aggregate accrued and unpaid
Carrying Costs at such time, (ii) the Net Investment at such time and (iii) all
other amounts owed (whether due or accrued) under the Transaction Documents by
the Transferor to the Buyer and the other Owners at such time, including,
without limitation, any Early Collection Fee then due and owing.
"ALTERNATIVE RATE" means, with respect to any Collection
Period (or portion thereof), an interest rate per annum equal to the LIBO Rate
(Reserve Adjusted); PROVIDED, HOWEVER, that:
(i) If the Majority Owners shall notify the Agent prior to the
related rate determination date that a LIBO Rate Disruption Event has
occurred and is continuing, then the "Alternative Rate" for such
Collection Period (or portion thereof) shall be an interest rate per
annum equal to the Base Rate in effect from time to time during such
Collection Period (or portion thereof) unless the Agent and the
Transferor agree in writing to a different rate;
(ii) if any Owner shall have notified the Agent on or before the
applicable rate determination date that the LIBO Rate for any
Collection Period (or portion thereof) does not accurately reflect the
cost to such Owner of funding its investment in the Transferred
Interest for such Collection Period (or portion thereof), then the
"Alternative Rate" with respect to such Owner's share of the
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Transferred Interest for such Collection Period (or portion thereof)
shall be an interest rate per annum equal to the Base Rate in effect
from time to time during such Collection Period (or portion thereof)
unless the Agent and the Transferor agree in writing to a different
rate;
(iii) if for any reason the Alternative Rate becomes
applicable on notice to the Agent of less than three Business Days
(determined giving effect to the LIBO Rate (Reserve Adjusted)
provisions of the definition of "Business Day"), the "Alternative
Rate" shall be the Base Rate in effect from time to time during the
period prior to the satisfaction of such three Business Days'
notice requirement (determined giving effect to the LIBO Rate
(Reserve Adjusted) provisions of the definition of "Business Day");
and
(iv) notwithstanding anything to the contrary in clauses (i)
through (iii) above, at all times following the occurrence of a
Termination Event (other than a Termination Event pursuant to
Section 7.1(i)) the "Alternative Rate" for any Collection Period
(or portion thereof) shall be a rate per annum equal to the sum of
(i) the Base Rate in effect from time to time during such
Collection Period and (ii) 2.00% per annum, unless the Agent and
the Transferor agree in writing to a different rate.
"APPLICABLE RATE" means, for any Collection Period, the Cost
of Funds for such Collection Period, adjusted, as necessary, to yield, when
applied to the Net Investment, an amount sufficient to pay interest on the
incremental effective principal balance of any funding resulting from the
capitalization of interest, if any, during such Collection Period. In the case
of the final Collection Period (as described in the definition of Collection
Period), on the fifth Business Day immediately preceding the final Remittance
Date, the Agent shall notify the Servicer of the Applicable Rate for the related
Collection Period. The Applicable Rate reported pursuant to the preceding
sentence shall be calculated using an estimate of the component rates for the
remaining days in such Collection Period. On the Remittance Date for such
Collection Period, the Agent shall redetermine the Applicable Rate in respect of
such Collection Period and if such redetermined Applicable Rate is higher or
lower than the Applicable Rate reported to the Servicer on the fifth Business
Day immediately preceding the corresponding Remittance Date, the Agent shall,
within three Business Days following such Remittance Date, advise the Servicer
of such redetermined Applicable Rate, specifying the amount of any resulting
underpayment or overpayment of interest on such Remittance Date.
"ARRANGEMENT FEE" means the fee payable by the Transferor to
the Administrative Agent pursuant to Section 2.7 hereof, the terms of which are
set forth in the Fee Letter.
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"ASSIGNMENT" means any sale, assignment or transfer by the
Buyer or any other Owner of all or any part of its interest in this Agreement,
but shall not include a participation as described in Section 11.11(f).
"BANKRUPTCY CODE" has the meaning assigned to that term in
Section 3.1(k).
"BARCLAYS" means Barclays Bank PLC and its successors.
"BASE RATE" or "BR" means, a rate per annum equal to the
greater of (i) the prime rate of interest publicly announced by Barclays from
time to time, changing when and as said prime rate changes (such rate not
necessarily being the lowest or best rate charged by Barclays) and (ii) the sum
of (a) 0.50% and (b) the rate equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day for such transactions
received by Barclays from three Federal funds brokers of recognized standing
selected by it.
"BENEFIT PLAN" means any employee benefit plan as defined in
Section 3(3) of ERISA in respect of which the Transferor or any ERISA Affiliate
thereof is, or at any time during the immediately preceding six years was, an
"employer" as defined in Section 3(5) of ERISA.
"BUSINESS DAY" means any day other than (a) a Saturday or
Sunday or (b) any other day on which national banking associations or state
banking institutions in New York, New York, Atlanta, Georgia, Columbus, Georgia
or any other State in which the principal executive offices of CompuCredit, the
Transferor, the Agent, CB&T or any other Account Owner, as the case may be, are
located, are authorized or obligated by law, executive order, or governmental
decree to be closed, and, when used with respect to the determination of any
LIBO Rate (Reserve Adjusted) or any notice with respect thereto, any such day
which is also a day for trading by and between banks in United States dollar
deposits in the London interbank market.
"BUYER" means Sheffield Receivables Corporation, a Delaware
corporation.
"CAC" means CompuCredit Acquisition Corporation, a Nevada
corporation, together with its successors and assigns.
"CAPITALIZED LEASE" of a Person means any lease of property by
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with GAAP.
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"CARGILL PURCHASE AGREEMENT" means that certain Purchase
Agreement dated on or about February 10, 1999, by and between the Transferor and
Cargill Financial Services Corporation, as it may be amended, modified or
supplemented from time to time.
"CARRYING COSTS" means with respect to any Remittance Date, an
amount equal to the sum of (i) the product of (A) the Applicable Rate in effect
with respect to the Collection Period ending immediately prior to such
Remittance Date, (B) the average daily Net Investment during such Collection
Period, and (C) a fraction the numerator of which is the actual number of days
in such Collection Period and the denominator of which is 360, PLUS (ii) all
Early Collection Fees incurred by Owners during the immediately preceding
Collection Period, PLUS (iii) the product of (A) the Program Fee Rate, (B) (1)
the average daily Facility Limit during such Collection Period, MINUS (2) that
portion of the average daily Net Investment during such Collection Period that
is funded other than through the issuance of Related Commercial Paper and (C) a
fraction the numerator of which is the actual number of days in such Collection
Period and the denominator of which is 360, PLUS (iv) any amounts owed to any
Indemnified Parties pursuant to Section 8.1, 8.2, 8.3, 8.4 and 8.6, PLUS (v) any
past due Carrying Costs owing in respect of any prior Collection Period,
together with interest thereon (to the extent permitted by applicable law) at a
rate equal to the sum of the Base Rate and 2.00% per annum for the period from
and including the original due date for such past due Carrying Costs to but
excluding the date on which they are paid in full together with such interest
thereon.
"CASH ADVANCE FEES" means cash advance transaction fees, if
any, as specified in the Credit Card Agreement applicable to each Account.
"CB&T" means Columbus Bank and Trust Company, a state
chartered bank organized under the laws of the State of Georgia, together with
its successors and assigns.
"CB&T AGREEMENT" means the subservicer letter agreement, dated
the date hereof, among CB&T, CAC and the Agent, as it may be amended, modified
or supplemented from time to time.
"CHARGE-OFF RATE" means, for any Collection Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to the aggregate amount of the Principal Receivables of all Receivables that
became Defaulted Receivables during such Collection Period, less all Recoveries
received during such Collection Period, and the denominator of which is the
average daily Principal Receivables during such Collection Period.
"CLOSING DATE" means February 10, 1999.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COLLECTION ACCOUNT" has the meaning assigned to that term in
Section 2.12.
"COLLECTION PERIOD" means the calendar month ending
immediately prior to a Remittance Date, or in the case of the first Collection
Period, the period commencing on (and including) the Closing Date to the end of
the calendar month ending immediately prior to the first Remittance Date and in
the case of the final Collection Period, the period commencing on (and
including) the first day of the calendar month immediately preceding the month
in which the final Remittance Date falls and ending on (but excluding) the final
Remittance Date.
"COLLECTIONS" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all Recoveries, Finance Charges, Interchange and cash proceeds of
Related Security with respect to such Receivable; PROVIDED, HOWEVER, the
Sub-Servicing Fee and any commissions and similar amounts received in respect of
any benefit agreements with respect to receipts from parties using the Obligors
for product marketing purposes shall be excluded from "Collections." For the
purposes hereof, "cash" shall include payments received in the form of checks,
wire transfers, electronic transfers, ATM transfers and any other form of
payment made in accordance with a Credit Card Agreement.
"COMMERCIAL PAPER" means the promissory notes issued by Buyer
in the commercial paper market.
"COMPUCREDIT" means CompuCredit Corporation, a Georgia
corporation.
"COST OF FUNDS" means, for any Collection Period, the
weighted average (based upon time and dollar amount) of the following rates
applicable during such Collection Period for each Owner: (a) to the extent such
Owner is the Buyer and funds its share of the Net Investment for such Collection
Period (or any portion thereof) by issuing Related Commercial Paper, a rate
equal to the CP Rate for such Collection Period (or portion thereof) and (b) to
the extent such Owner either (i) is not the Buyer or (ii) is the Buyer and funds
its share of the Net Investment for such Collection Period (or any portion
thereof) other than by issuing Related Commercial Paper, a rate equal to the
Alternative Rate for such Collection Period (or any portion thereof) or such
other rate as the Agent and the Transferor shall agree to in writing.
"CP MARGIN" has the meaning specified in the Fee Letter.
"CP RATE" means with respect to any Collection Period (or
portion thereof), the sum of (i) the CP Margin and (ii) the PER ANNUM rate
calculated to yield the "weighted average cost" (as defined below) related to
the issuance of Related Commercial Paper during such Collection Period (or
portion thereof); PROVIDED, HOWEVER, that if any component of such rate is a
discount rate, in calculating the "CP Rate" for such Collection Period (or
portion thereof) the Buyer shall for such component use the rate resulting from
converting such discount rate to an interest-bearing
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equivalent rate per annum. As used in this definition, the Buyer's "weighted
average cost" for any Collection Period means the sum of (x) the actual interest
paid to purchasers of the applicable Related Commercial Paper, (y) the
commissions of placement agents and dealers in respect of such Related
Commercial Paper not to exceed 0.05% per annum without prior written
notification to the Transferor, and (z) other borrowings by the Purchaser to
fund small or odd dollar amounts that are not easily accommodated in the
commercial paper market; and PROVIDED, FURTHER, that at all times following the
occurrence of a Termination Event (other than a Termination Event pursuant to
Section 7.1(i)), the "CP Rate" for any Collection Period (or portion thereof)
shall be the Alternative Rate in effect from time to time.
"CREDIT CARD AGREEMENT" means, with respect to a revolving
credit card account, the agreements (including any applicable truth in lending
disclosure statements), in substantially the form or forms attached as Exhibit A
hereto on the Closing Date, between an Account Owner and the Obligor governing
the terms and conditions of such account, as such agreements or statements may
be amended, modified or otherwise changed from time to time and as distributed
(including any amendments and revisions thereto) to holders of such account.
"CREDIT CARD GUIDELINES" means the respective policies and
procedures of the Servicer, as such policies and procedures relate to the
Accounts and as such may be amended from time to time, (a) relating to the
operation of its credit card business, which generally are applicable to its
portfolio of revolving credit card accounts or, in the case of an Account Owner
that has only a portion of its portfolio subject to a receivables purchase
agreement, applicable to such portion of its portfolio, and in each case which
are consistent with prudent practice, including the policies and procedures for
determining the creditworthiness of credit card customers and the extension of
credit to credit card customers, and (b) relating to the maintenance of credit
card accounts and collection of credit card receivables.
"CREDIT SUPPORT AGREEMENT" means the agreement between Buyer
and the Credit Support Provider evidencing the obligation of the Credit Support
Provider to provide credit support to Buyer in connection with the issuance by
Buyer of Commercial Paper.
"CREDIT SUPPORT PROVIDER" means the Person or Persons who
provides credit support to Buyer in connection with the issuance by Buyer of
Commercial Paper.
"CUT-OFF DATE" means January 31, 1999.
"DEEMED COLLECTIONS" means any Collections on any Receivable
deemed to have been received pursuant to Section 2.9(b) and (c) hereof.
"DEFAULTED RECEIVABLE" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for 180 days or more from the original
due date for payment under such Receivable; (ii) as to which an Event of
Bankruptcy has occurred
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and is continuing with respect to the Obligor thereof; (iii) which has been
identified by the Transferor, the Servicer or the Sub-Servicer as uncollectible;
(iv) as to which the Obligor is deceased; or (v) which, consistent with the
Credit Card Guidelines, should be written off as uncollectible. A Receivable
shall become a Defaulted Receivable no later than on the day on which such
Receivable is recorded as charged-off on the Servicer's computer file of
revolving credit card accounts.
"DELINQUENT RECEIVABLE" means a Receivable: (i) as to which
any payment, or part thereof, remains unpaid for more than 60 days from the
original due date for payment under such Receivable and (ii) which is not a
Defaulted Receivable.
"EARLY COLLECTION FEE" means, for any funding period during
which the portion of the Net Investment that was allocated to such funding
period is reduced for any reason whatsoever, the excess, if any, of (i) the
additional interest that would have accrued during such funding period if such
reductions had not occurred, MINUS (ii) the income, if any, received by the
recipient of such reductions from investing the proceeds of such reductions.
"ELIGIBLE ACCOUNT" means, as of the Original Cut-Off Date,
each Account other than the following:
(i) Any account that has a disputed balance;
(ii) Any account (a) with respect to which a filing
has been made by the related Obligor under the Bankruptcy Code
or any other bankruptcy, insolvency or other similar laws
providing for relief of debtors, whether such filing is
voluntary or involuntary or (b) which has or should have (in
accordance with the Policies and Procedures) a status code of
External Status 'B';
(iii) Any account (a) that has charged-off or (b)
which has or should have (in accordance with the Policies and
Procedures) a status code of External Status 'Z';
(iv) Any account (a) the Obligor of which is deceased
or (b) which has or should have (in accordance with the
Policies and Procedures) a status code of RMS Status 'D';
(v) Any account that is currently under litigation;
(vi) Any account that has been classified, or should
have been classified (in accordance with the Policies and
Procedures) as a Lost/Stolen/Fraud (External Status 'L' or
'U') account;
(vii) Any account with a net credit balance;
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(viii) Any account classified, or that should have
been classified (in accordance with the Policies and
Procedures) as revoked (External Status 'E') or interest
prohibited (External Status 'I') or customer closed (External
Status 'C') account, in each case, with a zero balance; and
(ix) Any account that is not subject to a valid
Credit Card Agreement that is the legal, valid and binding
obligation of the related Obligor and that is enforceable in
accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights
generally and by general equity principles or as otherwise may
be limited by a right to offset, recoupment, adjustment or any
other claim under 12 CFR Section 226.12(c), 12 CFR Section
226.13(d) and the Soldiers and Sailors Civil Relief Act.
"ELIGIBLE INVESTMENTS" means negotiable instruments or
securities represented by instruments in bearer or registered form, or, in the
case of deposits described below, deposit accounts held in the name of the
Agent, other than securities issued by or obligations of CompuCredit or any
Affiliate thereof, which mature so that funds will be available no later than
the close of business on the Business Day preceding the Remittance Date
following each Collection Period and which evidence:
(a) direct obligations of, or obligations fully guaranteed as
to timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit
of depository institutions or trust companies incorporated under the laws of the
United States of America or any state thereof, including the District of
Columbia (or domestic branches of foreign banks) and subject to supervision and
examination by federal or state banking or depository institution authorities;
PROVIDED that at the time of the Buyer's investment or contractual commitment to
invest therein, the short-term debt rating of such depository institution or
trust company shall be A-1+ by Standard and Poor's and P-1 by Moody's;
(c) commercial paper having, at the time of the Buyer's
investment or contractual commitment to invest therein, a rating of A-1+ by
Standard & Poor's and P- 1 by Moody's;
(d) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC having, at the time of the Buyer's
investment therein, a rating of A-1+ by Standard & Poor's and P-1 by Moody's;
(e) bankers' acceptance issued by any depository institution
or trust company referred to in clause (b) above; or
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(f) investments in money market funds having a rating from
either of Standard & Poor's or Moody's in the highest investment category
granted thereby or otherwise approved by the Agent.
"ELIGIBLE POOL BALANCE" means, as determined as of any day,
an amount equal to the sum of (a) the product of *[material omitted] and the
sum of (i) the amount of Principal Receivables that are not Delinquent
Receivables on and as of such day and (ii) the accrued and outstanding
Finance Charges related thereto and (b) the product of *[material omitted]
and the sum of (i) the amount of Principles Receivables that are Delinquent
Receivables on and as of such day and (ii) the accrued and outstanding
Finance Charges related thereto. From and after a Termination Date, the
Eligible Pool Balance shall be equal to zero.
"ELIGIBLE RECEIVABLE" means, at any time, any Receivable:
(i) with respect to which the related Account is an Eligible
Account as of the Original Cut-Off-Date;
(ii) which has been originated by NBD or the Account Owner in
the ordinary course of its business, sold to CAC pursuant to the
Initial Purchase Agreement and sold to the Transferor pursuant to (and
in accordance with) the Receivables Purchase Agreement and to which the
Transferor has good title thereto, free and clear of all Adverse Claims
(other than any lien for municipal or other local taxes if such taxes
are not then due and payable or if the Transferor is then contesting
the validity thereof in good faith by appropriate proceedings and has
set aside on its books adequate reserves with respect thereto);
(iii) which (together with the Related Security, Collections
and Proceeds related thereto) has been the subject of either a Transfer
or the grant of a first priority perfected security interest therein
(and in the Collections and Related Security related thereto),
effective until the termination of this Agreement;
(iv) the Obligor of which is a United States resident (except
for Receivables in an outstanding amount not to exceed at any time
$1,000,000 individually or in the aggregate), is not an Affiliate of
any of the parties hereto, and is not a government or a governmental
subdivision or agency;
(v) which (A) arises pursuant to an Account with respect to
which each of CB&T, CAC, the Transferor and the Original Sellers, as
applicable, have performed all obligations required to be performed by
it thereunder, and (B) has been billed in accordance with the Credit
Card Agreement related thereto;
(vi) which is an "eligible asset" as defined in Rule 3a-7
under the Investment Company Act of 1940, as amended;
- -------------
* Deleted per the Registrant's request for confidential treatment and filed
separately with the Commission pursuant to Rule 406 under the Securities
Act of 1933.
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(vii) a purchase of which with the proceeds of Commercial
Paper would constitute a "current transaction" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended;
(viii) which is an "account", "chattel paper" or "general
intangible" within the meaning of Article 9 of the UCC of all
applicable jurisdictions;
(ix) which (A) satisfies all applicable requirements of the
Credit Card Guidelines and (B) is assignable without the consent of, or
notice to, the Obligor thereunder;
(x) which has not been compromised, adjusted or modified
(including by the extension of time for payment or the granting of any
discounts, allowances or credits); PROVIDED, HOWEVER, that only such
portion of such Receivable that is the subject of such compromise,
adjustment or modification shall be deemed to be ineligible pursuant to
the terms of this clause (x);
(xi) which is serviced by the Servicer or the Sub-Servicer;
(xii) which, at all times will be the legal, valid and binding
payment obligation of the Obligor thereon enforceable against such
Obligor in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
the enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity);
(xiii) which is denominated and payable only in United States
dollars in the United States;
(xiv) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations or declarations with,
any Governmental Authority required to be obtained, effected or given
by the Transferor or Account Owner in connection with the creation of
such Receivable or the execution, delivery, creation and performance
by the Account Owner of the Credit Card Agreement pursuant to which
such Receivable was created, have been duly obtained, effected or
given and are in full force and effect;
(xv) which was created in compliance in all material respects
with all Requirements of Law applicable to the institution which owned
such Receivable at the time of its creation and pursuant to a Credit
Card Agreement which complies in all material respects with all
Requirements of Law applicable to CB&T or other Account Owner, as the
case may be;
(xvi) which, as of the Transfer Date is not subject to any
right of rescission, setoff, counterclaim or any other defense
(including defenses arising
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out of violations of usury laws) of the Obligor, other than defenses
arising out of applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights in general; and
(xvii) as to which, as of the Transfer Date, the Account
Owner, has not taken any action which would impair, or omitted to take
any action the omission of which would impair, the rights of the Agent,
the Buyer or any other Owner therein.
"ERISA" means the U.S. Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA AFFILIATE" means, with respect to any Person, (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as such Person; (ii) a trade
or business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Code) with such Person; or (iii) a member of
the same affiliated service group (within the meaning of Section 414(n) of the
Code) as such Person, any corporation described in clause (i) above or any trade
or business described in clause (ii) above.
"EVENT OF BANKRUPTCY" means, (x) with respect to the
Transferor, that (a) such Person shall consent to the appointment of a
bankruptcy trustee or conservator or receiver or liquidator in any bankruptcy
proceeding or other insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to such Person or of or
relating to all or substantially all of the property of such Person; or (b) an
action seeking a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a bankruptcy trustee
or a conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings, or the
winding-up or liquidation of its affairs, shall have been commenced against such
Person and either such decree or order shall have been entered against such
Person or such action shall have remained in force undischarged or unstayed for
a period of 60 days; or (c) such Person shall admit in writing its inability to
pay its debts generally as they become due, file, or consent or fail to object
(or object without dismissal of any such filing within 60 days of such filing)
to the filing of, a petition to take advantage of any applicable bankruptcy,
insolvency, reorganization, receivership or conservatorship statute or make any
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations and (y) with respect to any Person other than the Transferor,
that such Person (a) shall consent to the appointment of a bankruptcy trustee or
conservator or receiver or liquidator in any bankruptcy proceeding or other
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to such Person or of or relating to all or
substantially all of the property of such Person; or (b) a decree or order of a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a bankruptcy trustee or a conservator or reciver or
liquidator in any insolvency,
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readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or the winding-up or liquidation of its affairs, shall have been
entered against such Person and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or (c) such Person shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable bankruptcy, insolvency or
reorganization statute or make any assignment for the benefit of its creditors
or voluntarily suspend payment of its obligations.
"EXCESS FINANCE CHARGE COLLECTIONS" means, with respect to any
Remittance Date, an amount equal to (i) Collections in respect of Finance Charge
Receivables for the related Collection Period minus (ii) the Servicing Fee for
such Collection Period minus (iii) the Carrying Costs for such Collection
Period.
"EXCLUDED TAXES" has the meaning specified in Section 8.3
hereof.
"FACILITIES MANAGEMENT AGREEMENT" means the Facilities
Management Services Agreement dated as of August 1, 1998 by and between CB&T and
CompuCredit and all amendments, modifications and supplements thereto and
restatements thereof.
"FACILITY LIMIT" means (a) on the Closing Date, an amount
equal to the Initial Net Investment; (b) during the period commencing on the
Remittance Date immediately following the Closing Date and ending on the
February 2000 Remittance Date, an amount equal to the Net Investment (after
giving effect to the application of Collections on such Remittance Date); (c)
during the period commencing on the March 2000 Remittance Date and ending on the
September 2000 Remittance Date, the lesser of (i) the Facility Limit on the
February 2000 Remittance Date and (ii) the product of (A) the Facility Limit on
the Closing Date and (B) 95%; (d) during the period commencing on the October
2000 Remittance Date and ending on the April 2001 Remittance Date, the lesser of
(i) the Facility Limit on the February 2000 Remittance Date and (ii) the product
of (A) the Facility Limit on the Closing Date and (B) 90%; (e) during the period
commencing on the May 2001 Remittance Date and ending on the November 2001
Remittance Date, the lesser of (i) the Facility Limit on the February 2000
Remittance Date and (ii) the product of (A) the Facility Limit on the Closing
Date and (B) 80%; and (f) thereafter, the lesser of (i) the Facility Limit on
the February 2000 Remittance Date and (ii) the product of (A) the Facility Limit
on the Closing Date and (B) 70%; or, in each case, such other lesser amount as
determined at the Transferor's sole discretion and presented in writing to the
Agent two (2) Business Days prior to the date that such lesser amount takes
effect; PROVIDED, THAT, (x) at all times on or after the Termination Date the
Facility Limit shall be an amount equal to the outstanding Net Investment from
time to time and (y) any reduction in the Facility Limit shall be permanent.
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<PAGE>
"FACILITY TERMINATION DATE" means February 9, 2000, or such
later date to which the Facility Termination Date may be extended by the
Transferor, the Agent and the Buyer not later than 30 days prior to the then
current Facility Termination Date.
"FEE LETTER" means the letter agreement dated February 10,
1999 among the Agent, the Buyer and the Transferor with respect to the fees to
be paid by the Transferor hereunder, as amended, modified or supplemented and in
effect from time to time.
"FINANCE CHARGE RECEIVABLES" means all amounts billed to the
Obligors on any Account, as determined based on either (a) the actual amounts
posted on the system servicing reports provided to the Servicer by the
Sub-Servicer or any Affiliate of the Sub-Servicer, or other provider of such
reports, if available to the Servicer, or (b) if such actual amounts are not
available to the Servicer, the amount of Finance Charge Receivables for the
prior Collection Period or other reasonable estimation method, in respect of (i)
all Periodic Rate Finance Charges, (ii) Cash Advance Fees, (iii) annual
membership fees and annual service charges, (iv) Late Fees, (v) Overlimit Fees,
and (vi) any other fees with respect to the Accounts designated by the
Transferor at any time and from time to time to be included as Finance Charge
Receivables (but any such amount estimated pursuant to this clause (b) shall be
reduced by the amount of all accrued Finance Charge Receivables on Defaulted
Receivables for such Collection Period). Finance Charge Receivables shall also
include (a) Interchange payable to the Account Owners in respect of the
Receivables, (b) all Recoveries with respect to Receivables previously charged
off as uncollectible and (c) all amounts paid by CB&T to CAC in respect of the
Accounts pursuant to Section 8.1(e)(iii) of the Affinity Card Agreement.
"FINANCE CHARGES" means, with respect to an Account, any
finance, interest, late or similar charges owing by an Obligor pursuant to such
Account.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such accounting profession, which are in effect as of the date of
this Agreement.
"GOVERNMENTAL AUTHORITY" means the United States of America,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTOR" means CompuCredit and its successors and assigns.
"GUARANTY" means the Guaranty of CompuCredit contained in
Article X of this Agreement.
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<PAGE>
"INCREMENTAL TRANSFER" means a Transfer which is made pursuant
to Section 2.2(a) hereof.
"INDEBTEDNESS" means, with respect to any Person, without
duplication, such Person's (i) obligations for borrowed money, (ii) obligations
representing the deferred purchase price of property other than accounts payable
arising in the ordinary course of such Person's business on terms customary in
the trade, (iii) obligations, whether or not assumed, secured by liens or
payable out of the proceeds or production from property now or hereafter owned
or acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) Capitalized Lease obligations and (vi)
any agreement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes
liable upon, the obligation of any other Person, or agrees to maintain the net
worth or working capital or other financial condition of any other Person or
otherwise assures any other creditor of such other Person against loss,
including, without limitation, any comfort letter, operating agreement or
take-or-pay contract and shall include, without limitation, the contingent
liability of such Person in connection with any application for a letter of
credit.
"INDEMNIFIED AMOUNTS" has the meaning specified in Section 8.1
hereof.
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1
hereof.
"INITIAL NET INVESTMENT" means $176,532,818.
"INITIAL PURCHASE AGREEMENT" means the receivables purchase
agreement, dated April 17, 1998, between CB&T, as seller, and CAC, as purchaser,
as amended, modified or supplemented and in effect from time to time.
"INITIAL RESERVE ACCOUNT AMOUNT" means an amount equal to the
product of (a) the sum of (i) the Principal Receivables outstanding as of the
close of business on the Cut-Off-Date plus (ii) the accrued and outstanding
Finance Charges related thereto as of such date, and (b) 1.8%.
"INSURANCE PROCEEDS" means any amounts received by the
Servicer pursuant to the payment of benefits under any credit life insurance
policies, credit disability or unemployment insurance policies covering any
Obligor with respect to Receivables under such Obligor's Account.
"INTERCHANGE" means interchange fees payable to CB&T or any
other Account Owner (net of any interchange fees paid by such Account Owner), in
its capacity as credit card issuer, through Novus Network, VISA or MasterCard in
connection with cardholder charges for goods or services with respect to the
Accounts. Any reference in this Agreement to Interchange shall refer to only the
fractional undivided interest in the interchange fees that are transferred by
CAC to the Transferor
15
<PAGE>
pursuant to the Receivables Purchase Agreement, which fractional undivided
interest may be less than 100% interest therein.
"INVESTMENT LETTER" has the meaning set forth in Section
11.11(c) hereof.
"LATE FEES" has the meaning specified in the Credit Card
Agreement applicable to each Account for late fees or similar terms.
"LAW" means any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any Governmental Authority.
"LIBO RATE" means, with respect to any Collection Period, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 as the London interbank offered rate for
deposits in U.S. dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Collection Period for a term of one month.
If for any reason such rate is not available, the term "LIBO Rate" shall mean,
for any Collection Period, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Collection Period
for a term of one month; PROVIDED, HOWEVER, if more than one rate is specified
on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic
mean of all such rates. In the event no such rate appears as described in the
preceding sentences, the LIBO Rate shall be, with respect to any Collection
Period, the per annum rate of interest at which U.S. Dollar deposits in same day
funds are offered to the Agent by prime banks in the interbank eurodollar market
at or about 10:00 a.m., London time, on the second Business Day before (and for
value on) the first day of such Collection Period (or portion thereof) and in an
amount of not less than $1,000,000 for such Collection Period (or portion
thereof).
"LIBO RATE (RESERVE ADJUSTED)" means, with respect to any
Collection Period (or portion thereof), the sum of (a) 0.875% per annum and (b)
the per annum rate of interest (rounded upward, if necessary, to the nearest
whole multiple of 1/16th of one percent per annum) determined by dividing (i)
the LIBO Rate for such Collection Period (or portion thereof) by (ii) one MINUS
the LIBO Rate Reserve Percentage (expressed as a decimal) applicable during such
Collection Period (or portion thereof).
"LIBO RATE DISRUPTION EVENT" means, for any Owner for any
Collection Period, any of the following: (i) a determination by such Owner that
it would be contrary to law or to the directive of any central bank or other
Governmental Authority to obtain U.S. Dollars in the London interbank market to
fund or maintain its investment in the Transferred Interest for such Collection
Period or (ii) the inability of such Owner by reason of circumstances affecting
the London interbank market generally, to obtain U.S. Dollars in such market to
fund its investment in the Transferred Interest for such Collection Period.
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<PAGE>
"LIBO RATE RESERVE PERCENTAGE" means, with respect to any
Collection Period (or portion thereof), the reserve percentage (rounded upwards,
if necessary, to the nearest 1/16th of one percent per annum) applicable during
such Collection Period (or portion thereof) (or, if more than one such
percentage shall be so applicable during such Collection Period, the daily
average of such percentages for those days in such Collection Period (or portion
thereof) during which any such percentages shall be in effect) under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for banks or other financial institutions subject to such
regulations with respect to liabilities or assets consisting of or including
"eurocurrency liabilities" as defined in Regulation D issued by the Board of
Governors of the Federal Reserve System or any successor regulation having a
term equal to such Collection Period (or portion thereof).
"LIQUIDITY PROVIDER" means the Person or Persons who will
provide liquidity support to Buyer in connection with the issuance by Buyer of
Commercial Paper.
LIQUIDITY PROVIDER AGREEMENT" means the agreement between
Buyer and the Liquidity Provider evidencing the obligation of the Liquidity
Provider to provide liquidity support to Buyer in connection with the issuance
by Buyer of Commercial Paper.
"MAJORITY OWNERS" means, at any time, the Agent and those
Owners holding interests in the Transferred Interest aggregating in excess of
51% of the outstanding Net Investment as of such date.
"MATERIAL ADVERSE EFFECT" means any event or condition which
would have a material adverse effect on (i) the collectibility of the
Receivables, (ii) the condition (financial or otherwise), businesses or
properties of the Transferor, Account Owner, Servicer or Sub-Servicer or (iii)
the ability of the Transferor, Account Owner, Servicer or Sub-Servicer to
perform its respective obligations under the Transaction Documents to which it
is a party.
"MONTHLY SERVICER REPORT" means a report, in substantially the
form attached hereto as Exhibit E or in such other form as is mutually agreed to
by the Transferor and the Agent, furnished by the Servicer pursuant to Section
2.11 hereof.
"MOODY'S" means Moody's Investors Service, Inc.
"MRC" means Mountain Receivables Corporation, a Delaware
corporation, together with its successors and assigns.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA which is or was at any time during the current
year or the
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<PAGE>
immediately preceding five years contributed to by the Transferor or any ERISA
Affiliate thereof on behalf of its employees.
"MWFC" means MountainWest Financial Corporation, a Utah
industrial loan corporation, together with its successors and assigns.
"NBD" means NationsBank of Delaware, N.A., a national banking
association, together with its successors and assigns.
"NET INVESTMENT" means the sum of the amounts paid to the
Transferor in connection with each Incremental Transfer pursuant to Section
2.2(a) by the Buyer less the aggregate amount of Collections received and
applied by the Agent to reduce such Net Investment pursuant to Section 2.5,
2.12, 2.15 or 7.3 hereof; PROVIDED that such Net Investment shall be restored
and reinstated in the amount of any Collections so received and applied if at
any time the distribution of such Collections is rescinded or must otherwise be
returned for any reason.
"NOTICE OF TERMINATION EVENT" has the meaning specified in
Section 9.3 hereof.
"OBLIGOR" means a Person obligated to make payments for the
provision of goods and services pursuant to an Account.
"OFFICER'S CERTIFICATE" means, unless otherwise specified in
this Agreement, a certificate delivered to the Agent signed by the President,
any Vice President, the Treasurer, Chief Financial Officer, Controller or Member
of the Transferor or the Servicer, as the case may be, (or an officer holding an
office with equivalent or more senior responsibilities or, in the case of the
Servicer, a Servicing Officer, and, in the case of the Transferor, any executive
of the Transferor designated in writing by a Vice President or more senior
officer of the Transferor for this purpose) or by the President, any Vice
President, the Chief Financial Officer, Controller or Member of a successor
Servicer.
"OPTIONAL AMORTIZATION AMOUNT" has the meaning specified in
Section 2.15.
"OPTIONAL AMORTIZATION DATE" has the meaning specified in
Section 2.15.
"OPTIONAL AMORTIZATION NOTICE" has the meaning specified in
Section 2.15.
"ORIGINAL CUT-OFF-DATE" means March 1, 1998.
"ORIGINAL SELLERS" means, collectively MWFC, MRC and NBD.
"OTHER TRANSFEROR" means any Person other than the Transferor
that has entered into a receivables purchase agreement, transfer and
administration agreement or other similar agreement with Buyer.
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<PAGE>
"OVERLIMIT FEES" has the meaning specified in the Credit Card
Agreement applicable to each Account for overlimit fees or similar terms if such
fees are provided for with respect to such Account.
"OWNER" means the Buyer and all other owners by assignment,
participation or otherwise of any interest in the Transferred Interest.
"PARTICIPANT" has the meaning set forth in Section 11.11(f)
hereof.
"PAYMENT RATE" means, for any Collection Period, the
percentage equivalent of a fraction, the numerator of which is equal to the
average monthly amount of all Collections (including amounts retained by the
Sub-Servicer in respect of the Sub-Servicing Fee) received during such
Collection Period and the immediately preceding two Collection Periods and the
denominator of which is equal to the average monthly amount of Principal
Receivables outstanding during such Collection Period and the immediately
preceding two Collection Periods.
"PBGC" means the Pension Benefit Guaranty Corporation or any
other entity succeeding to the functions currently performed by the Pension
Benefit Guaranty Corporation.
"PERIODIC RATE FINANCE CHARGES" has the meaning specified in
the Credit Card Agreement applicable to each Account for finance charges (due to
periodic rate) or any similar term.
"PERMITTED ASSIGNEE" means each of Barclays, each Liquidity
Provider, each Credit Support Provider and each other Person consented to by the
Transferor, such consent not to be unreasonably withheld.
"PERMITTED LIENS" means the liens (a) created under this
Agreement, (b) arising under any Purchase Agreement or (c) otherwise permitted
by the Agent in writing. A "Permitted Lien" shall also include the sale, pledge,
transfer, conveyance, hypothecation or granting of a security interest in the
Transferor's Interest to any Person so long as (i) any claim of such Person in
the Transferor's Interest or Affected Assets is in all respects subordinate to
the claims of the Buyer, the Agent and the other Owners and the Agent shall be
satisfied with the terms of such subordination.
"PERSON" means any corporation, limited liability company,
natural person, firm, joint venture, partnership, trust, unincorporated
organization, enterprise, government or any department or agency of any
government.
"POLICIES AND PROCEDURES" means the written policies and
procedures of the Original Sellers relating to the Accounts, as in effect from
time to time.
"POTENTIAL TERMINATION EVENT" means an event which but for the
lapse of time or the giving of notice, or both, would constitute a Termination
Event.
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<PAGE>
"PRINCIPAL RECEIVABLES" means, at any time, the then
outstanding principal amount of Eligible Receivables excluding any accrued and
outstanding Finance Charges related thereto and giving effect to the amount of
any credit balances and other adjustments existing with respect to such
Receivable on such day. The outstanding principal amount of any Defaulted
Receivables shall be considered to be zero for the purposes of any determination
hereunder of the aggregate outstanding amount of Principal Receivables.
"PRIVATE HOLDER" means (i) each holder of a right to receive
interest or principal in respect of any direct or indirect interest in the
Transferred Interest including any financial instrument or contract the value of
which is determined in whole or in part by reference to the Transferred Interest
and (ii) any other Person that the Transferor determines is, may be or may
become a "partner" within the meaning of Section 1.7704-1(h)(1)(ii) of the
United States Treasury Regulations (including by reason of Section
1.7704-1(h)(3)). Any Person holding more than one interest in the Transferred
Interest each of which separately would cause such Person to be a Private Holder
shall be treated as a single Private Holder. Each holder of an interest in a
Private Holder which is a partnership, an S Corporation or a grantor trust under
the Code shall be treated as a Private Holder unless excepted with the consent
of the Transferor.
"PROCEEDS" means "proceeds" as defined in Section 9-306(1) of
the UCC.
"PROGRAM FEE" means the fee payable by the Transferor to the
Agent pursuant to Section 2.7 hereof, computed as described in clause (iii) of
the definition of Carrying Costs.
"PROGRAM FEE RATE" has the meaning specified in the Fee
Letter.
"PURCHASE AGREEMENT" means the Cargill Purchase Agreement and
any other Purchase Agreement entered into by the Transferor and the
purchaser named therein relating to the sale of an interest in the
Transferor's Interest to the extent permitted under Section 5.1(j)
hereof.
"PURCHASE TERMINATION DATE" means the date upon which the
Transferor shall cease, for any reason whatsoever, to make purchases of
Receivables from CAC under the Receivables Purchase Agreement or the Receivables
Purchase Agreement shall terminate for any reason whatsoever.
"REASSIGNMENT AMOUNT" means, with respect to any Remittance
Date, after giving effect to any deposits and distributions otherwise to be made
on such Remittance Date, for the Buyer, without duplication, the sum of (a) the
Net Investment on such Remittance Date plus (b) accrued interest, fees, and all
other Aggregate Unpaids due and owing to the Buyer for such Remittance Date.
"RECEIVABLE" means the indebtedness owed by any Obligor under
an Account and sold by (i) to the extent outstanding on the Original Cut-Off
Date, the
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<PAGE>
Original Sellers to CB&T pursuant to the Sale and Purchase Agreement, (ii) CB&T
to CAC pursuant to the Initial Purchase Agreement and (iii) CAC to the
Transferor pursuant to the Receivables Purchase Agreement, arising in connection
with the sale or lease of merchandise or the rendering of services, and includes
the right to payment of any Finance Charges and other obligations of such
Obligor with respect thereto. Notwithstanding the foregoing, once a Receivable
has been deemed collected pursuant to Section 2.9 hereof, it shall no longer
constitute a Receivable hereunder.
"RECEIVABLES PURCHASE AGREEMENT" means the Receivables
Purchase Agreement, dated April 17, 1998, by and between CAC, as seller, and the
Transferor, as purchaser, as such agreement may be amended, modified or
supplemented and in effect from time to time.
"RECIPIENTS" has the meaning specified in Section 2.13 hereof.
"RECORDS" means all Credit Card Agreements and other
documents, books, records and other information (including, without limitation,
computer programs, tapes, discs, punch cards, data processing software and
related property and rights) maintained with respect to Receivables, the
Accounts and the related Obligors.
"RECOVERIES" means all amounts received or collected by the
Servicer or the Sub-Servicer (net of out-of-pocket costs of collection) with
respect to Defaulted Receivables, including any amounts received through the
sale or other disposition of the Defaulted Receivables to unaffiliated third
parties.
"RELATED ACCOUNT" means an Account with respect to which a new
credit account number has been issued by the applicable Account Owner or
Servicer or the Transferor under circumstances resulting from an error or a lost
or stolen credit card and not requiring standard application and credit
evaluation procedures under the Credit Card Guidelines.
"RELATED COMMERCIAL PAPER" means Commercial Paper issued by
the Buyer the proceeds of which were allocated in whole or in part by the Buyer
(or the Agent or its behalf) to acquire, or refinance the acquisition of, an
interest in Receivables with respect to the Transferor.
"RELATED SECURITY" means with respect to any Receivable, all
of the Transferor's rights, title and interest in, to and under:
(i) all of the Transferor's interest, if any, in the
merchandise (including returned or repossessed merchandise), if any,
the sale of which gave rise to such Receivable;
(ii) all other security interests or liens and
property subject thereto from time to time, if any, purporting to
secure payment of such Receivable, whether pursuant to the Account
related to such Receivable or
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otherwise, together with all financing statements signed by an Obligor
describing any collateral securing such Receivable;
(iii) all guarantees, indemnities, warranties,
insurance (and proceeds and premium refunds thereof) or other
agreements or arrangements of any kind from time to time supporting or
securing payment of such Receivable whether pursuant to the Account
related to such Receivable or otherwise;
(iv) all Records related to such Receivable;
(v) all rights and remedies of the Transferor under
the Receivables Purchase Agreement, together with all financing
statements filed by the Transferor against CAC in connection therewith;
and
(vi) all Proceeds of any of the foregoing.
"REMITTANCE DATE" means March 15, 1999 and thereafter the
fifteenth day of each calendar month, or if such day is not a Business Day, the
next succeeding Business Day.
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(b) of ERISA, other than those events for which notice to the PBGC
is waived under applicable PBGC regulations.
"REQUIRED RESERVE ACCOUNT AMOUNT" means, for any date of
determination, an amount equal to the product of (i) the Reserve Account
Percentage in effect on such date and (ii) the Initial Reserve Account Amount.
"REQUIRED SUBORDINATE PERCENTAGE" shall equal 22.5%.
"REQUIREMENTS OF LAW" means any law, treaty, rule or
regulation, or determination of an arbitrator of Governmental Authority, whether
Federal, state or local (including usury laws, the Federal Truth in Lending Act
and Regulation B and Regulation Z of the Board of Governors of the Federal
Reserve System), and, when used with respect to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person.
"RESERVE ACCOUNT" has the meaning assigned to that term in
Section 2.6.
"RESERVE ACCOUNT PERCENTAGE" means for the Remittance Date for
each of the Collection Periods set forth below, the percentage set forth
opposite the applicable Collection Period below:
22
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
Collection Periods 1 through 11 100.00%
Collection Periods 12 through 17 75.00%
Collection Periods 18 through 23 56.25%
Collection Periods 24 through 26 37.50%
Collection Periods 27 through 29 18.75%
Collection Period 30 and each
Collection Period thereafter
0.00%
</TABLE>
"SALE AND PURCHASE AGREEMENT" means the sale and purchase
agreement, dated as of March 26, 1998, by and among the Original Sellers, CAC
and CB&T, as it may be amended, modified or supplemented and in effect from time
to time.
"SECTION 8.2 COSTS" has the meaning specified in Section
8.2(f) hereof.
"SERVICER" means at any time the Person then authorized
pursuant to Section 6.1 hereof to service, administer and collect Receivables.
"SERVICER ADVANCE" has the meaning set forth in Section 2.5(c)
hereof.
"SERVICER DEFAULT" has the meaning set forth in Section 6.4
hereof.
"SERVICING FEE" means, with respect to any Remittance Date,
the fee payable to the Servicer on such Remittance Date with respect to the
Accounts in an amount equal to (a) the product of (i) 10.5% for each of the
first twelve Collection Periods, and 9.5% for each Collection Period thereafter
and (ii) the total amount of Collections for the related Collection Period
(including any Sub-Servicing Fee for such Collection Period) minus (b) the
Sub-Servicing Fee with respect to such Collection Period. Such fee shall accrue
from February 1, 1999 to the date on which the Net Investment is reduced to
zero. Such fee shall be payable only from Collections pursuant to, and subject
to the priority of payments set forth in, Section 2.5 hereof.
"SERVICING OFFICER" means any officer of the Servicer or an
attorney-in-fact of the Servicer who in either case is involved in, or
responsible for, the administration and servicing of the Receivables and whose
name appears on a list of servicing officers furnished to the Agent by the
Servicer, as such list may from time to time be amended.
"STANDARD & POOR'S" or "S&P" means Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
"SUBORDINATE PERCENTAGE" means, for any date of determination,
an amount, stated as a percentage, equal to (a) 1 minus (b) a fraction, the
numerator of which is the Net Investment and the denominator of which is the sum
of (i) the Principal
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Receivables outstanding and (ii) the accrued and outstanding Finance Charges
related thereto.
"SUB-SERVICER" means CB&T or any other third party contractual
servicer approved of in writing by the Agent.
"SUB-SERVICING FEE" means, with respect to any Collection
Period, the fee excluded from Collections and payable by the Servicer to the
Sub-Servicer with respect to the Accounts. Such fee shall accrue from February
1, 1999 to the date on which the Net Investment is reduced to zero.
"SUBSIDIARY" of a Person means any Person more than 50% of the
outstanding voting interests of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which
is so owned or controlled.
"TAXES" has the meaning specified in Section 8.3 hereof.
"TELERATE PAGE 3750" means the display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits).
"TERMINATION DATE" means the earliest of (i) the date of
termination of the commitment of the Liquidity Provider under the Liquidity
Provider Agreement, (ii) the date of termination of the commitment of the Credit
Support Provider under the Credit Support Agreement, (iii) the day upon which
the Termination Date is declared or automatically occurs pursuant to Section
7.2(a) hereof, (iv) two Business Days prior to the Facility Termination Date,
(v) the Purchase Termination Date or (vi) the Optional Amortization Date or the
date on which the Transferor exercises the purchase option described in Section
7.3(b).
"TERMINATION EVENT" means an event described in Section 7.1
hereof.
"THREE-MONTH AVERAGE CHARGE-OFF RATE" means, for any
Collection Period, the annualized percentage equivalent of a fraction, the
numerator of which is equal to the aggregate amount of Principal Receivables
that became Defaulted Receivables during such Collection Period and the
immediately preceding two Collection Periods, less all Recoveries received
during such Collection Period and the immediately preceding two Collection
Periods, and the denominator of which is the average daily Principal Receivables
during such Period and the immediately preceding two Collection Periods.
"TRANSACTION COSTS" has the meaning specified in Section
8.4(a) hereof.
24
<PAGE>
"TRANSACTION DOCUMENTS" means, collectively, this Agreement,
the Receivables Purchase Agreement, the Initial Purchase Agreement, the CB&T
Agreement, the Fee Letter, the Affinity Card Agreement, the Sale and Purchase
Agreement, and all of the other instruments, documents and other agreements
executed and delivered by CB&T, CAC, CompuCredit or the Transferor in connection
with any of the foregoing, in each case, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"TRANSFER" means a conveyance, transfer and assignment by the
Transferor to the Buyer of an undivided percentage interest in Receivables
hereunder (including, without limitation, as a result of any reinvestment of
Collections in Transferred Interests pursuant hereto).
"TRANSFER DATE" means, with respect to each Transfer, the
Business Day on which such Transfer is made.
"TRANSFER PRICE" means with respect to any Transfer, the
amount paid to the Transferor by the Buyer as described in the notice delivered
by the Transferor pursuant to Section 2.2(b).
"TRANSFEROR" means CompuCredit Acquisition Funding Corp., a
Nevada corporation, and its successors and permitted, as approved in writing by
the Agent, assigns.
"TRANSFEROR'S INTEREST" means the Principal Receivables
together with any accrued and outstanding Finance Charges related thereto less
the Net Investment.
"TRANSFERRED ACCOUNT" means each account into which an Account
shall be transferred, PROVIDED that such transfer is made in accordance with the
Credit Card Guidelines or in connection with the transfer of the processing of
the Accounts to CB&T pursuant to the Sale and Purchase Agreement.
"TRANSFERRED INTEREST" means, at any time of determination,
an undivided percentage interest in (i) each and every then outstanding
Receivable, (ii) all Related Security with respect to each such Receivable,
(iii) all Collections with respect thereto, and (iv) other Proceeds of the
foregoing. The Transferred Interest in each Receivable, together with Related
Security, Collections and Proceeds with respect thereto, shall at all times be
equal to the Transferred Interest in each other Receivable, together with
Related Security, Collections and Proceeds with respect thereto. To the extent
that the Transferred Interest shall decrease as a result of a recalculation of
the Transferor's Interest, the Agent, on behalf of the Buyer shall be considered
to have reconveyed to the Transferor an undivided percentage interest in each
Receivable, together with Related Security, Collections and Proceeds with
respect thereto, in an amount equal to such decrease such that in each case the
Transferred Interest in each Receivable shall be equal to the Transferred
Interest in each other Receivable. The Transferred Interest
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shall be determined as a percentage equal to the Net Investment divided by the
Principal Receivables.
"UCC" means, with respect to any state, the Uniform Commercial
Code as from time to time in effect in such state.
"U.S." or "UNITED STATES" means the United States of America.
SECTION 1.2. OTHER TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. All
terms used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such Article 9.
SECTION 1.3. COMPUTATION OF TIME PERIODS. Unless otherwise
stated in this Agreement, in the computation of a period of time from a
specified date to a later specified date, the word "from" means "from and
including", the words "to" and "until" each means "to but excluding", and the
word "within" means "from and excluding a specified date and to and including a
later specified date".
ARTICLE II
TRANSFERS AND SETTLEMENTS
SECTION 2.1. FACILITY. Upon the terms and subject to the
conditions herein set forth, at any time prior to the earlier of the Termination
Date and the occurrence of any Termination Event, (x) the Transferor may, at its
option, convey, transfer and assign to the Agent, on behalf of the Buyer and (y)
the Agent, on behalf of the Buyer shall accept such conveyance, transfer and
assignment from the Transferor of, without recourse except as provided herein,
undivided percentage interests in all of the Transferor's right, title and
interest in and to the Receivables, together with Related Security, Collections
and Proceeds with respect thereto, from time to time. By accepting any
conveyance, transfer and assignment hereunder, none of the Buyer, the Agent or
any of the other Owners from time to time assumes or shall have any obligations
or liability under any of the Accounts, all of which shall remain the
obligations and liabilities of the Transferor, CAC and any Account Owner.
SECTION 2.2. TRANSFERS.
(a) Upon the terms and subject to the conditions herein set
forth, the Transferor may, at its option, convey, transfer and assign to the
Agent, on behalf of the Buyer undivided percentage interests in the Receivables,
together with Related Security, Collections and Proceeds with respect thereto,
thereby increasing the outstanding Net Investment (each, an "INCREMENTAL
TRANSFER"), and, so long as neither the Termination Date nor a Termination Event
shall have occurred, the Agent, on behalf of the Buyer, shall accept and fund
such Incremental Transfer, without recourse, except
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as provided herein; PROVIDED, HOWEVER that (A) the amount of the increase in the
Net Investment in connection with any such Incremental Transfer made to the
Agent, on behalf of the Buyer, shall not exceed the least of the following
amounts, each determined as of the close of business on the Business Day
immediately preceding the date of such Incremental Transfer: (x) the Facility
Limit MINUS the Net Investment, (y) the amount of the Eligible Pool Balance
MINUS the Net Investment, and (z) the aggregate amount of principal receivables
purchases made by Obligors which were not funded pursuant to Section 2.5 (a)(v)
since the date of the last Incremental Transfer, (B) after giving effect to the
payment to the Transferor of such Transfer Price, no Termination Event shall
have occurred, (C) the representations and warranties set forth in Sections 3.1
and 3.3 hereof shall be true and correct as of the date of any such Incremental
Transfer, (D) the payment to the Transferor of the Transfer Price related
thereto and the Monthly Servicer Report shall have been delivered as required by
Section 2.11 hereof and (E) the Transferor shall have delivered to the Agent on
the date of such Incremental Transfer a certificate in form and substance
satisfactory to the Agent, dated such date certifying that the conditions
specified in the preceding clauses (A) through (D) of this Section 2.2(a) have
been satisfied; PROVIDED FURTHER, HOWEVER, that (i) in the case of the initial
Incremental Transfer, the Facility Limit for purposes of the condition specified
in the preceding clause (A)(x) of this Section 2.2(a) shall be deemed to be
$176,532,818, and (ii) each Incremental Transfer other than the initial
Incremental Transfer, shall occur only on a Remittance Date.
(b) The Transferor shall, by notice to the Agent given by
10:00 a.m. (New York City time) at least two (2) Business Days prior to the
proposed date of any Incremental Transfer by telecopy, offer to convey, transfer
and assign to the Agent, on behalf of the Buyer, undivided percentage interests
in the Receivables and the other Affected Assets relating thereto. Each such
notice shall specify (x) the desired Transfer Price (which shall be at least
$1,000,000 or integral multiples of $100,000 in excess thereof) or, to the
extent that the then available unused portion of the Facility Limit is less than
such amount, such lesser amount equal to such available portion of the Facility
Limit), (y) the desired date of such Incremental Transfer and (z) the desired
funding period(s) and allocation of the Net Investment arising in connection
with such Incremental Transfer thereto as required by Section 2.3. The Agent
will promptly notify the Buyer, of the Agent's receipt of any request for an
Incremental Transfer to be made to the Agent on behalf of such Person. Each
notice of proposed Transfer shall be irrevocable and binding on the Transferor
and the Transferor shall indemnify the Buyer against any loss or expense
incurred by the Buyer, either directly or indirectly (including through the
Liquidity Provider Agreement) as a result of any failure by the Transferor to
complete such Incremental Transfer, including, without limitation, any loss or
expense incurred by the Buyer, either directly or indirectly (including pursuant
to the Liquidity Provider Agreement) by reason of the liquidation or
reemployment of funds acquired by the Buyer (or the Liquidity Provider)
(including, without limitation, funds obtained by issuing commercial paper or
promissory notes or obtaining deposits as loans from third parties) for the
Buyer to fund such Incremental Transfer.
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(c) On the date of the initial Incremental Transfer, the
Agent, on behalf of the Buyer shall deliver written confirmation to the
Transferor of the Transfer Price, the funding period(s) and the Applicable
Rate(s) relating to such Transfer. On the date of each subsequent Incremental
Transfer, the Agent shall send written confirmation to the Transferor of the
Transfer Price, the funding period(s) and the Applicable Rate(s) applicable to
such Incremental Transfer. Following each Incremental Transfer, the Buyer shall
deposit to the Transferor's account at the location indicated in Section 11.3
hereof, in same day funds, an amount equal to the Transfer Price for such
Incremental Transfer made to the Buyer.
(d) By no later than 11:00 a.m. (New York City time) on the
date of any Incremental Transfer, the Buyer shall remit the Transfer Price for
such Incremental Transfer to the account of the Agent specified therefor from
time to time by the Agent by notice to such Persons. Following each Incremental
Transfer and the Agent's receipt of funds from the Buyer, the Agent shall remit
the Transfer Price to the Transferor's account at the location indicated in
Section 11.3 hereof, in same day funds, an amount equal to the Transfer Price
for such Incremental Transfer.
(e) On each Business Day occurring after the initial
Incremental Transfer hereunder and prior to the Termination Date, the Transferor
hereby agrees to convey, transfer and assign to the Agent, on behalf of the
Buyer, and the Agent, on behalf of the Buyer, shall agree to purchase from the
Transferor undivided percentage interests in each and every Receivable, together
with Related Security, Collections and Proceeds with respect thereto, to the
extent of the aggregate amount of principal receivables purchases made since the
preceding purchase under this Section 2.2(e), net of purchases made pursuant to
Section 2.2(a) hereof since such preceding purchase, provided that after giving
effect to such Transfer, no Termination Event or Potential Termination Event
shall occur and the Subordinate Percentage is at least equal to or greater than
the Required Subordinate Percentage. In no event shall the Net Investment be
increased in connection with any Transfer made pursuant to this Section 2.2(e).
(f) The Transferor agrees to pay to CAC any portion of the
purchase price for Receivables received by the Transferor hereunder which is due
and owing to CAC for the purchase of such Receivables on the same Business Day
as such price was paid to the Transferor hereunder.
(g) The Transferor hereby grants to the Agent, on behalf of
the Buyer and the other Owners from time to time, a first priority perfected and
continuing security interest in all of the Transferor's right, title and
interest in, to and under the Receivables, together with Related Security,
Collections and Proceeds with respect thereto, and together with all of the
Transferor's rights under the Receivables Purchase Agreement with respect to the
Receivables and with respect to any obligations thereunder of CAC with respect
to the Receivables. This Agreement shall constitute a security agreement under
applicable law. The Transferor hereby assigns to the Agent, on behalf of the
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Buyer and the other Owners from time to time, all of its rights and remedies
under the Receivables Purchase Agreement with respect to the Receivables and
with respect to any obligations thereunder of CAC with respect to the
Receivables.
SECTION 2.3. SELECTION OF INTEREST RATES AND COLLECTION
PERIODS.
(a) PRIOR TO THE TERMINATION DATE. At all times hereafter, but
prior to the Termination Date, the Transferor may, subject to the Agent's
approval and the limitations described below, request that the Net Investment be
allocated among one or more funding periods, so that the aggregate amounts so
allocated at all times shall equal the Net Investment. The Transferor shall give
the Agent irrevocable notice by telephone of the new requested funding period(s)
at least two (2) Business Days prior to the expiration of any then existing
funding period; PROVIDED, HOWEVER, that the Agent may select, (i) in its sole
discretion, any such new funding period if the Transferor fails to provide such
notice on a timely basis or (ii) any such new funding period if the Agent
determines after consultation and with the consent of the Transferor, that the
funding period requested by the Transferor is unavailable or for any reason
commercially undesirable. The Buyer confirms that it is its intention to fund
all or substantially all of the Net Investment held on its behalf by issuing
Related Commercial Paper; provided that the Buyer may determine, from time to
time, in its reasonable judgment, that funding the Net Investment by means of
Related Commercial Paper is not possible or is not desirable for any reason. In
the case of any funding period outstanding upon the Termination Date, such
funding period shall end on such date.
(b) AFTER THE TERMINATION DATE; TRANSFERRED INTEREST HELD ON
BEHALF OF BUYER. At all times on and after the Termination Date, the Agent shall
select all funding periods and the Alternative Rate shall be applicable to each
such funding period.
SECTION 2.4. [RESERVED].
SECTION 2.5. ALLOCATION OF COLLECTIONS. (a) On each
Remittance Date, the Servicer shall apply Collections (including, without
limitation, the amount of Deemed Collections) for the immediately preceding
Collection Period in the following order:
(i) FIRST, to repay any unreimbursed Servicer Advances;
(ii) SECOND, to the payment to the Agent of any accrued
and unpaid Carrying Costs for any preceding Collection Period;
(iii) THIRD, to the Agent for the benefit of the Owners, in
reduction of the Net Investment, any excess of the Net Investment over
the amount of the Eligible Pool Balance as of the last Business Day of
the immediately preceding Collection Period;
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(iv) FOURTH, to the Servicer for any accrued and unpaid
Servicing Fees for any preceding Collection Period;
(v) FIFTH, to the Transferor to be applied to the purchase of
additional undivided percentage interests in the Receivables pursuant
to Section 2.2(e) equal to the aggregate amount of principal
receivables purchases made by Obligors during such Collection Period,
minus the amount of purchases made pursuant to Sections 2.2(a) and
2.2(e) since the preceding Remittance Date;
(vi) SIXTH, prior to the Termination Date, to the
Transferor, an amount equal to the product of (i) Excess Finance
Charge Collections for the immediately preceding Collection Period
and (ii) for each of the first twelve Collection Periods, 5.0% and,
for each Collection Period thereafter, 10.0%.
(vii) SEVENTH, to the Agent in reduction of the Net
Investment, until the Net Investment is reduced to zero;
(viii) EIGHTH, to the Agent, without duplication, in
satisfaction of all other Aggregate Unpaids that are due and owing on
such Remittance Date; and
(ix) NINTH, any amounts remaining after application in
accordance with clauses (i) through (viii) above shall be distributed
to the Transferor.
(b) In the event that, on any date, there are not
sufficient Collections to pay the Carrying Costs due and payable on such day,
the Servicer, acting upon written notice from the Agent, shall make an advance
in an amount equal to the shortfall in funds available on such day (each, a
"SERVICER ADVANCE") and pay to the Agent, the amount of such advance, PROVIDED,
THAT the Servicer shall not be required to make a Servicer Advance to the extent
that it determines, in its sole discretion, that such advance is unlikely to be
recovered from Collections in subsequent Collection Periods. On each Remittance
Date, the Servicer shall be entitled to reimbursement, without interest, for any
Servicer Advances not previously reimbursed in accordance with Section
2.5(a)(i).
SECTION 2.6. RESERVE ACCOUNT. The Servicer shall establish on
the day of the initial Incremental Transfer hereunder and maintain with
NationsBank, N.A., a segregated account (the "RESERVE ACCOUNT"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Agent, on behalf of the Buyer and the Owners, PROVIDED, HOWEVER,
that if at any time the short-term debt rating of NationsBank, N.A. shall be
lower than "A-1+" or "P-1" by Standard & Poor's or Moody's, respectively, the
Servicer shall instruct NationsBank, N.A. to transfer such Reserve Account and
all funds deposited therein into a new account that it will establish and
maintain in the name of the Agent, on behalf of the Buyer and the other Owners,
which shall be a fully segregated account with the trust department bearing a
designation clearly indicating that the funds deposited therein are held in
trust for the benefit of the Agent, on behalf of the Buyer and the other Owners.
Funds on deposit in
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the Reserve Account (other than investment earnings) shall be invested by the
Servicer in Eligible Investments that will mature so that such funds will be
available on the Business Day preceding the Remittance Date following such
investment. All interest and earnings (net of losses and investment expenses) on
funds on deposit in the Reserve Account shall be transferred by the Servicer to
the Collection Account on the Business Day immediately preceding the applicable
Remittance Date and will be available to make any payments required to be made
pursuant to Section 2.5(a). On each Remittance Date prior to the Termination
Date, after giving effect to the application of Collections pursuant to Section
2.5 hereof on such Remittance Date, the Servicer shall (i) withdraw from the
Reserve Account and pay to the Agent for application to the accrued but unpaid
Carrying Costs, if any, the lesser of the amount on deposit in the Reserve
Account and the amount of such accrued and unpaid Carrying Costs, if any, and
(ii) after giving effect to the withdrawal described in the preceding clause
(i), withdraw from the Reserve Account and pay to the Transferor, the excess, if
any, of the amount on deposit in the Reserve Account over the Required Reserve
Account Amount for the corresponding Collection Period. On the Termination Date,
the Servicer shall (x) withdraw from the Reserve Account and pay to the Agent
for application to the accrued and unpaid Carrying Costs, the outstanding Net
Investment and all other amounts owing to th Buyer and the other Owners
hereunder (in that order), an amount equal to the lesser of the amount on
deposit in the Reserve Account and the sum of the accrued and unpaid Carrying
Costs, the outstanding Net Investment and all other amounts owing to the Buyer
and the other Owners hereunder and (y) after giving effect to the withdrawal
described in the preceding clause (x), but only if all accrued Carrying Costs,
the outstanding Net Investment and all other amounts owing to the Buyer and the
other Owners hereunder shall have been paid in full, withdraw from the Reserve
Account and pay to the Transferor any funds remaining on deposit therein.
SECTION 2.7. FEES. Notwithstanding any limitation on recourse
contained in this Agreement, the Transferor shall pay the following
non-refundable fees:
(a) On each Remittance Date, to the Agent, for the account of
the Buyer, the Agent and certain other parties, as determined by the Agent, the
Program Fee accrued during the related Collection Period and to the extent not
paid on or prior to such Remittance Date pursuant to Section 2.5(a)(ii).
(b) On the Closing Date, to the Agent solely for its own
account, the Arrangement Fee.
SECTION 2.8. PROTECTION OF TRANSFERRED INTEREST OF THE
OWNERS. (a)
The Transferor agrees that it will from time to time, at its expense,
promptly execute and deliver all instruments and documents and take all actions
as may be required by law or as the Agent may reasonably request in order to
perfect or protect the Transferred Interest or to enable the Agent, the Buyer or
any other Owner to exercise or enforce any of their respective rights hereunder.
Without limiting the foregoing, the Transferor will upon the request of the
Agent, the Buyer or any of the
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other Owners, in order to accurately reflect the Transfers hereunder and the
Transferred Interest, (x) execute and file such financing or continuation
statements or amendments thereto or assignments thereof (as permitted pursuant
to Section 9.9 hereof) as may be reasonably requested by the Agent, the Buyer or
any of the other Owners and (y) mark its respective master data processing
records and other documents with a legend describing the conveyance to the
Agent, for the benefit of the Buyer and other Owners, of the Transferred
Interest. The Transferor shall obtain such additional search reports as the
Agent, the Buyer or any of the other Owners shall reasonably request. To the
fullest extent permitted by applicable law, the Agent shall be permitted to sign
and file continuation statements and amendments thereto and assignments thereof
without the Transferor's signature. Carbon, photographic or other reproduction
of this Agreement or any financing statement shall be sufficient as a financing
statement. The Transferor shall not change its respective name, identity or
corporate structure (within the meaning of Section 9-402(7) of the UCC as in
effect in the States of New York, Georgia and Nevada) nor relocate its
respective chief executive office or any office where Records are kept unless it
shall have: (i) given the Agent at least thirty (30) days prior notice thereof
and (ii) prepared at Transferor's expense and delivered to the Agent all
financing statements, instruments and other documents necessary to preserve and
protect the Transferred Interest or requested by the Agent in connection with
such change or relocation. Any filings under the UCC or otherwise that are
occasioned by such change in name or location shall be made at the expense of
Transferor.
(b) On the Closing Date, the Transferor agrees to deliver or
to cause the Servicer to deliver to the Agent a computer file or microfiche list
containing a true and complete list of all Accounts, identified by account
number and by Receivable balance as of the Cut-Off Date. Such file or list shall
be marked as the Account Schedule delivered to the Agent as confidential and
proprietary, and is hereby incorporated into and made a part of this Agreement.
The Transferor agrees to deliver or to cause the Servicer to deliver to the
Agent within five (5) Business Days of the request therefor by the Agent a
computer file or microfiche list containing a true and complete list of all
Accounts, including all Accounts created on or after the Cut-Off Date, in
existence as of the last day of the prior Collection Period, identified by
account number and by Receivable balance as of the last day of the prior
Collection Period. Such file or list shall be marked as the Account Schedule
delivered to the Agent as confidential and proprietary, shall replace the
previous Account Schedule delivered to the Agent and shall be incorporated into
and made a part of this Agreement. The Servicer agrees, at its own expense, by
the end of each Collection Period in which any Accounts or Related Accounts have
been originated, to indicate clearly and unambiguously in its master data
processing records that the Receivables created in connection with such Accounts
have been conveyed to the Transferor and transferred to the Agent, for the
benefit of the Buyer and the other Owners, pursuant to this Agreement.
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SECTION 2.9. DEEMED COLLECTIONS; APPLICATION OF
PAYMENTS. (a) If (i) the Servicer makes a deposit into the Collection Account
in respect of a Collection of a Receivable and such Collection was received by
the Servicer in the form of a check which is not honored for any reason or (ii)
the Servicer makes a mistake with respect to the amount of any Collection and
deposits an amount that is less than or more than the actual amount of such
Collection, the Servicer shall appropriately adjust the amount subsequently
deposited into the Collection Account to reflect such dishonored check or
mistake. Any Receivable in respect of which a dishonored check is received shall
be deemed not to have been paid. Notwithstanding the first two sentences of this
paragraph, adjustments made pursuant to this Section shall not require any
changes in any report previously delivered pursuant to Section 2.11.
(b) If the Servicer adjusts downward the amount of any
Receivable because of a rebate, refund, unauthorized charge or billing error to
a cardholder, because such Receivable was created in respect of merchandise
which was refused or returned by a cardholder, or if the Servicer otherwise
adjusts downward the amount of any Receivable without receiving Collections
therefor or charging off such amount as uncollectible, then, in any such case,
the amount of Receivables used to calculate the Transferor's Interest and
(unless otherwise specified) any other amount required herein to be calculated
by reference to the amount of Receivables, will be reduced by the amount of the
adjustment. Similarly, the amount of Receivables used to calculate the
Transferor's Interest and (unless otherwise specified) any other amount required
herein to be calculated by reference to the amount of Receivables will be
reduced by the principal amount of any Receivable which was discovered as having
been created through a fraudulent or counterfeit charge or with respect to which
the covenant contained in subsection 5.1(j) was breached. Any adjustment
required pursuant to either of the two preceding sentences shall be made on or
prior to the end of the Collection Period in which such adjustment obligation
arises. In the event that, following the exclusion of such Receivables from the
calculation of the Subordinate Percentage, the Subordinate Percentage would be
less than the Required Subordinate Percentage, not later than seven days after
such adjustment, the Transferor shall make a deposit into the Collection Account
in same day funds in an amount equal to such adjustment.
(c) (i) If on any day any of the representations or warranties
in Article III (except for the representations and warranties in Sections 3.1(l)
and 3.3(f)) was or becomes untrue with respect to a Receivable (whether on or
after the date of any transfer of an interest therein to the Agent or the Buyer
as contemplated hereunder), the Transferor shall be deemed to have received on
such day a Collection of such Receivable in full and the Transferor shall on
such day make a deposit into the Collection Account in same day funds in an
amount equal to the amount of such Receivable, to be applied as Collections in
accordance with Section 2.5 hereof.
(ii) If on any day an Account is determined not
to have been an Eligible Account as of the Original Cut-Off Date, (x) the
Transferor shall be deemed to
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have received on such day a Collection in respect of such Account in an amount
specified in the following clause (y) and (y) the Transferor shall make a
deposit into the Collection Account in same day funds in an amount equal to the
amount received by the Transferor pursuant to the Sale and Purchase Agreement in
respect of such Account, when such amount is received by the Transferor or CAC,
as the case may be, or within 2 Business Days after receipt by the Account
Owner, in each case pursuant to the Sale and Purchase Agreement, to be applied
as Collections in accordance with Section 2.5 hereof.
(iii) If on any day any Receivable related to an
Account governed by the terms of a Credit Card Agreement (other than the Credit
Card Agreement entered into with the Original Sellers) is not an Eligible
Receivable or a Defaulted Receivable, (x) the Transferor shall be deemed to have
received on the date on which it is determined that such Receivable is not an
Eligible Receivable or Defaulted Receivable a Collection of such Receivable in
full and (y) the Transferor shall make a deposit into the Collection Account in
same day funds in the amount of such Receivable, to be applied as Collections in
accordance with Section 2.5 hereof.
(d) In the event that the Transferor is unable for any reason
to transfer Receivables to the Agent in accordance with the provisions of this
Agreement, including by reason of any order of any Governmental Authority (a
"Transfer Restriction Event"), then, in any such event, (a) the Transferor and
the Servicer agree (except as prohibited by any such order) to allocate and pay
to the Agent, after the date of such inability, all Collections, including
Collections of Receivables transferred to the Agent prior to the occurrence of
such event, and all amounts which would have constituted Collections but for the
Transferor's inability to transfer Receivables (up to an aggregate amount equal
to the amount of Receivables transferred to the Agent by the Transferor up to
the Transferred Interest on such date), (b) the Transferor and the Servicer
agree that such amounts will be applied as Collections in accordance with
Article II and (c) for so long as the allocation and application of all
Collections and all amounts that would have constituted Collections are made in
accordance with clauses (a) and (b) above, Principal Receivables and all amounts
which would have constituted Principal Receivables but for the Transferor's
inability to transfer Receivables to the Agent which are written off as
uncollectible in accordance with this Agreement shall continue to be allocated
in accordance with Article II. For the purpose of the immediately preceding
sentence, the Transferor and the Servicer shall treat the first received
Collections with respect to the Accounts as allocable to the Agent until the
Agent shall have been allocated and paid Collections in an amount equal to the
aggregate amount of Principal Receivables up to the Transferred Interest as of
the date of the occurrence of such event. If Transferor and the Servicer are
unable pursuant to any requirements of law to allocate Collections as described
above, the Transferor and the Servicer agree that, after the occurrence of such
event, payments on each Account with respect to the principal balance of such
Account shall be allocated first to the oldest principal balance of such Account
and shall have such payments applied as Collections in accordance with Article
II. The parties hereto agree that Finance Charge Receivables, whenever
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created and accrued in respect of Principal Receivables which have been conveyed
to the Agent shall continue to be a part of the Transferred Interest
notwithstanding any cessation of the transfer of additional Principal
Receivables to the Agent and Collections with respect thereto shall continue to
be allocated and paid in accordance with Article II.
SECTION 2.10. PAYMENTS AND COMPUTATIONS, ETC. All amounts to
be paid or deposited by the Transferor or the Servicer hereunder shall be paid
or deposited in accordance with the terms hereof no later than 4:00 p.m. (New
York City time) on the day when due in same day funds; if such amounts are
payable to the Agent (whether on behalf of the Buyer or any other Owner or
otherwise) they shall be paid or deposited in the account of the Agent indicated
in Section 11.3 hereof, until otherwise notified by the Agent. The Transferor
shall, to the extent permitted by law, pay to the Agent, for the benefit of the
Buyer and the other Owners upon demand, interest on all amounts not paid or
deposited when due hereunder at a rate equal to 2% per annum plus the Base Rate.
All computations of interest and all per annum fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first but excluding the last day) elapsed. Any computations by the Agent of
amounts payable by the Transferor hereunder shall be binding upon the Transferor
absent manifest error.
SECTION 2.11. REPORTS. (a) REPORTS AND RECORDS FOR THE
AGENT.
(i) DAILY RECORDS. On each Business Day, the
Servicer shall make or cause to be made available at the office of the Servicer
for inspection by the Agent upon request a record setting forth (i) the
Collections in respect of Principal Receivables and in respect of Finance Charge
Receivables processed by the Servicer on the second preceding Business Day in
respect of each Account and (ii) the amount of Receivables as of the close of
business on the second preceding Business Day in each Account. The Servicer
shall, at all times, maintain its computer files with respect to the Accounts in
such a manner so that the Accounts may be specifically identified and shall make
available to the Agent at the office of the Servicer on any Business Day any
computer programs necessary to make such identification.
(ii) MONTHLY SERVICER REPORT. Not later than the
second Business Day preceding each Remittance Date, the Servicer shall deliver
to the Agent a Monthly Servicer's Report signed by a Servicing Officer in
substantially the form of Exhibit E hereto.
(B) QUARTERLY CERTIFICATE. The Servicer shall deliver, or the
Transferor shall cause the Servicer to deliver, to the Agent within fifteen (15)
days after the end of each calendar quarter of each calendar year, beginning
with the calendar quarter ending June 30, 1998, an Officer's Certificate stating
that (a) a review of the activities of the Servicer during the preceding
calendar quarter (or such shorter period as may have elapsed since the Closing
Date), and of its performance under this Agreement was
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made under the supervision of the officer signing such certificate and (b) to
the best of such officer's knowledge, based on such review, the Servicer has
fully performed all of its obligations under this Agreement throughout such
quarter (or such shorter period as may have elapsed since the Closing Date), or,
if there has occurred an event which, with the giving of notice or passage of
time or both, would constitute a Termination Event or Servicer Default,
specifying each such event known to such officer, the nature and status thereof
and the actions which the Transferor or the Servicer, as the case may be,
proposes to take with respect thereto.
(c) SEMI-ANNUAL SERVICING REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS. On or before October 15 of each year, for the period from January 1
through June 30 for such year, and on or before April 15 of each year, for the
period from July 1 through December 31, beginning with October 15, 1999 (for the
period from the Closing Date through June 30, 1999), the Servicer shall cause a
firm of nationally recognized independent public accountants (who may also
render other services to the Servicer or the Transferor) to furnish a report to
the Agent to the effect that such firm has applied the procedures and made the
examinations set forth in Exhibit D hereto.
SECTION 2.12. COLLECTION ACCOUNT. There shall be established
on the day of the initial Incremental Transfer hereunder and maintained with
NationsBank, N.A., a segregated account (the "COLLECTION ACCOUNT"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Agent, on behalf of the Buyer and the Owners, PROVIDED, HOWEVER,
that if at any time the short-term debt rating of NationsBank, N.A. shall be
lower than "A-1+" or "P-1" by Standard & Poor's or Moody's, respectively, the
Servicer shall instruct NationsBank, N.A. to transfer such Collection Account
and all funds deposited therein into a new account that it will establish and
maintain in the name of the Agent, on behalf of the Buyer and the other Owners,
which shall be a fully segregated account with the trust department bearing a
designation clearly indicating that the funds deposited therein are held in
trust for the benefit of the Agent, on behalf of the Buyer and the other Owners.
The Servicer and the Transferor shall remit or cause to be remitted daily within
two Business Days of receipt to the Collection Account all Collections received
with respect to any Receivables. Funds on deposit in the Collection Account
(other than investment earnings) shall be invested by the Agent in Eligible
Investments that will mature so that such funds will be available on the
Business Day preceding the Remittance Date following such investment. All
interest and earnings (net of losses and investment expenses) on funds on
deposit in the Collection Account shall be retained in the Collection Account
and be available to make any payments required to be made pursuant to Section
2.5(a). Notwithstanding the foregoing, so long as (i) no Termination Event or
Potential Termination Event shall have occurred and be continuing and (ii) the
amount of the Eligible Pool Balance shall exceed the Net Investment as of the
last day of the most recent Collection Period, the Servicer shall be entitled to
withdraw any Collections held in the Collection Account in excess of the amount
estimated by the Servicer to accrue during such Collection Period for Carrying
Costs; PROVIDED, THAT, within two Business Days after the first such withdrawal
of every calendar month, the
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Servicer shall deliver to the Agent a statement in the form of Exhibit C
hereto; PROVIDED FURTHER, HOWEVER, that the Servicer may withdraw Collections
during any Collection Period only to the extent such withdrawn amounts are
applied (a) to make purchases pursuant to Section 2.2(e) during such
Collection Period or (b) in respect of amounts which would otherwise be
distributed on the related Remittance Date pursuant to Section 2.5(a)(i) or
2.5(a)(iv). Any such amounts withdrawn from the Collection Account during the
preceding Collection Period shall be deemed to have been applied in
accordance with Section 2.5(a). Any amounts withdrawn pursuant to clause (b)
above in respect of Section 2.5(a)(iv) shall be based on the Servicer's
reasonable estimation of the Servicing Fees for the applicable Collection
Period and in any event shall not exceed the amount received by the Servicer
in respect of Servicing Fees for the immediately preceding Collection Period.
On the Business Day preceding the Remittance Date, the Servicer shall remit
to the Collection Account the excess, if any, of (i) the amount withdrawn
pursuant to clause (b) above in respect of Section 2.5(a)(iv) over (ii) the
Servicing Fees for the immediately preceding Collection Period.
SECTION 2.13. SHARING OF PAYMENTS, ETC. If any Owner (for
purposes of this Section 2.13 only, being a "RECIPIENT") shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
setoff, or otherwise) on account of a Transferred Interest owned by it (other
than pursuant to Section 2.7, or Article VIII and other than as a result of the
differences in the timing of the applications of Collections pursuant to Section
2.5) in excess of its ratable share of payments on account of the Transferred
Interest obtained by the Owners entitled thereto, such Recipient shall forthwith
purchase from the other Owners entitled to a share of such amount of the
Transferred Interest owned by such Persons hereunder as shall be necessary to
cause such Recipient to share the excess payment with each such other Person
entitled thereto; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such Recipient, such purchase from each
such other Person shall be rescinded and each such other Person shall repay to
the Recipient the purchase price paid by such Recipient for such amount to the
extent of such recovery, together with an amount equal to such other Person's
share (according to the proportion of (a) the amount of such other Person's
required payment to (b) the total amount so recovered from the Recipient) of any
interest or other amount paid or payable by the Recipient in respect of the
total amount so recovered.
SECTION 2.14. DEFAULTED RECEIVABLES. On the date when any
Receivable in an Account becomes a Defaulted Receivable, the Agent shall
automatically and without further action or consideration transfer, set over and
otherwise convey to the Transferor with respect to such Account, without
recourse, representation or warranty, all right, title and interest of the Agent
in and to the Defaulted Receivables in such Account, all monies due or to become
due with respect thereto, all Proceeds thereof and any Insurance Proceeds
relating thereto; PROVIDED, that Recoveries of such Account shall remain
property of the Agent and be applied as provided herein.
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SECTION 2.15. OPTIONAL AMORTIZATION. On any day prior to the
occurrence of a Termination Event, the Transferor may in its sole discretion
cause the Servicer to provide written notice to the Agent (an "OPTIONAL
AMORTIZATION NOTICE") at least five Business Days prior to any Business Day that
is the last day of a Collection Period stating its intention to cause a full
amortization of the Net Investment on the following Remittance Date (the
"OPTIONAL AMORTIZATION DATE") in an amount equal to the sum of (a) the Net
Investment and (b) all Aggregate Unpaids on such Optional Amortization Date (the
"OPTIONAL AMORTIZATION AMOUNT"). The Optional Amortization Notice shall state
the Optional Amortization Date and the allocation of the Optional Amortization
Amount among the various outstanding funding periods that mature on such
Optional Amortization Date. The Optional Amortization Amount shall be paid from
any Collections on deposit in the Collection Account or from the proceeds of the
issuance of one or more interests in the Transferred Interest issued
substantially contemporaneously with such full amortization (or any combination
of the above).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. As of the Closing
Date, each Remittance Date and the date of each Incremental Transfer hereunder,
the Transferor represents and warrants to the Agent, the Buyer and the other
Owners that:
(a) CORPORATE EXISTENCE AND POWER. The Transferor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business in each jurisdiction in which its business is now
conducted. The Transferor is duly qualified to do business in, and is in good
standing (or is exempt from such requirement), in every other jurisdiction in
which the nature of its business requires it to be so qualified, except where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect.
(b) CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance by the Transferor of this Agreement, the
Receivables Purchase Agreement, the Fee Letter and the other Transaction
Documents to which the Transferor is a party are within the Transferor's
corporate powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any Governmental
Authority or official thereof (except as contemplated by Section 2.8 hereof),
and do not contravene, or constitute a default under, any provision of
applicable law, rule or regulation or of the Certificate of Incorporation or
Bylaws of the Transferor or of any agreement, judgment, injunction, order, writ,
decree or other instrument binding upon the Transferor or result in the
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creation or imposition of any Adverse Claim on the assets of the Transferor
(except as contemplated by Section 2.8 hereof).
(c) BINDING EFFECT. Each of this Agreement, the Receivables
Purchase Agreement, the Fee Letter, and the other Transaction Documents to which
the Transferor is a party constitutes the legal, valid and binding obligation of
the Transferor, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally.
(d) PERFECTION. Immediately preceding each Transfer hereunder,
the Transferor shall be the owner of all of the Receivables, free and clear of
all Adverse Claims. On or prior to each Transfer, all financing statements and
other documents required to be recorded or filed in order to perfect and protect
the Agent's Transferred Interest against all creditors of and purchasers from
the Transferor will have been duly filed in each filing office necessary for
such purpose and all filing fees and taxes, if any, payable in connection with
such filings shall have been paid in full.
(e) ACCURACY OF INFORMATION. All information heretofore
furnished by the Transferor (including without limitation, the Monthly Servicer
Reports, Account Schedule, any reports delivered pursuant to Section 2.11 hereof
and the Transferor's financial statements) to the Buyer, any other Owner, the
Agent or the Administrative Agent for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Transferor to the Buyer, any other Owner, the Agent
or the Administrative Agent will be, true and accurate in every material
respect, on the date such information is stated or certified.
(f) TAX STATUS. The Transferor has filed all tax returns
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges other than taxes, assessments and other governmental charges being
contested in good faith, and for which adequate reserves have been set aside on
the books of the Transferor.
(g) ACTION, SUITS. Except as set forth in Exhibit H hereof,
there are no actions, suits or proceedings pending, or to the knowledge of the
Transferor threatened, against or affecting the Transferor or any Affiliate of
the Transferor or their respective properties, in or before any court,
arbitrator or other body, which may, individually or in the aggregate, have a
Material Adverse Effect.
(h) USE OF PROCEEDS. No proceeds of any Transfer will be used
by the Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) PLACE OF BUSINESS. The principal place of business and
chief executive office of the Transferor are located at the address of the
Transferor indicated in Section 11.3 hereof.
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(j) GOOD TITLE. Upon each Transfer, the Agent shall acquire a
valid and perfected first priority undivided percentage interest to the extent
of the Transferred Interest or a first priority perfected security interest in
each Receivable that exists on the date of such Transfer and in the Related
Security, Collections and Proceeds with respect thereto free and clear of any
Adverse Claim.
(k) TRADENAMES, ETC. As of the date hereof: (i) the Transferor
has only the subsidiaries and divisions listed on Exhibit J hereto; and (ii) the
Transferor has, within the last five (5) years, operated only under the
tradenames identified in Exhibit J hereto, and, within the last five (5) years,
has not changed its name, merged with or into or consolidated with any other
corporation or been the subject of any proceeding under Title 11, United States
Code (the "Bankruptcy Code"), except as disclosed in Exhibit J hereto.
(l) NATURE OF RECEIVABLES. Each Receivable (x) represented by
the Transferor or the Servicer to be an Eligible Receivable (including in any
Monthly Servicer Report or other report delivered pursuant to Section 2.11
hereof) or (y) included in the calculation of Principal Receivables in fact
satisfies at such time the definition of "Eligible Receivable" set forth herein
and, in the case of clause (y) above, is not a Receivable of the type excluded
from the definition of "Principal Receivables."
(m) COVERAGE REQUIREMENT; AMOUNT OF RECEIVABLES. The
Subordinate Percentage as of the most recent calculation date is not less than
the Required Subordinate Percentage.
(n) CREDIT CARD GUIDELINES. Since November 1, 1998, there
have been no material changes in the Credit Card Guidelines other than as
permitted hereunder.
(o) NO TERMINATION EVENT. No event has occurred and is
continuing and no condition exists which constitutes a Termination Event or a
Potential Termination Event.
(p) NOT AN INVESTMENT COMPANY. The Transferor is not, and is
not controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(q) ERISA. Each of the Transferor and its ERISA Affiliates is
in compliance in all material respects with ERISA and no lien exists in favor of
the PBGC on any of the Receivables.
(r) BULK SALES. No transaction contemplated hereby or by the
Receivables Purchase Agreement requires compliance with any bulk sales act or
similar law.
(s) TRANSFERS UNDER RECEIVABLES PURCHASE AGREEMENT. Each
Receivable which has been transferred to the Transferor by CAC has been
purchased
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by the Transferor from CAC pursuant to, and in accordance with, the
terms of the Receivables Purchase Agreement, by CAC from CB&T pursuant to the
Initial Purchase Agreement and, to the extent applicable, by CB&T from the
Original Sellers under the Sale and Purchase Agreement.
(t) PREFERENCE; VOIDABILITY. The Transferor shall have given
reasonably equivalent value to CAC in consideration for the transfer to the
Transferor of the Receivables and Related Security from CAC, and each such
transfer shall not have been made for or on account of an antecedent debt owed
by CAC to the Transferor and no such transfer is or may be voidable under any
Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. ss.ss. 101 et seq.), as
amended.
(u) REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. Each of
the representations and warranties of the Transferor set forth in the
Receivables Purchase Agreement is true and correct in all material respects and
the Transferor hereby remakes all such representations and warranties for the
benefit of the Agent, the Buyer, each other Owner and the Administrative Agent.
(v) NOTICE OF BREACH. The representations and warranties set
forth in this Section 3.1 shall survive the transfers and assignments of the
Receivables. Upon discovery by the Transferor, the Servicer or the Agent of a
breach of any of the representations and warranties set forth in this Section
3.1, the party discovering such breach shall give prompt written notice thereof
to the other parties within three Business Days following such discovery,
PROVIDED that the failure to give notice within three Business Days does not
preclude subsequent notice.
(w) NOTICE OF EVENTS HAVING A MATERIAL ADVERSE EFFECT. The
Transferor shall advise the Agent promptly, in reasonable detail, of the
occurrence of any event, other than as described in Section 3.1(v) or Section
5.1(l), which would have a material adverse effect on the Agent's, Buyer's or
any other Owner's interest in the Receivables or the collectibility thereof.
(x) NOTICE OF AMENDMENTS TO AFFINITY CARD AGREEMENT AND
FACILITIES MANAGEMENT AGREEMENT. The Transferor shall deliver to the Agent
promptly copies of all changes or amendments to the Affinity Card Agreement and
the Facilities Management Agreement.
SECTION 3.2. [RESERVED].
SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF THE SERVICER.
As of the Closing Date, the Servicer represents and warrants to the Agent, the
Buyer and the other Owners that:
(a) CORPORATE EXISTENCE AND POWER. The Servicer is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and all
material governmental licenses,
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authorizations, consents and approvals required to carry on its business in each
jurisdiction in which its business is now conducted. The Servicer is duly
qualified to do business in, and is in good standing (or is exempt from such
requirement), in every other jurisdiction in which the nature of its business
requires it to be so qualified, except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect.
(b) CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance by the Servicer of this Agreement are
within the Servicer's corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any Governmental Authority or official thereof, and do not contravene,
conflict with, or constitute a default under, any provision of applicable law,
rule or regulation or of the Certificate of Incorporation or Bylaws of the
Servicer or of any agreement, judgment, injunction, order, writ, decree or other
instrument binding upon the Servicer or result in the creation or imposition of
any Adverse Claim on the assets of the Servicer or any of its Subsidiaries.
(c) BINDING EFFECT. This Agreement and each other Transaction
Document to which the Servicer is a party constitute the legal, valid and
binding obligations of the Servicer, enforceable against the Servicer in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors.
(d) ACCURACY OF INFORMATION. All information heretofore
furnished by the Servicer to the Agent, the Buyer, any other Owner or the
Administrative Agent for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all such information hereafter furnished
by the Servicer to the Agent, the Buyer, any other Owner or the Administrative
Agent will be, true, accurate and complete in every material respect, on the
date such information is stated or certified.
(e) ACTION, SUITS. Except as set forth in Exhibit H, there are
no actions, suits or proceedings pending, or to the knowledge of the Servicer
threatened, against or affecting the Servicer or any Affiliate of the Servicer
or their respective properties, in or before any court, arbitrator or other
body, which may, individually or in the aggregate, have a Material Adverse
Effect.
(f) NATURE OF RECEIVABLES. Each Receivable included in the
calculation of Principal Receivables in fact satisfies at such time the
definition of "Eligible Receivable" and is not a Receivable excluded from the
definition of "Principal Receivables".
(g) AMOUNT OF RECEIVABLES. As of December 31, 1998, the
aggregate amount of Receivables was approximately $293,658,000.
(h) CREDIT CARD GUIDELINES. Since November 1, 1998, there have
been no material changes in the Credit Card Guidelines other than as permitted
hereunder.
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(i) COLLECTIONS AND SERVICING. Since November 1, 1998, there
has been no material adverse change in the ability of the Servicer or
Sub-Servicer to service and collect the Receivables.
(j) NOT AN INVESTMENT COMPANY. The Servicer is not, and is not
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(k) NO CONFLICT. The execution and delivery of this Agreement
by the Servicer, and the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof and thereof applicable to the
Servicer, will not conflict with, violate or result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or lapse
of time or both) a material default under, any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which the Servicer is a party or
by which it or its properties are bound.
(l) ALL CONSENTS. All authorizations, consents, orders or
approvals of or registrations or declarations with any Governmental Authority
required to be obtained, effected or given by the Servicer in connection with
the execution and delivery of this Agreement by the Servicer and the performance
of the transactions contemplated by this Agreement by the Servicer, have been
duly obtained, effected or given and are in full force and effect.
(m) TAX STATUS. The Servicer has filed all tax returns
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges, other than taxes, assessments and other governmental charges being
contested in good faith.
(n) ERISA. The Servicer is in compliance in all material
respects with ERISA.
SECTION 3.4. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES
BY THE SERVICER. On each Remittance Date and on the date of each Incremental
Transfer made hereunder, the Servicer shall be deemed to have certified that all
representations and warranties described in Section 3.3 hereof are correct on
and as of such day as though made on and as of such date.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. CONDITIONS TO CLOSING. On or prior to the Closing
Date, the sales of Accounts and initial Receivables under the Sale and Purchase
Agreement, and the sale of Receivables under the Initial Purchase Agreement and
Receivables Purchase Agreement shall have been consummated and the Transferor
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shall deliver to the Agent the following documents and instruments and pay the
following fees, all of which shall be in form and substance acceptable to the
Agent:
(a) A copy of the resolutions of the Board of Directors of the
Transferor certified by its Secretary approving the execution, delivery and
performance by the Transferor of this Agreement, the Receivables Purchase
Agreement and the other Transaction Documents to be delivered by the Transferor
hereunder or thereunder.
(b) A copy of the resolutions of the Board of Directors of
CompuCredit certified by its Secretary approving the execution, delivery and
performance by it of this Agreement and the other Transaction Documents to which
it is a party to be delivered by it hereunder or thereunder.
(c) The Articles of Incorporation of the Transferor certified
by the Secretary of State or other similar official of the Transferor's
jurisdiction of incorporation dated a date reasonably prior to the Closing Date.
(d) The Articles of Incorporation of CompuCredit certified by
the Secretary of State or other similar official of its jurisdiction of
incorporation dated a date reasonably prior to the Closing Date.
(e) A Good Standing Certificate for the Transferor issued by
the Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement and the other Transaction Documents, in each case, dated a date
reasonably prior to the Closing Date.
(f) A Good Standing Certificate for CompuCredit issued by the
Secretary of State or a similar official of its jurisdiction of incorporation
and certificates of qualification as a foreign corporation issued by the
Secretaries of State or other similar officials of each jurisdiction when such
qualification is material to the transactions contemplated by this Agreement and
the other Transaction Documents, in each case, dated a date reasonably prior to
the Closing Date.
(g) A Certificate of the Secretary of the Transferor
substantially in the form requested by the Agent.
(h) A Certificate of the Secretary of CompuCredit
substantially in the form requested by the Agent.
(i) Copies of proper financing statements (Form UCC-1), dated
a date reasonably near to the date of the initial Incremental Transfer naming
the Transferor as the debtor in favor of the Agent, for the benefit of the Buyer
and the other Owners, as secured party or other similar instruments or documents
as may be necessary or in the reasonable opinion of the Agent desirable under
the UCC of all appropriate jurisdictions
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or any comparable law to perfect the Agent's undivided percentage interest in
all Receivables and the Related Security, Collections and Proceeds relating
thereto.
(j) Copies of proper financing statements (Form UCC-1) naming
(i) CAC as the debtor in favor of the Transferor as secured party (together with
a Form UCC-3 naming the Agent, for the benefit of the Buyer and the other
Owners, as assignee of the secured party), (ii) CB&T as the debtor in favor of
CAC as secured party and (iii) the Original Sellers as the debtors and CB&T as
secured party, or other similar instruments or documents as may be necessary or
in the reasonable opinion of the Agent desirable under the UCC of all
appropriate jurisdictions or any comparable law to perfect the Transferor's
interest in all Receivables.
(k) Copies of proper financing statements (Form UCC-3), if
any, necessary to terminate all security interests and other rights of any
person in Accounts or Receivables previously granted.
(l) Certified copies of request for information or copies
(Form UCC-11) (or a similar search report certified by parties acceptable to the
Agent) dated a date reasonably near the date of the initial Incremental Transfer
listing all effective financing statements which name CB&T, CAC or the
Transferor (under their respective present names and any previous names) as
debtor and which are filed in jurisdictions in which the filings were made
pursuant to items (i) or (j) above together with copies of such financing
statements (none of which shall cover any Receivables or Accounts).
(m) An opinion of Orrick, Herrington & Sutcliffe LLP, Lionel,
Sawyer & Collins and Jones, Day, Reavis & Pogue, counsel to the Transferor, the
Servicer and CAC, covering the matters requested by the Agent.
(n) An opinion of Orrick, Herrington & Sutcliffe LLP, counsel
to the Transferor and CAC, covering certain bankruptcy and insolvency matters
(i.e. "true sale" and nonconsolidation) in form and substance satisfactory to
the Agent and Agent's counsel.
(o) The Account Schedule, consisting of a computer tape
setting forth all Receivables and the Principal Receivables thereon as of the
Cut-Off Date and such other information as the Agent may reasonably request.
(p) An executed copy, including exhibits and opinions thereto,
of this Agreement, the Initial Purchase Agreement, the Receivables Purchase
Agreement, the Fee Letter and each of the other Transaction Documents.
(q) The Arrangement Fee in accordance with Section 2.7(b).
(r) Evidence of the appointment of CT Corporation as agent for
process as required by Section 11.4 hereof.
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(s) An executed copy of the CB&T Agreement.
(t) Copies of all documents relating to the servicing of
Accounts, including all fee schedules and exhibits.
(u) An executed copy of the Fee Letter.
(v) The form of Credit Card Agreement currently in effect.
(w) A copy of the Credit Card Guidelines.
ARTICLE V
COVENANTS
SECTION 5.1. AFFIRMATIVE COVENANTS OF TRANSFEROR. At all times from the date
hereof to the later to occur of (i) the Termination Date or (ii) the date on
which the Net Investment has been reduced to zero, all Carrying Costs and all
other Aggregate Unpaids shall have been paid in full, in cash, unless the Agent
shall otherwise consent in writing:
(a) FINANCIAL REPORTING. The Transferor will maintain a system
of accounting established and administered in accordance with GAAP, and furnish
to the Agent:
(i) ANNUAL REPORTING. Within one hundred and five
(105) days after the close of the Transferor's fiscal years, beginning with the
fiscal year ending in 1998, unaudited financial statements, prepared in
accordance with GAAP for the Transferor, including balance sheets (but excluding
financial footnotes, except for footnotes regarding accounting policies and
procedures) as of the end of such period, related statements of operations,
shareholder's equity and cash flows, and accompanied by a certificate of the
chief financial officer or chairman, president, treasurer or any executive vice
president of the Transferor, stating that no Termination Event or Potential
Termination Event exists, or if any Termination Event or Potential Termination
Event exists, stating the nature and status thereof.
(ii) QUARTERLY REPORTING. Within sixty (60) days
after the close of the first three quarterly periods of the Transferor's fiscal
years, unaudited balance sheets, excluding financial footnotes, as at the close
of each such period and related statements of operations, shareholder's equity
and cash flows for the period from the beginning of such fiscal year to the end
of such quarter, all certified by its chief financial officer.
(iii) COMPLIANCE CERTIFICATE. Together with the
financial statements required hereunder, a compliance certificate signed by the
Transferor's
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chief financial officer stating that (x) the attached financial statements
(except for the financial footnotes excluded as described above) have been
prepared in accordance with GAAP and, to the best of such Person's knowledge,
accurately reflect the financial condition of the Transferor and (y) to the best
of such Person's knowledge, no Termination Event or Potential Termination Event
exists, or if any Termination Event or Potential Termination Event exists,
stating the nature and status thereof.
(iv) SHAREHOLDERS STATEMENTS AND REPORTS. Promptly
upon the furnishing thereof to the shareholders of the Transferor, copies of all
financial statements, reports and proxy statements so furnished.
(v) S.E.C. FILINGS. Promptly upon the filing thereof,
copies of all registration statements and annual, quarterly, monthly or other
regular reports which the Transferor files with the Securities Exchange
Commission.
(vi) NOTICE OF TERMINATION EVENTS OR POTENTIAL
TERMINATION EVENTS. As soon as possible and in any event within two (2) days
after the occurrence of each Termination Event or each Potential Termination
Event, a statement of the chief financial officer or chief accounting officer of
the Transferor setting forth details of such Termination Event or Potential
Termination Event and the action which the Transferor proposes to take with
respect thereto.
(vii) ERISA. Promptly after the filing or receiving
thereof, copies of all reports and notices with respect to any Reportable Event
(as defined in Article IV of ERISA) which the Transferor or any ERISA Affiliate
thereof, files under ERISA with the Internal Revenue Service, the PBGC or the
U.S. Department of Labor or which the Transferor or any ERISA Affiliates
thereof, receive from the Internal Revenue Service, the PGBC or the U.S.
Department of Labor.
(viii) NOTICES UNDER TRANSACTION DOCUMENTS. Promptly
after its receipt thereof, copies of all notices, amendments and waivers given
to the Transferor by CB&T, CompuCredit or CAC under or pursuant to any of the
Transaction Documents.
(ix) OTHER INFORMATION. Such other information
(including non- financial information) as the Agent may from time to time
reasonably request (as can reasonably be obtained by the Transferor).
(b) CONDUCT OF BUSINESS. The Transferor will carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted and do all things
necessary to remain duly incorporated, validly existing and in good standing as
a domestic corporation in its jurisdiction of incorporation and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
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(c) COMPLIANCE WITH LAWS. The Transferor will comply with all
laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it or its respective properties may be subject.
(d) FURNISHING OF INFORMATION AND INSPECTION OF RECORDS. The
Transferor will furnish to the Agent from time to time such information with
respect to the Receivables as the Agent may reasonably request, including,
without limitation, listings identifying the Principal Receivables for each
Receivable. The Transferor will, at any time and from time to time during
regular business hours permit the Agent, or its agents or representatives, at
the Transferor's expense (i) to examine and make copies of and take abstracts
from all Records and (ii) to visit the offices and properties of the Transferor
for the purpose of examining such Records, and to discuss matters relating to
Receivables or the Transferor's performance hereunder and under the other
Transaction Documents to which such Person is a party with any of the officers,
directors, employees or independent public accountants of the Transferor having
knowledge of such matters. Notwithstanding the foregoing, the Agent or its
agents and representatives shall not visit the offices and properties as
described in clause (ii) above more frequently than (a) once a month for the
first six months after the Closing Date and two times thereafter until the first
anniversary of the Closing Date and (b) four times per year after the first
anniversary of the Closing Date; provided that, neither of the limitations set
forth in (a) or (b) above shall apply upon the occurrence and during the
continuance of a Termination Event or Potential Termination Event.
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Transferor
will maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable). The Transferor
will give the Agent notice of any material change in the administrative and
operating procedures of the Transferor referred to in the previous sentence.
(f) TREATMENT. The Transferor will not (i) account for
(including for accounting and tax purposes), or otherwise treat, the
transactions contemplated by the Receivables Purchase Agreement in any manner
other than as a sale of Receivables by CAC to the Transferor or (ii) account for
or otherwise treat the transactions contemplated hereby in any manner other than
as a pledge of Receivables by the Transferor to the Agent for the benefit of the
Buyer and the other Owners, as applicable. In addition, the Transferor shall
disclose (in a footnote or otherwise) in all of its respective financial
statements (including any such financial statements consolidated with any other
Persons' financial statements) the existence and nature of the transaction
contemplated hereby and by the Receivables Purchase Agreement and the
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interest of the Transferor and the Agent, on behalf of the Buyer and the other
Owners, as owner and pledgee, respectively, in the Affected Assets.
(g) SEPARATE BUSINESS. The Transferor shall:
(i) Maintain in full effect its existence, rights and
franchises as a corporation or (after 10 days' prior notice
given to the Agent and the execution and delivery by the
Transferor of all documents and opinions of counsel as the
Agent shall request, together with the Agent's approval of any
organizational documents therefor) a limited liability
corporation, under the laws of the state of its organization
or incorporation and will obtain and preserve its
qualification to do business in each jurisdiction in which
such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement and the
Receivables Purchase Agreement and each other instrument or
agreement necessary or appropriate to the proper
administration hereof and to permit and effectuate the
transactions contemplated hereby.
(ii) Maintain its own deposit account or accounts,
separate from those of any Affiliate of such Transferor, with
commercial banking institutions. The funds of such Transferor
will not be diverted to any other Person or for other than the
corporate use of such Transferor, and, except as may be
expressly permitted by this Agreement or the Receivables
Purchase Agreement, the funds of such Transferor shall not be
commingled with those of any Affiliate of such Transferor.
(iii) Ensure that, to the extent that it shares the
same officers or other employees as any of its partners,
members, managers, stockholders or Affiliates, the salaries of
and the expenses related to providing benefits to such
officers and other employees shall be fairly allocated among
such entities, and each such entity shall bear its fair share
of the salary and benefit costs associated with all such
common officers and employees.
(iv) Ensure that, to the extent that it jointly
contracts with any of its partners, members, managers,
stockholders or Affiliates to do business with vendors or
service providers or to share overhead expenses, the costs
incurred in so doing shall be allocated fairly among such
entities, and each such entity shall bear its fair share of
such costs. To the extent that such Transferor contracts or
does business with vendors or service providers where the
goods and services provided are partially for the benefit of
any other Person, the costs incurred in so doing shall be
fairly allocated to or among such entities for whose benefit
the goods and services are provided, and each such entity
shall bear its fair share of such costs. All material
transactions between such Transferor and any of its partners,
members, managers, stockholders or Affiliates shall be only
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on an arm's-length basis and shall receive the approval of
such Transferor's Board of Directors, partners, members,
managers or other governing body including at least one
Independent Director (defined below).
(v) Maintain a principal executive and administrative
office through which its business is conducted and a telephone
number separate from those of its members or stockholders and
Affiliates. To the extent that such Transferor and any of its
members or stockholders or Affiliates have offices in
contiguous space, there shall be fair and appropriate
allocation of overhead costs among them, and each such entity
shall bear its fair share of such expenses.
(vi) Conduct its affairs strictly in accordance with
its Certificate of Incorporation or other certificate of
formation, as the case may be, and observe all necessary,
appropriate and customary corporate formalities (or such
formalities appropriate to the entity), including, but not
limited to, holding all regular and special stockholders' and
directors', or partners', members' or managers', as the case
may be, meetings appropriate to authorize all entity action,
keeping separate and accurate minutes of such meetings,
passing all resolutions or consents necessary to authorize
actions taken or to be taken, and maintaining accurate and
separate books, records, accounts and other corporate
documents and records, including, but not limited to, payroll
and intercompany transaction accounts. Regular stockholders'
or other owners' and directors', partners', members' or
managers', as the case may be, meetings shall be held at least
annually. The Transferor shall not engage in any business not
permitted by its Certificate of Incorporation, as in effect on
the Closing Date.
(vii) Ensure that its Board of Directors shall at all
times include at least one Independent Director (for purposes
hereof, "INDEPENDENT DIRECTOR" shall mean any member of the
Board of Directors, or partner, member or manager, as the case
may be, of such Transferor that is not and has not at any time
been (x) a director, partner, member, manager, officer, agent,
employee or shareholder of any Affiliate of such Transferor
(other than any director of the Transferor who is also a
similarly unaffiliated director and/or officer of a special
purpose corporation which has been established by CAC or any
of its Affiliates in conjunction with the securitization by
CAC or such Affiliate of its credit card receivables) or (y) a
member of the immediate family of any of the foregoing).
(viii) Ensure that decisions with respect to its
business and daily operations shall be independently made by
such Transferor (although the officer making any particular
decision may also be an officer, partner,
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member, manager or director of an Affiliate of such
Transferor) and shall not be dictated by an Affiliate of such
Transferor.
(ix) Act solely in its own corporate or entity name
and through its own authorized officers, members, managers and
agents, and no Affiliate of such Transferor shall be appointed
to act as agent of such Transferor, except as expressly
contemplated by this Agreement or the Receivables Purchase
Agreement. The Transferor shall at all times use its own
stationery.
(x) Ensure that no Affiliate of such Transferor shall
advance funds to such Transferor, and no Affiliate of such
Transferor will otherwise guaranty debts of, such Transferor,
except for the guaranty of CompuCredit contained in this
Agreement; PROVIDED, HOWEVER, that (i) an Affiliate of such
Transferor may provide funds to such Transferor in connection
with the capitalization of such Transferor, including capital
necessary to assure that such Transferor has "substantial
assets" as described in Treasury Regulation Section
301.7701-2(d)(2) as in effect prior to amendment by Treasury
Decision 8697 on December 17, 1996.
(xi) Other than organizational expenses and as
expressly provided herein, pay all expenses, indebtedness and
other obligations incurred by it from Transferor's own
separate assets.
(xii) Not enter into any guaranty, or otherwise
become liable, with respect to any obligation of any Affiliate
of such Transferor nor shall the Transferor make any loans to
any Person.
(xiii) Ensure that any financial reports required of
such Transferor shall comply with generally accepted
accounting principles and shall be issued separately from, but
may be consolidated with, any reports prepared for any of its
Affiliates, provided that any such consolidated reports shall
indicate that the assets of the Transferor are not available
to the creditors of any Affiliate of the Transferor.
(xiv) Ensure that at all times it is adequately
capitalized to engage in the transactions contemplated in its
Certificate of Incorporation or other organization documents.
(xv) Not commingle its assets with any Affiliate of
the Transferor, except as provided in the Transaction
Documents.
(xvi) Make investments directly or by brokers engaged
and paid by Transferor or its agents (provided that if any
such agent is an Affiliate of the Transferor it shall be
compensated at a fair market rate for its services).
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(h) CORPORATE DOCUMENTS. The Transferor shall not amend,
alter, change or repeal Articles II, IV(b), IX, X, XI or XII of its Articles of
Incorporation or Articles II, Article IV Section 4(b) or Article VII Section
2(a) of its bylaws without the prior written consent of the Agent.
(i) RECEIVABLES PURCHASE AGREEMENT. The Transferor, in its
capacity as purchaser of the Receivables from CAC (as purchaser of the
Receivables from CB&T) pursuant to the Receivables Purchase Agreement, will at
all times enforce the covenants and agreements of CAC in the Receivables
Purchase Agreement and vigorously pursue all its rights and remedies thereunder,
including, without limitation, its rights and remedies with respect to the Sale
and Purchase Agreement and Initial Purchase Agreement. With respect to any
Receivable sold by CAC, the Transferor shall, and shall cause CAC to, effect
such sale under, and pursuant to the terms of, a Receivables Purchase Agreement,
including, without limitation, the payment by the Transferor in cash to CAC of
an amount equal to the purchase price for such Receivable as required or
permitted by the terms of such Receivables Purchase Agreement.
(j) SECURITY INTERESTS. Except for the conveyance hereunder
and under the Cargill Purchase Agreement, the Transferor will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Adverse Claim on, any Receivable (or any underlying
receivable) conveyed by it to the Agent, on behalf of the Buyer and the other
Owners, whether now existing or hereafter created, or any interest therein, and
the Transferor shall defend the right, title and interest of the Agent, on
behalf of the Buyer and the other Owners in, to and under the Receivables,
whether now existing or hereafter created, against all claims of third parties
claiming through or under the Transferor; PROVIDED, HOWEVER, the Transferor may
sell, pledge, transfer, convey, hypothecate or otherwise grant a security
interest in the Transferor's Interest to any Person so long as (i) any claim of
any such Person in the Affected Assets pursuant to any such sale, pledge,
transfer, conveyance, hypothecation or grant of a security interest in the
Transferor's Interest is in all respects subordinate to the claims of the Agent,
the Buyer and the other Owners, and the Agent shall be satisfied with the terms
of such subordination, (ii) such person shall agree in writing to be bound by
the provisions of this Agreement relating to the Transferor's Interest and to
Sections 11.9 and 11.10 hereof and (iii) such Person shall execute any
documents, or deliver any opinions, reasonably requested by the Agent in order
to ensure that the rights and remedies of the Agent, the Buyer and the other
Owners with respect to the Transferred Interest are not impaired as a result of
any such sale, pledge, transfer, conveyance, hypothecation or security interest.
(k) DELIVERY OF COLLECTIONS OR RECOVERIES. In the event that
the Transferor receives Collections or Recoveries, the Transferor agrees to pay
to the Servicer all such Collections and Recoveries as soon as practicable after
receipt thereof but in no event later than two Business Days after receipt.
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(l) NOTICE OF LIENS. The Transferor shall notify the Agent in
writing promptly after becoming aware of any Adverse Claim on any Receivable
conveyed by it to the Agent, the Buyer or any Owner other than the conveyances
hereunder, under any Purchase Agreement and under the receivables purchase
agreements.
(m) AMOUNTS. The Transferor agrees to remit, or cause to be
remitted, to the Collection Account, all amounts paid as adjustments after the
Closing Date with respect to the purchase price paid for the Receivables under
the Sale and Purchase Agreement, and all amounts required to be paid by CB&T to
the Agent, Buyer, any other Owner or Transferor pursuant to the CB&T Agreement
and received by the Transferor, all of the foregoing to be deemed part of
"Collections."
(n) RECEIVABLES PURCHASE AGREEMENT. The Transferor further
covenants that it will not amend, modify or supplement the Receivables Purchase
Agreement or enter into a new receivables purchase agreement without the prior
written consent of the Agent and will not take any other action under any other
Transaction Documents to which it is a party that would have a material adverse
effect on the Agent, the Buyer, or any other Owner or which is inconsistent with
the terms of any other Transaction Document.
SECTION 5.2. NEGATIVE COVENANTS OF THE TRANSFEROR. At all
times from the date hereof to the later to occur of (i) the Termination Date or
(ii) the date on which the Buyer's Net Investment has been reduced to zero, all
Carrying Costs and all other Aggregate Unpaids shall have been paid in full, in
cash, unless the Agent shall otherwise consent in writing:
(a) NO SALES, LIENS, ETC. Except as otherwise provided herein
and in the Receivables Purchase Agreement, the Transferor will not sell, assign
(by operation of law or otherwise) or otherwise dispose of, or create or suffer
to exist any Adverse Claim upon (or the filing of any financing statement) or
with respect to any of the Affected Assets.
(b) NO EXTENSION OR AMENDMENT OF RECEIVABLES. Except as
otherwise permitted in Section 6.2 hereof or the Credit Card Guidelines, the
Transferor will not extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Account
related thereto.
(c) CHANGE OF NAME, ETC. The Transferor will not change its
name, identity or structure or the location of its chief executive office,
unless at least 10 days prior to the effective date of any such change the
Transferor delivers to the Agent such documents, instruments or agreements,
executed by the Transferor, as are necessary to reflect such change and to
continue the perfection of the Agent's security interests in the Affected
Assets.
(d) OTHER DEBT. Except as provided for herein, the Transferor
will not create, incur, assume or suffer to exist any Indebtedness whether
current or funded, or
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any other liability other than (i) indebtedness of the Transferor under the
Transaction Documents and (ii) other Indebtedness incurred in the ordinary
course of its business in an amount not to exceed $100,000 at any time
outstanding.
(e) ERISA MATTERS. The Transferor will not (i) engage or
permit any of its respective ERISA Affiliates to engage in any prohibited
transaction (as defined in Section 4975 of the Code and Section 406 of ERISA)
for which an exemption is not available or has not previously been obtained from
the U.S. Department of Labor; (ii) permit to exist any accumulated funding
deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of the
Code) or funding deficiency with respect to any Benefit Plan other than a
Multiemployer Plan; (iii) fail to make any payments to any Multiemployer Plan
that the Transferor or any ERISA Affiliate thereof is required to make under the
agreement relating to such Multiemployer Plan or any law pertaining thereto;
(iv) terminate any Benefit Plan so as to result in any liability; or (v) permit
to exist any occurrence of any reportable event described in Title IV of ERISA
which represents a material risk of a liability to the Transferor or any ERISA
Affiliate under ERISA or the Code.
(f) CHANGES TO CREDIT CARD AGREEMENTS. The Transferor shall
not change (or consent to change) the terms and provisions of the Credit Card
Agreements or the Credit Card Guidelines in any respect (including, without
limitation, the calculation of the amount, and the timing, of uncollectible
Receivables) except to the extent (a) such change is made applicable to the
comparable segment of the consumer revolving credit accounts owned or serviced
by the Transferor, that have characteristics the same as, or substantially
similar to, the Accounts that are the subject of such change or (b) if it does
not own or service such a comparable segment, it will not make any such change
with the intent to materially benefit itself over the Agent, the Buyer or any
other Owner, and such change does not materially and adversely affect the rights
of the Agent, the Buyer or any other Owner in the Receivables or the
collectibility of the Receivables. References to the Receivables in this
paragraph shall be deemed to refer to the Receivables in the aggregate.
(g) NO ASSIGNMENT. The Transferor shall not assign any of its
rights (other than as permitted pursuant to Section 5.1(j)) or delegate any of
its duties hereunder or under any of the other Transaction Documents to which it
is a party without the prior written consent of the Agent.
(H) NO DESIGNATION. The Transferor shall not designate or
permit to be designated an Account Owner other than CB&T without the prior
written consent of the Agent and the execution and delivery of all financing
statements and agreements required by the Agent to perfect and protect the
interests of the Agent, the Buyer and the other Owners herein, which shall be
satisfactory to the Agent.
(i) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES.
Except in connection with its enforcement or collection of an Account, the
Transferor will take no
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action to cause any Receivable in which an undivided interest is conveyed by it
hereunder to be evidenced by any instrument (as defined in the UCC) and if any
such Receivable is so evidenced, it shall be treated as a Receivable which is
subject to Section 2.9 (b) hereof.
SECTION 5.3. AFFIRMATIVE COVENANTS OF THE SERVICER. At all
times from the date hereof to the later to occur of (i) the Termination Date or
(ii) the date on which the Net Investment has been reduced to zero, all Carrying
Costs shall have been paid in full and all other Aggregate Unpaids shall have
been paid in full, in cash, unless the Agent shall otherwise consent in writing:
(a) CONDUCT OF BUSINESS. The Servicer will carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted and do all things
necessary to remain duly incorporated, validly existing and in good standing as
a domestic corporation in its jurisdiction of incorporation and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
(b) COMPLIANCE WITH LAWS. The Servicer shall duly satisfy all
obligations on its part to be fulfilled under or in connection with each
Receivable and the related Account, if any, will maintain in effect all
qualifications required under Requirements of Law in order to service properly
each Receivable and the related Account, if any, and will comply in all material
respects with all other Requirements of Law in connection with servicing each
Receivable and the related Account the failure to comply with which would have a
material adverse effect on the Agent's, the Buyer's or any other Owner's
interest in the Receivables or the collectibility thereof.
(c) FURNISHING OF INFORMATION AND INSPECTION OF RECORDS. The
Servicer will furnish to the Agent from time to time such information with
respect to the Accounts and the Receivables as the Agent may reasonably request,
including, without limitation, listings identifying the Obligor and the related
Principal Receivables. The Servicer will, at any time and from time to time
during regular business hours permit the Agent, or its agents or
representatives, at the Servicer's expense (i) to examine and make copies of and
take abstracts from all Records and (ii) subject to the same limitations as the
last sentence of Section 5.1(d) with respect to the Servicer, to visit the
offices and properties of the Servicer for the purpose of examining such
Records, and to discuss matters relating to Receivables or the Servicer's
performance hereunder and under the other Transaction Documents to which such
Person is a party with any of the officers, directors, employees or independent
public accountants of the Servicer having knowledge of such matters.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Servicer
will maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof), and keep and maintain, all
documents, books,
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records and other information reasonably necessary or advisable for the
collection of all Receivables (including, without limitation, records adequate
to permit the daily identification of each new Receivable and all Collections of
and adjustments to each existing Receivable). The Servicer will give the Agent
notice of any material change in the administrative and operating procedures of
the Servicer referred to in the previous sentence.
(e) CREDIT CARD GUIDELINES. The Servicer will comply in all
material respects with the Credit Card Guidelines in regard to each Receivable
and the related Account.
(f) COLLECTIONS RECEIVED. The Servicer shall hold in trust,
and deposit, immediately, but in any event not later than two Business Days
after its receipt thereof, to the Collection Account any Collections received
from time to time by the Servicer.
(g) FICO RISK SCORES. The Servicer will, once every three
months, update the Fair, Isaacs & Co. credit risk score with respect to each
Account the Receivables of which have not become Defaulted Receivables and
append the Account Schedule to reflect such updated scores.
(h) STATUS REPORTS. The Servicer shall provide the Agent with
a copy of the "monthly status report" received by the Servicer referenced in
Section 2.17 of the Affinity Card Agreement or Section 1 of the Facilities
Management Agreement.
(i) FACILITIES MANAGEMENT AGREEMENT. The Servicer shall
deliver to the Agent an execution copy of the Facilities Management Agreement,
if and when executed.
(j) NOTICES. The Servicer shall promptly notify the Agent of
CB&T's failure to observe, keep or perform any material term, condition,
covenant, representation or warranty of the Facilities Management Agreement,
Affinity Card Agreement or Initial Purchase Agreement. Promptly after its
receipt thereof, the Servicer shall deliver to the Agent copies of all notices,
amendments and waivers delivered by or to the Servicer under or pursuant to any
of the Transaction Documents. The Servicer shall deliver to the Agent (a) on or
as soon as practicable after the Closing Date, the Valuation Date Statement (as
defined in the Sale and Purchase Agreement) and (b) when delivered pursuant to
the Sale and Purchase Agreement, copies of all other reports relating to the
valuation of the Accounts or Receivables on the Closing Date.
(k) AMOUNTS. The Servicer agrees to remit, or cause to be
remitted, to the Collection Account, all amounts paid as adjustments after the
Closing Date with respect to the purchase price paid for the Receivables under
the Sale and Purchase Agreement, and all amounts required to be paid by CB&T to
the Agent, or Transferor pursuant to the CB&T Agreement and received by the
Servicer, all of the foregoing to be deemed part of "Collections."
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SECTION 5.4. NEGATIVE COVENANTS OF THE SERVICER. At all times
from the date hereof to the later to occur of (i) the Termination Date or (ii)
the date on which the Buyer's Net Investment has been reduced to zero, all
Carrying Costs and all other Aggregate Unpaids shall have been paid in full, in
cash, unless the Agent shall otherwise consent in writing:
(a) NO EXTENSION OR AMENDMENT OF RECEIVABLES. Except as
otherwise permitted in Section 6.2 hereof and the Credit Card Guidelines, the
Servicer will not extend, amend or otherwise modify the terms of any Receivable,
or amend, modify or waive any term or condition of any Account related thereto.
(b) NO CHANGE IN BUSINESS OR CREDIT CARD GUIDELINES. The
Servicer will not make any change in the character of its business or in the
Credit Card Guidelines, which change would, in either case, impair the
collectibility of any substantial portion of the Receivables or otherwise result
in a material adverse effect on the Agent's, Buyer's or any other Owner's
interest in the Receivables or the collectibility thereof.
(c) MARKETING OR SALE OF ACCOUNTS. The Servicer will not, and
will not permit any of its Affiliates to, market for balance transfers any
Accounts with respect to which Transferred Interests in Receivables have been
conveyed hereunder, except for Accounts with Defaulted Receivables and other
credit card accounts, PROVIDED, THAT, such credit card accounts shall constitute
Accounts hereunder and the receivables created thereunder shall constitute
Receivables hereunder.
(d) AMENDMENT TO TRANSACTION DOCUMENTS. The Servicer will not
amend, modify, or supplement any Transaction Document to which it is a party or
waive any provisions thereof, in each case except with the prior written consent
of the Agent, except that no such consent shall be required with respect to any
amendment to the Affinity Card Agreement or Facilities Management Agreement;
PROVIDED, HOWEVER, that each of the Buyer, each other Owner (by acceptance of
its interest in the Transferred Interest) and the Agent agrees that any
termination or revocation of, or reduction in, the Letter of Credit (as such
term is defined in the Affinity Card Agreement) with the consent of CB&T shall
be deemed not to have a material adverse effect on the interests of the Agent,
the Buyer or any of the other Owners and shall not require any consent of the
Agent or the Administrative Agent (but notice thereof shall be provided to the
Agent); nor shall the Servicer take any other action under such Transaction
Documents that shall have a material adverse effect on the interests of the
Agent, the Buyer, or any of the other Owners or which is inconsistent with the
terms of such Transaction Document. The Servicer shall deliver to the Agent
promptly copies of all changes or amendments to the Affinity Card Agreement and
the Facilities Management Agreement.
(e) NO RESCISSION OR CANCELLATION. The Servicer shall not
permit any rescission or cancellation of any Receivable except in accordance
with the Credit Card
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Guidelines or as ordered by a court of competent jurisdiction or other
Governmental Authority.
(f) PROTECTION OF RIGHTS. The Servicer shall take no action
which, nor omit to take any action the omission of which, would impair the
rights of the Agent, the Buyer or any other Owner, as the case may be, in any
Receivable or the related Account, if any, nor shall it reschedule, revise or
defer payments due on any Receivable except in accordance with the Credit Card
Guidelines.
(g) RECEIVABLE NOT TO BE EVIDENCED BY PROMISSORY NOTES. Except
in connection with its enforcement or collection of an Account, the Servicer
will take no action to cause any Receivable to be evidenced by any instrument
(as defined in the UCC) and if any Receivable is so evidenced as a result of the
Servicer's actions it shall be treated as a Receivable which is subject to
Section 2.9(b) hereof.
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1. APPOINTMENT OF SERVICER. The servicing,
administering and collection of the Receivables shall be conducted by such
Person (the "Servicer") so designated from time to time in accordance with this
Section 6.1. CompuCredit is hereby designated as, and hereby agrees to perform
the duties and obligations of, the Servicer pursuant to the terms hereof. The
Servicer may not, except pursuant to the Affinity Card Agreement, the Facilities
Management Agreement or the CB&T Agreement, delegate any of its rights, duties
or obligations hereunder, or designate a substitute Servicer, without the prior
written consent of the Agent, and provided that the Servicer shall continue to
remain solely liable for the performance of the duties as Servicer hereunder
notwithstanding any such delegation hereunder. The Agent may, and upon the
direction of the Majority Investors the Agent shall, after the occurrence of a
Servicer Default designate as Servicer any Person (including itself) to succeed
CompuCredit or any successor Servicer, on the condition in each case that any
such Person so designated shall agree to perform the duties and obligations of
the Servicer pursuant to the terms hereof. The Agent may notify any Obligor of
the Transferred Interest.
SECTION 6.2. DUTIES OF SERVICER.
(a) The Servicer shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit Card
Guidelines. Each of the Transferor, the Buyer, the Agent and any other Owners
hereby appoints as its agent the Servicer, from time to time designated pursuant
to Section 6.1 hereof, to enforce its respective rights and interests in and
under the Affected Assets. To the extent permitted by
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applicable law, each of the Transferor and the existing Servicer hereby grants
to any Servicer appointed hereunder an irrevocable power of attorney to take any
and all steps in the Transferor's and/or the existing Servicer's name and on
behalf of the Transferor or the existing Servicer necessary or desirable, in the
reasonable determination of the Servicer, to collect all amounts due under any
and all Receivables, including, without limitation, endorsing the Transferor's
and/or the existing Servicer's name on checks and other instruments representing
Collections and enforcing such Receivables and the related Accounts. The
Servicer shall set aside for the account of the Transferor and the Agent their
respective allocable shares of the Collections of Receivables in accordance with
Section 2.5 hereof. The Servicer shall segregate and deposit to the Agent's
account the Agent's allocable share of Collections of Receivables when required
pursuant to Article II hereof. The Transferor shall deliver to the Servicer and
the Servicer shall hold in trust for the Transferor and the Agent, on behalf of
the Buyer and any other Owner, in accordance with their respective interests,
all Records which evidence or relate to Receivables or Related Security. The
Servicer shall not make the Agent, the Buyer or any other Owner a party to any
litigation without the prior written consent of such Person.
(b) The Servicer shall, as soon as practicable following
receipt thereof, turn over to the Transferor any collections of any indebtedness
of any Person which is not on account of a Receivable. The Servicer, if other
than the Transferor or CompuCredit or an Affiliate of the Transferor or
CompuCredit, shall as soon as practicable upon demand, deliver to CompuCredit
all Records in its possession which evidence or relate to indebtedness of an
Obligor which is not a Receivable.
(c) Notwithstanding anything to the contrary contained in this
Article VI, the Servicer, if not the Transferor, CompuCredit or any Affiliate of
the Transferor or CompuCredit, shall have no obligation to collect, enforce or
take any other action described in this Article VI with respect to any
indebtedness that is not included in the Transferred Interest other than to
deliver to the Transferor the collections and documents with respect to any such
indebtedness as described in Section 6.2(b) hereof.
SECTION 6.3. RIGHTS AFTER DESIGNATION OF NEW SERVICER. At any
time following the designation of a Servicer (other than the Transferor,
CompuCredit or any Affiliate of the Transferor or CompuCredit) pursuant to
Section 6.1 hereof:
(i) The Agent may direct that payment of all amounts
payable under any Receivable be made directly to the Agent or
its designee.
(ii) The Transferor shall, at the Agent's request and
at the Transferor's expense, give notice of the Agent's, the
Transferor's, Buyer's and/or any other Owners' respective
undivided interests in the Receivables to each Obligor and
direct that payments be made directly to the Agent or its
designee.
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(iii) The Transferor shall, at the Agent's request,
(A) assemble all of the Records, and shall make the same
available to the Agent or its designee at a place selected by
the Agent or its designee, and (B) segregate all cash, checks
and other instruments received by it from time to time
constituting Collections of Receivables in a manner acceptable
to the Agent and shall, promptly upon receipt, remit all such
cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to the Agent or its
designee.
(iv) The Transferor and the existing Servicer hereby
authorize the Agent to take any and all steps in the
Transferor's or the existing Servicer's name and on behalf of
the Transferor and the existing Servicer necessary or
desirable, in the determination of the Agent, to collect all
amounts due under any and all Receivables, including, without
limitation, endorsing the Transferor's or the existing
Servicer's name on checks and other instruments representing
Collections and enforcing such Receivables and the related
Accounts.
SECTION 6.4. SERVICER DEFAULT. The occurrence of any one or
more of the following events shall constitute a Servicer Default:
(a) the Servicer shall fail to make any payment, transfer or
deposit required to be made by it hereunder within five Business Days after the
date on which it was required to be made hereunder; or
(b) the Servicer shall fail duly to observe or perform in any
material respect any other covenants or agreements of the Servicer set forth in
this Agreement, which continues unremedied for a period of 10 days; or the
Servicer shall assign or delegate its duties under this Agreement, except as
permitted by Section 6.1 hereof; or
(c) any representation, warranty, certification or statement
made by the Servicer in this Agreement or in any of the other Transaction
Documents or in any certificate or report delivered by it pursuant to any of the
foregoing shall prove to have been incorrect when made or deemed made, which has
a material adverse effect on the rights of the Agent, the Buyer or any other
Owner and which continues for a period of 10 days; or
(d) any Event of Bankruptcy shall occur with respect to the
Servicer.
SECTION 6.5. RESPONSIBILITIES OF THE TRANSFEROR. Anything
herein to the contrary notwithstanding, the Transferor shall (i) perform all of
its obligations under the Accounts related to the Receivables to the same extent
as if interests in such Receivables had not been transferred hereunder and the
exercise by the Agent, the Buyer and any other Owner of their rights hereunder
and under the Receivables Purchase Agreement shall not relieve the Transferor
from such obligations and (ii) pay when due any taxes, including without
limitation, any sales taxes payable in connection
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with the Receivables and their creation and satisfaction. Neither the Agent, the
Buyer nor any other Owner shall have any obligation or liability with respect to
any Receivable or related Accounts, nor shall it be obligated to perform any of
the obligations of CAC or the Transferor thereunder.
ARTICLE VII
TERMINATION EVENTS
SECTION 7.1. TERMINATION EVENTS. The occurrence of any one or
more of the following events shall constitute a Termination Event:
(a) any representation or warranty made by the Transferor in
any Transaction Document shall prove to have been incorrect when made, and as a
result of which the interests of the Agent, the Buyer or any other Owner
hereunder are materially and adversely affected;
(b) any failure by the Transferor to make any payment,
transfer or deposit on or before the date such payment, transfer or deposit is
required to be made under the terms of this Agreement which continues unremedied
for a period of five Business Days;
(c) failure on the part of the Transferor duly to observe or
perform in any material respect any other covenants or agreements of the
Transferor set forth in any Transaction Document and which continues unremedied
for a period of 10 days;
(d) a failure by the Transferor, CompuCredit or any direct
Affiliate thereof to perform any term, provision or condition contained in any
agreement to which any such Person is a party and under which any Indebtedness
owing by the Transferor, CompuCredit or any direct Affiliate thereof greater
than $5,000,000 was created or is governed, regardless of whether such failure
constitutes an "event of default" or "default" under any such agreement; or any
Indebtedness owing by the Transferor, CompuCredit or any direct affiliate
thereof (other than Indebtedness of CompuCredit of the type described in clause
(vi) of the definition of "Indebtedness") greater than $5,000,000 shall be
declared to be due and payable or required to be prepaid (other than by a
regularly scheduled payment) prior to the date of maturity thereof;
(e) any Event of Bankruptcy shall occur with respect to the
Transferor, CAC, the Account Owner, the Servicer or the Sub-Servicer;
(f) the Agent, on behalf of the Buyer and the other Owners,
shall, for any reason, fail or cease to have a valid and perfected first
priority security interest in the Receivables;
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(g) a Servicer Default shall have occurred, and as a result of
which the interests of the Agent, the Buyer or any other Owner are materially
and adversely affected;
(h) there shall have occurred any material adverse change in
the operations of the Transferor, Servicer or Sub-Servicer, or any other event,
which materially adversely affects the Transferor's, Servicer's or
Sub-Servicer's ability either to collect upon the Receivables or to perform its
obligations under the Transaction Documents;
(i) (a) the Liquidity Provider or the Credit Support Provider
shall have given notice that an event of default has occurred and is continuing
under any of its respective agreements with Buyer; or (b) the Transferor, CAC or
any Account Owner is unable for any reason to transfer Receivables in accordance
with the provisions of the applicable Transaction Documents; or (c) the
Transferor, CAC or any Account Owner for any reason ceases to transfer the
Receivables in accordance with the provisions of the applicable Transaction
Documents; or (d) a regulatory, tax or accounting body has ordered that the
activities of the Buyer, any Liquidity Provider or Credit Support Provider
contemplated hereby be terminated or, as a result of any other event or
circumstance, the activities of the Buyer, any Liquidity Provider or Credit
Support Provider contemplated hereby may reasonably be expected to cause the
Buyer, such Liquidity Provider or such Credit Support Provider, the Person then
acting as the administrator or the manager for the Buyer, or any of their
respective Affiliates, as applicable, to suffer materially adverse regulatory,
accounting or tax consequences.
(j) the Subordinate Percentage is less than the Required
Subordinate Percentage;
(k) CB&T or CAC shall default in the performance of any
payment or undertaking to be performed or observed by it under the CB&T
Agreement, Affinity Card Agreement or the Facilities Management Agreement and
such default shall continue beyond any applicable grace period and shall have a
material adverse effect on the interests of the Agent, the Buyer or any other
Owner;
(l) for so long as the Affinity Card Agreement is in effect,
the Letter of Credit (as such term is defined in the Affinity Card Agreement)
maintained by CompuCredit in favor of CB&T pursuant to Section 3.3 of the
Affinity Card Agreement shall, without the consent of CB&T, be terminated,
revoked or reduced, or shall be drawn on, and such termination, revocation or
reduction shall not have been remedied within five days and, in the case of a
drawing, such drawing shall not have been reimbursed within five days;
(m) if CB&T is acting as Servicer or Sub-Servicer with respect
to the Receivables or the Accounts in any material respect, the rating of the
senior unsecured debt of CB&T is downgraded below Baa2 by Moody's or BBB by
Standard & Poor's, respectively;
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(n) CompuCredit Corporation shall at any time fail to own more
than 50% of the outstanding voting stock of CompuCredit Acquisition Corporation
or CompuCredit Acquisition Corporation shall at any time fail to own more than
50% of the outstanding voting stock of the Transferor;
(o) any of Messrs. David G. Hanna, Brett M. Samsky or Richard
Gilbert shall cease to be employed by CompuCredit, its Affiliates or agents, and
such individual's position shall not be filled within 60 days of such
individual's termination of employment or status as an agent by an individual
approved by the Agent;
(p) the Payment Rate for any Collection Period referenced
below shall be equal to or less than the percentage set forth opposite such
Collection Period below:
<TABLE>
<CAPTION>
COLLECTION PERIOD AFTER CLOSING DATE PERCENTAGE
------------------------------------ ----------
<S> <C>
Collection Periods 7 through 9 3.00%
Collection Periods 10 through 15 3.30%
Collection Periods 16 through 20 3.50%
Collection Periods 21 through 25 3.75%
Collection Period 26 and each
Collection Period thereafter 3.85%
</TABLE>
(q) the Charge-Off Rate for any Collection Period referenced
below shall equal or exceed the percentage set forth opposite such Collection
Period below:
<TABLE>
<CAPTION>
COLLECTION PERIODS AFTER CLOSING DATE PERCENTAGE
------------------------------------- ----------
<S> <C>
Collection Period 7 39%
Collection Period 8 38%
Collection Period 9 37%
Collection Period 10 36%
Collection Period 11 35%
Collection Period 12 34%
Collection Period 13 32%
Collection Period 14 30%
Collection Period 15 29%
Collection Period 16 28%
Collection Period 17 27%
</TABLE>
(r) the Three-Month Average Charge-Off Rate for any Collection
Period referenced below shall equal or exceed the percentage set forth opposite
such Collection Period below:
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<TABLE>
<CAPTION>
COLLECTION PERIOD AFTER CLOSING DATE PERCENTAGE
------------------------------------ ----------
<S> <C>
Collection Period 18 23%
Collection Period 19 23%
Collection Period 20 23%
Collection Period 21 21%
Collection Period 22 21%
Collection Period 23 21%
Collection Period 24 21%
Collection Period 25 and each
Collection Period thereafter 17%
</TABLE>
(s) the Transferor consolidates or merges with or into any
other Person, except that the Transferor may merge with or into another Person
so long as (a) the surviving entity is either the Transferor or a Subsidiary of
CompuCredit, (b) no Termination Event would occur as a result of such merger and
(c) where a Subsidiary of CompuCredit is the surviving entity, such Subsidiary
assumes in writing all obligations of the Transferor under the Transaction
Documents;
(t) CompuCredit consolidates or merges with or into any other
Person, except that CompuCredit may merge with or into another Person so long as
(a) the surviving entity is either the Servicer or a Subsidiary of CompuCredit,
(b) no Termination Event would occur as a result of such merger and (c) where a
Subsidiary of CompuCredit is the surviving entity, such Subsidiary assumes in
writing all obligations of CompuCredit under the Transaction Documents;
(u) any failure by CompuCredit to perform any term, provision
or condition of the Guaranty and, in the case of its failure to make a payment
under the Guaranty, such payment equals or exceeds $500,000 individually or in
the aggregate;
(v) the amount on deposit in the Reserve Account on any date
shall be less than the Required Reserve Account Amount; or
(w) an Event of Default (as such term is defined in the
Cargill Purchase Agreement) under Section 7.1(a) of the Cargill Purchase
Agreement shall have occurred and be continuing if at such time the Senior
Amounts (as such term is defined in the Cargill Purchase Agreement) have been
paid in full and the Termination Date has not occurred.
SECTION 7.2. TERMINATION.
(a) Upon the occurrence of any Termination Event, the Agent
may, or at the direction of the Majority Owners shall, by notice to the
Transferor and the Servicer declare the Termination Date to have occurred;
PROVIDED, HOWEVER, that in the case of any event described in Section 7.1(e),
7.1(f), or 7.1(v) above, the Termination Date shall be deemed to have occurred
automatically upon the occurrence of such
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event unless such Termination Event shall have been waived by the Majority
Investors. Upon any such declaration or automatic occurrence, the Agent shall
have, in addition to all other rights and remedies under this Agreement or
otherwise, all other rights and remedies provided under the UCC of the
applicable jurisdiction and other applicable laws, all of which rights shall be
cumulative.
(b) At all times after the declaration or automatic occurrence
of the Termination Date pursuant to Section 7.2(a), the Base Rate plus 2.00%
shall be the Applicable Rate applicable to the Net Investment.
(c) Upon the occurrence of a Termination Event, unless waived
by the Agent, the Transferor shall have the option of repurchasing the
Transferred Interest by payment to the Agent of the sum of (a) the Net
Investment and (b) (without duplication) all other Aggregate Unpaids as of the
date of any such repurchase.
(d) Any waiver of a Termination Event under this Section (or
any other waiver under this Agreement) may be made upon written notice to the
Transferor for any period of time specified by the Agent, or may be a permanent
waiver. In the event that any such period is specified, the Agent may, in its
sole discretion upon written notice to the Transferor, extend such waiver for a
further period or periods, or upon written notice to the Transferor may declare
a Termination Event after any such period has expired, all without prejudice to
its further rights and remedies hereunder.
SECTION 7.3. OPTIONAL REPURCHASE.
(a) On any day occurring on or after the date on which the Net
Investment is reduced to 10% or less of the Initial Net Investment at any time
on or after the Closing Date, the Transferor may, at its option, purchase the
Net Investment at a purchase price equal to (i) if such day is a Remittance
Date, the applicable Reassignment Amount for such Remittance Date or (ii) if
such day is not a Remittance Date, the applicable Reassignment Amount for the
Remittance Date following such day.
(b) The Transferor shall give the Servicer and the Agent at
least 30 days prior written notice of the date on which the Transferor intends
to exercise such purchase option. Not later than 11:00 a.m., New York City time,
on such day the Transferor shall deposit the applicable Reassignment Amount into
the Collection Account in same day funds. Such purchase option is subject to
payment in full of the applicable Reassignment Amount. Following the deposit of
the applicable Reassignment Amount into the Collection Account in accordance
with the foregoing, the Net Investment shall be reduced to zero and the Buyer
shall have no further interest in the Receivables. The Reassignment Amount shall
be distributed as set forth in accordance with the priorities set forth in
Section 2.5.
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ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. INDEMNITIES BY THE TRANSFEROR. (a) Without
limiting any other rights which the Agent, the Buyer or any other Owner may have
hereunder or under applicable law, the Transferor hereby agrees to indemnify the
Buyer, each other Owner, the Agent, the Administrative Agent, the Liquidity
Provider and the Credit Support Provider and any successors and permitted
assigns and any of their respective officers, directors and employees
(collectively, "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, costs and expenses, including, without limitation,
reasonable and actual attorneys' fees (which such attorneys may be employees of
the Liquidity Provider, the Credit Support Provider, the Agent or the
Administrative Agent, as applicable) and disbursements (all of the foregoing
being collectively referred to as "Indemnified Amounts") awarded against or
incurred by any of them in any action or proceeding between the Transferor or
CompuCredit (including, in its capacity as the Servicer) and any of the
Indemnified Parties or between any of the Indemnified Parties and any third
party or otherwise arising out of or as a result of this Agreement, the other
Transaction Documents, the ownership or maintenance, either directly or
indirectly, by the Agent, the Buyer or any other Owner of the Transferred
Interest or any of the other transactions contemplated hereby or thereby,
excluding, however, (i) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of an Indemnified Party, (ii)
recourse (except as otherwise specifically provided in this Agreement) for
uncollectible Receivables, (iii) Indemnified Amounts specifically excluded from
coverage under Sections 8.2, 8.3 and 8.4 and (iv) Taxes and Excluded Taxes.
Without limiting the generality of the foregoing, the Transferor shall indemnify
each Indemnified Party for Indemnified Amounts relating to or resulting from:
(i) any representation or warranty made by the Transferor or
any officers of the Transferor under or in connection with this Agreement, the
Receivable Purchase Agreement, any of the other Transaction Documents, any
Monthly Servicer Report or any other information or report delivered by the
Transferor or the Servicer pursuant hereto, which shall have been false or
incorrect in any material respect when made or deemed made;
(ii) the failure by the Transferor to comply with any
applicable law, rule or regulation with respect to any Receivable or the related
Account, or the nonconformity of any Receivable or the related Account with any
such applicable law, rule or regulation;
(iii) the failure to vest and maintain vested in the Agent, on
behalf of the Buyer and the other Owners, an undivided first priority, perfected
security interest (to the extent of the Transferred Interest) in the Affected
Assets free and clear of any
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Adverse Claim (except as may be expressly permitted under the Transaction
Documents);
(iv) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable laws with
respect to any of the Affected
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related Account not being the legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity)), or any other claim resulting from
the sale of merchandise or services related to such Receivable or the furnishing
or failure to furnish such merchandise or services;
(vi) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of whatever
sort arising out of or in connection with merchandise or services which are the
subject of any Receivable;
(vii) the failure by the Transferor to comply with any term,
provision or covenant contained in this Agreement or any of the other
Transaction Documents to which it is a party or to perform any of its respective
duties under the Accounts;
(viii) any repayment by any Indemnified Party of any amount
previously distributed in reduction of the Net Investment which such Indemnified
Party believes in good faith is required to be made;
(ix) the commingling by the Transferor or the Servicer of
Collections of Receivables at any time with other funds;
(x) any investigation, litigation or proceeding related to
this Agreement, any of the other Transaction Documents, the use of proceeds of
Transfers by the Transferor, the interests in the Transferred Interests, or any
Receivable or Related Security;
(xi) any inability to obtain any judgment in or utilize the
court or other adjudication system of, any state in which an Obligor may be
located as a result of the failure of the Transferor to qualify to do business
or file any notice of business activity report or any similar report;
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(xii) any failure of the Transferor to give reasonably
equivalent value to CAC in consideration of the purchase by the Transferor from
CAC of any Receivable, or any attempt by any Person to void, rescind or
set-aside any such transfer under statutory provisions or common law or
equitable action, including, without limitation, any provision of the Bankruptcy
Code; or
(xiii) any action taken by the Transferor in the enforcement
or collection of any Receivable.
PROVIDED, HOWEVER, that if the Buyer enters into agreements
for the purchase of interests in receivables from one or more Other Transferors,
Buyer shall allocate such Indemnified Amounts which are in connection with the
Liquidity Provider Agreement, the Credit Support Agreement or the credit support
furnished by the Credit Support Provider to the Transferor and each Other
Transferor; and PROVIDED, FURTHER, that if such Indemnified Amounts are
attributable to the Transferor or the Servicer and not attributable to any Other
Transferor, the Transferor shall be solely liable for such Indemnified Amounts
or if such Indemnified Amounts are attributable to Other Transferors and not
attributable to the Transferor or the Servicer, such Other Transferors shall be
solely liable for such Indemnified Amounts.
(b) PROCEDURES. Promptly after receipt by an Indemnified Party
under Section 8.1 of written notice of any damage, loss or expense in respect of
which indemnity may be sought hereunder by it, such Indemnified Party will, if a
claim is to be made against the Transferor, notify the Transferor thereof in
writing; but the omission so to notify the Transferor will not relieve the
Transferor from any liability (otherwise than under this Section 8.1) which it
may have to any Indemnified Party except as may be required or provided
otherwise than under this Section 8.1. Thereafter, the Indemnified Party and the
Transferor shall consult, to the extent appropriate, with a view to minimizing
the cost to the Transferor of its obligations hereunder. In case any Indemnified
Party receives written notice of any damage, loss or expense in respect of which
indemnity may be sought hereunder by it and it notifies the Transferor thereof,
the Transferor will be entitled to participate therein, and to the extent that
it may elect by written notice delivered to the Indemnified Party promptly after
receiving the aforesaid notice from such Indemnified Party, to assume the
defense thereof, with counsel reasonably satisfactory at all times to such
Indemnified Party; PROVIDED, HOWEVER, that if the parties against which any
damage, loss or expense arises include both the Indemnified Party and the
Transferor and the Indemnified Party shall have reasonably concluded that there
may be legal defenses available to it or other Indemnified Parties which are
different from or additional to those available to the Transferor and may
conflict therewith, the Indemnified Party or Parties shall have the right to
select one separate counsel for such Indemnified Party or Parties to assume such
legal defenses and otherwise to participate in the defense of such damage, loss
or expenses on behalf of such Indemnified Party or Parties. Upon receipt of
notice from the Transferor to such Indemnified Party of its election to assume
the defense of such damage, loss or expense and approval by the Indemnified
Party of counsel, the Transferor shall not be
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liable to such Indemnified Party under this Section 8.1 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof unless (i) the Indemnified Party shall have employed such
counsel in connection with assumption of legal defenses in accordance with the
proviso to the next preceding sentence, (ii) the Transferor shall not have
employed and continued to employ counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time
after notice of commencement of the action or (iii) the Transferor shall have
authorized the employment of counsel for the Indemnified Party at the expense of
the Transferor.
(c) Notwithstanding any other provisions contained in this
Section 8.1, (i) the Transferor shall not be liable for any settlement,
compromise or consent to the entry of any order adjudicating or otherwise
disposing of any damage, loss, or expense effected without its consent and (ii)
after the Transferor has assumed the defense of any damage, loss or expense
under Section 8.1 with respect to any Indemnified Party, it will not settle,
compromise or consent to entry of any order adjudicating or otherwise disposing
thereof (1) if such settlement, compromise or order involved the payment of
money damages except if the Transferor agrees with such Indemnified Party to pay
such money damages and, if not simultaneously paid, to furnish such Indemnified
Party with satisfactory evidence of its ability to pay such money damages, (2)
if such settlement, compromise or order involves any relief against such
Indemnified Party, other than the payment of money damages, except with the
prior written consent of such Indemnified Party and (3) if such settlement,
compromise or order does not provide a full release of the Indemnified Party,
without the prior written consent of such Indemnified Party.
(d) Each Indemnified Party shall use its good faith efforts to
mitigate, reduce or eliminate any losses, expenses or claims for indemnification
pursuant to this Section 8.1.
SECTION 8.2. INDEMNITY FOR TAXES, RESERVES AND EXPENSES. (a)
If after the date hereof, the adoption of any Law or bank regulatory guideline
or any amendment or change in the interpretation of any existing or future Law
or bank regulatory guideline by any Governmental Authority charged with the
administration, interpretation or application thereof, or the compliance with
any directive of any Governmental Authority (in the case of any bank regulatory
guideline, whether or not having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty or
other charge (other than Excluded Taxes) with respect to this Agreement, the
other Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest, the Receivables or payments of amounts due hereunder, or
shall change the basis of taxation of payments to any Indemnified Party of
amounts payable in respect of this Agreement, the other Transaction Documents,
the ownership, maintenance or financing of the Transferred Interest, the
Receivables or payments of amounts due hereunder or
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its obligation to advance funds hereunder, under the Liquidity Provider
Agreement, the Credit Support Agreement or the credit support furnished by the
Credit Support Provider or otherwise in respect of this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest or the Receivables (except for changes in the rate of
general corporate, franchise, net income or other income tax imposed on such
Indemnified Party;
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System)
against assets of, deposits with or for the account of, or credit extended by,
any Indemnified Party or shall impose on any Indemnified Party or on the United
States market for certificates of deposit or the London interbank market any
other condition affecting this Agreement, the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interest, the Receivables
or payments of amounts due hereunder or its obligation to advance funds
hereunder, under the Liquidity Provider Agreement, the Credit Support Agreement
or the credit support provided by the Credit Support Provider or otherwise in
respect of this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest or the Receivables; or
(iii) other than Taxes or Excluded Taxes, imposes upon any
Indemnified Party any other expense (including, without limitation, reasonable
attorneys' fees and expenses, and expenses of litigation or preparation therefor
in contesting any of the foregoing) with respect to this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest, the Receivables or payments of amounts due hereunder or
its obligation to advance funds hereunder under the Liquidity Provider
Agreement, the Credit Support Agreement or the credit support furnished by the
Credit Support Provider or otherwise in respect of this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interests or the Receivables; and the result of any of the foregoing
is to increase the cost to such Indemnified Party with respect to this
Agreement, the other Transaction Documents, the ownership, maintenance or
financing of the Transferred Interest, the Receivables, the obligations
hereunder, the funding of any purchases hereunder, the Liquidity Provider
Agreement, the Credit Support Agreement, or the credit support provided by the
Credit Support Provider by an amount deemed by such Indemnified Party to be
material, then, within ten (10) days after demand by such Indemnified Party
through the Agent, the Transferor shall pay to the Agent, for the benefit of
such Indemnified Party, such additional amount or amounts as will compensate
such Indemnified Party for such increased cost or reduction.
(b) If any Indemnified Party shall have determined that after
the date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Governmental Authority, or any directive regarding
capital adequacy (in the case of any bank regulatory guideline, whether or not
having the force of law) of any such
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Governmental Authority, has or would have the effect of reducing the rate of
return on capital of such Indemnified Party as a consequence of such Indemnified
Party's obligations hereunder or with respect hereto to a level below that which
such Indemnified Party (or its parent) could have achieved but for such
adoption, change, request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Indemnified Party
to be material, then from time to time, within ten (10) days after demand by
such Indemnified Party through the Agent, the Transferor shall pay to the Agent,
for the benefit of such Indemnified Party, such additional amount or amounts as
will compensate such Indemnified Party (or its parent) for such reduction.
(c) The Buyer and each other Owner will promptly notify the
Agent and the Agent will promptly notify the Transferor of any event of which it
has knowledge, occurring after the date hereof, which will entitle an
Indemnified Party to compensation pursuant to this Section 8.2, provided, that
any failure by any such Person to deliver any such notice shall not impair or
affect in any manner the Transferor's obligations under this Section. A notice
by the Agent or the applicable Indemnified Party claiming compensation under
this Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error, provided that
such determinations and allocations are made in good faith and on a reasonable
basis, reasonable written evidence (including an explanation of the applicable
regulatory change and a reasonably detailed computation of an accounting for any
amounts demanded) of which shall be provided to the Transferor upon request. In
determining such amount, the Agent or any applicable Indemnified Party may use
any reasonable averaging and attributing methods.
(d) Each Indemnified Party agrees that it will use reasonable
efforts to reduce or eliminate any claim for indemnity pursuant to this Section
8.2 including, subject to applicable law, a change in the funding office of such
Indemnified Party; provided, however, that nothing contained herein shall
obligate any Indemnified Party to take any action that imposes on such
Indemnified Party any additional costs or legal or regulatory burdens which such
Indemnified Party reasonably considers material, nor which, in such Indemnified
Party's reasonable opinion, would have an adverse effect on its business,
operations or financial condition.
(e) In determining amounts indemnified against under this
Section 8.2, the parties shall take into account any Tax benefits to the
Indemnified Party of the payment of Tax and the receipt of the indemnity
provided for this Section 8.2.
(f) Anything in this Section 8.2 to the contrary
notwithstanding, if Buyer enters into agreements for the acquisition of
interests in receivables from one or more Other Transferors, Buyer shall
allocate the liability for any amounts under this Section 8.2 which are in
connection with the Liquidity Provider Agreement, the Credit Support Agreement
or the credit support provided by the Credit Support Provider ("Section 8.2
Costs") to the Transferor and each Other Transferor; provided, however,
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that if such Section 8.2 Costs are attributable to the Transferor, CAC or the
Servicer and not attributable to any Other Transferor, the Transferor shall be
solely liable for such Section 8.2 Costs or if such Section 8.2 Costs are
attributable to Other Transferors and not attributable to the Transferor, CAC or
the Servicer, such Other Transferors shall be solely liable for such Section 8.2
Costs.
(g) Each Indemnified Party agrees to promptly notify the
Transferor if such Person receives notice of any potential tax assessment by any
federal, state or local tax authority for which the Transferor may be liable
pursuant to Section 8.2 or 8.3 hereof. Each Indemnified Party further agrees
that the Transferor shall bear no cost (including costs relating to penalties
and interest) relating to the failure of such Person to file in a timely manner
any tax returns required to be filed by such Person in accordance with
applicable statutes and regulations.
SECTION 8.3. TAXES. All payments made hereunder by the
Transferor, CompuCredit or the Servicer (each, a "payor") to the Buyer, any
Owner or the Agent (each, a "recipient") shall be made free and clear of and
without deduction for any present or future income, excise, stamp or franchise
taxes and any other taxes, fees, duties, withholdings or other charges of any
nature whatsoever imposed by any taxing authority on any recipient (or any
assignee of such parties), but excluding (i) income and withholding taxes
(including, without limitation, branch profits taxes, minimum taxes and taxes
computed under alternative methods, at least one of which is based on net
income) and franchise taxes that are based on net income or any other tax upon
or measured by income or gross receipts imposed on a recipient, in each case as
a result of a present or former connection between the jurisdiction of the
government or taxing authority imposing such tax and such recipient (including,
without limitation, withholding taxes attributable to the treatment of the
recipient as having "effectively connected taxable income" within the meaning of
Section 1446(c) of the Code); (ii) any taxes, levies, imposts, duties, charges,
or fees that would not have been imposed but for the failure by such recipient
to provide and keep current certification or other documentation required to
qualify for an exemption from or reduced rate thereof; and (iii) any taxes,
levies, imposts, duties, charges, or fees imposed as a result of change by any
recipient of the office in which any purchase hereunder is made, accounted for
or booked other than those Taxes that would have been applicable if such office
had not been changed, including any such change pursuant to any Requirement of
Law and any change in circumstances which, in the good faith judgment of the
recipient and the Transferor leaves such recipient no practicable alternative
except to change such office or as a result of the sale, transfer or assignment
by any recipient of its interest hereunder (all such exclusions being herein
called "Excluded Taxes" and all such non-excluded taxes, levies, imposts,
duties, charges, or fees being hereinafter called "Taxes"). In the event that
any withholding or deduction from any payment made by the payor hereunder is
required in respect of any Taxes then such payor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
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(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the recipient such additional amount or amounts as
is necessary to ensure that the net amount actually received by the recipient
will equal the full amount such recipient would have received had no such
withholding or deduction been required.
Moreover, if any Taxes are directly asserted against any recipient with respect
to any payment received by such recipient hereunder, the recipient may pay such
Taxes and the payor will promptly pay such additional amounts (including any
penalties, interest or expenses) as shall be necessary in order that the net
amount received by the recipient after the payment of such Taxes (including any
Taxes on such additional amount) shall equal the amount such recipient would
have received had such Taxes not been asserted.
If the payor fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the recipient the required
receipts or other required documentary evidence, the payor shall indemnify the
recipient for any incremental Taxes, interest, or penalties that may become
payable by any recipient as a result of any such failure.
SECTION 8.4. OTHER COSTS, EXPENSES AND RELATED MATTERS. (a)
The Transferor agrees, upon receipt of a written invoice, to pay or cause to be
paid, and to save the Buyer, any other Owner and the Agent harmless against
liability for the payment of, all reasonable out-of-pocket expenses (including,
without limitation, attorneys', accountants' and other third parties' fees and
expenses, any filing fees and expenses incurred by officers or employees of the
Buyer, any other Owner and/or the Agent or intangible, documentary or recording
taxes incurred by or on behalf of the Buyer, any other Owner and the Agent) (i)
in connection with the negotiation, execution, delivery and preparation of this
Agreement, the other Transaction Documents and any documents or instruments
delivered pursuant hereto and thereto and the transactions contemplated hereby
or thereby (including, without limitation, the perfection or protection of the
Transferred Interest), and (ii) from time to time (a) relating to any
amendments, waivers or consents under this Agreement and the other Transaction
Documents, (b) arising in connection with the Buyer's, any other Owner's, the
Agent's or the enforcement or preservation of rights (including, without
limitation, the perfection and protection of the Transferred Interest under this
Agreement), or (c) arising in connection with any audit, dispute, disagreement,
litigation or preparation for litigation involving this Agreement or any of the
other Transaction Documents (all of such amounts, collectively, "Transaction
Costs").
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(b) The Transferor shall pay the Agent, for the account of
Buyer and the other Owner, as applicable, on demand any Early Collection Fee due
on account of the reduction of the Net Investment on a day other than the last
day of a funding period.
SECTION 8.5. AMOUNTS LIMITED TO AVAILABLE FUNDS.
Notwithstanding anything else in this Agreement to the contrary, the obligations
of the Transferor under this Article VIII shall be payable hereunder solely to
the extent funds are available therefor and, to the extent such funds are
insufficient or unavailable to pay any amounts owing by the Transferor pursuant
to this Article VIII, it shall not constitute a claim against the Transferor.
SECTION 8.6. INDEMNIFICATION BY SERVICER. (a) The Servicer
shall indemnify and hold harmless the Indemnified Parties from and against any
loss, liability, expense, damage or injury suffered or sustained by reason of
willful misfeasance, bad faith, or negligence in the performance of the duties
of the Servicer or by reason of reckless disregard of obligations and duties of
the Servicer hereunder or by reason of any acts, omissions or alleged acts or
omissions of the Servicer pursuant to this Agreement; provided, however, that
the Servicer shall not indemnify any such Indemnified Party for any such loss,
liability, expense, damage or injury suffered or sustained by reason of any
action taken or omitted at the written request of such Indemnified Party; and
PROVIDED, FURTHER, that the Servicer shall not indemnify any such Indemnified
Party for any such loss, liability, expense, damage or injury incurred with
respect to any action taken by such Indemnified Party constituting fraud, gross
negligence, breach of fiduciary duty or willful misconduct, with respect to the
uncollectibility of the Receivables or with respect to any federal, state or
local income or franchise taxes (or any interest or penalties with respect
thereto) required to be paid by any such Indemnified Party in connection
herewith to any taxing authority. The Servicer shall not be liable for acts or
omissions of any successor Servicer. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof.
(b) Promptly after receipt by an Indemnified Party under
Section 8.6 of written notice of any damage, loss or expense in respect of which
indemnity may by sought hereunder by it, such Indemnified Party will, if a claim
is to be made against the Servicer, notify the Servicer thereof in writing; but
the omission so to notify the Servicer will not relieve the Servicer from any
liability (otherwise than under this Section 8.6) which it may have to any
Indemnified Party except as may be required or provided otherwise than under
this Section 8.6. Thereafter, the Indemnified Party and the Servicer shall
consult, to the extent appropriate, with a view to minimizing the cost to the
Servicer of its obligations hereunder. In case any Indemnified Party receives
written notice of any damage, loss or expense in respect of which indemnity may
be sought hereunder by it and it notifies the Servicer thereof, the Servicer
will be entitled to participate therein, and to the extent that it may elect by
written notice delivered to the Indemnified Party promptly after receiving the
aforesaid notice from such Indemnified Party, to assume the defense thereof,
with counsel reasonably satisfactory at all times
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to such Indemnified Party; provided, however, that if the parties against which
any damage, loss or expense arises include both the Indemnified Party and the
Servicer and the Indemnified Party shall have reasonably concluded that there
may be legal defenses available to it or other Indemnified Parties which are
different from or additional to those available to the Servicer and may conflict
therewith, the Indemnified Party or parties shall have the right to select one
separate counsel for such Indemnified Party or parties to assume such legal
defenses and otherwise to participate in the defense of such damage, loss or
expenses on behalf of such Indemnified Party or parties. Upon receipt of notice
from the Servicer to such Indemnified Party of its election as to assume the
defense of such damage, loss, or expense and approval by the Inemnified Party of
counsel, the Servicer shall not be liable to such Indemnified Party under this
Section 8.6 for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof unless (i) the
Indemnified Party shall have employed such counsel in connection with assumption
of legal defenses in accordance with the proviso to the next preceding sentence,
(ii) the Servicer shall not have employed and continued to employ counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party within a reasonable time after notice of commencement of the action or
(iii) the Servicer shall have authorized the employment of counsel for the
Indemnified Party at the expense of the Servicer.
(c) Notwithstanding any other provisions contained in this Section
8.6, (i) the Servicer shall not be liable for any settlement, compromise or
consent to the entry of any order adjudicating or otherwise disposing of any
damage, loss, or expense effected without its consent and (ii) after the
Servicer has assumed the defense of any damage, loss or expense under Section
8.6(b) with respect to any Indemnified Party, it will not settle, compromise or
consent to entry of any order adjudicating or otherwise disposing thereof (1) if
such settlement, compromise or order involved the payment of money damages
except if the Servicer agrees with such Indemnified Party to pay such money
damages and, if not simultaneously paid, to furnish such Indemnified Party with
satisfactory evidence of its ability to pay such money damages, (2) if such
settlement, compromise or order involves any relief against such Indemnified
Party, other than the payment of money damages, except with the prior written
consent of such Indemnified Party and (3) if such settlement, compromise or
order does not provide a full release of the Indemnified Party, without the
prior written consent of such Indemnified Party.
ARTICLE IX
THE AGENT
SECTION 9.1. AUTHORIZATION AND ACTION. The Buyer and each
other Owner hereby irrevocably appoints and authorizes the Agent to act as
its agent under this Agreement and the other Transaction Documents with such
powers and discretion as are specifically delegated to the Agent by the terms
of this Agreement and the other
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Transaction
Documents, together with such other powers as are reasonably incidental thereto.
The Agent (which term as used in this sentence and in Section 9.5 and the first
sentence of Section 9.6 hereof shall include its affiliates and its own and its
affiliates' officers, directors, employees, and agents): (a) shall not have any
duties or responsibilities except those expressly set forth in this Agreement
and shall not be a trustee or fiduciary for the Buyer or any other Owner; (b)
shall not be responsible to the Buyer or any other Owner for any recital,
statement, representation or warranty (whether written or oral) made in or in
connection with any Transaction Document or any certificate or other document
referred to or provided for in, or received by any of them under, any
Transaction Document, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of any Transaction Document, or any other
document referred to or provided for therein or for any failure by any of the
Transferor, CAC, CompuCredit or any other Person to perform any of its
obligations thereunder; (c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any of the Transferor, CAC or the Servicer or the
satisfaction of any condition or to inspect the property (including the books
and records) of any of the Transferor, CAC or the Servicer or any of their
Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any
litigation or collection proceedings under any Transaction Document; and (e)
shall not be responsible for any action taken or omitted to be taken by it under
or in connection with any Transaction Document, except for its own gross
negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
SECTION 9.2. AGENT'S RELIANCE, ETC. The Agent shall be
entitled to rely upon any certification, notice, instrument, writing, or other
communication (including, without limitation, any thereof by telephone or
telecopy) believed by it to be genuine and correct and to have been signed, sent
or made by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel for any of the Transferor, CAC or
CompuCredit), independent accountants, and other experts selected by the Agent.
As to any matters not expressly provided for by this Agreement, the Agent shall
not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority
Investors, and such instructions shall be binding on the Buyer and all of the
other Owners; provided, however, that the Agent shall not be required to take
any action that exposes the Agent to personal liability or that is contrary to
any Transaction Document or applicable law or unless it shall first be
indemnified to its satisfaction by the other Owners against any and all
liability and expense which may be incurred by it by reason of taking any such
action.
SECTION 9.3. TERMINATION EVENTS. The Agent shall not be deemed
to have knowledge or notice of the occurrence of a Potential Termination Event
or a Termination Event unless the Agent has received written notice from a
Buyer, any other
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Owner or the Transferor specifying such Potential Termination Event or
Termination Event and stating that such notice is a "Notice of Termination
Event". In the event that the Agent receives such a notice of the occurrence of
a Potential Termination Event or Termination Event, the Agent shall give prompt
notice thereof to the Buyer and any other Owners. The Agent shall (subject to
Section 9.2 hereof) take such action with respect to such Potential Termination
Event or Termination Event as shall reasonably be directed by the Majority
Investors, provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Potential Termination
Event or Termination Event as it shall deem advisable in the best interest of
the Buyer and any other Owners.
SECTION 9.4. AGENTS AND AFFILIATES. To the extent that the
Agent or any of its Affiliates shall become an Owner hereunder, the Agent or
such Affiliate, in such capacity, shall have the same rights and powers under
this Agreement as would any Owner hereunder and may exercise the same as though
it were not the Agent. The Agent and its Affiliates may generally engage in any
kind of business with the Transferor or any Obligor, any of their respective
Affiliates and any Person who may do business with or own securities of the
Transferor or any Obligor or any of their respective Affiliates, all as if it
were not the Agent hereunder and without any duty to account therefor to the
Owners.
SECTION 9.5. INDEMNIFICATION OF THE AGENT. The Owners agree to
indemnify the Agent (to the extent not reimbursed by the Transferor), ratably in
accordance with their Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees), or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
(including by the Buyer or any other Owner) in any way relating to or arising
out of this Agreement or any other Transaction Document or the transactions
contemplated thereby or any action taken or omitted by the Agent under this
Agreement or any other Transaction Document, provided that no other Owners shall
be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Person indemnified. Without limitation
of the foregoing, the other Owners agree to reimburse the Agent, ratably in
accordance with their Pro Rata Shares, promptly upon demand for any
out-of-pocket expenses (including attorneys' fees) incurred by the Agent in
connection with the administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement and the
other Transaction Documents, to the extent that such expenses are incurred in
the interests of or otherwise in respect of the other Owners hereunder and/or
thereunder and to the extent that the Agent is not reimbursed for such expenses
by the Transferor. The agreements contained in this Section shall survive
payment in full of the Buyer's Net Investment and all other amounts payable
under this Agreement.
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SECTION 9.6. NON-RELIANCE. Each of the Buyer and each other
Owner agrees that it has, independently and without reliance on the Agent or the
Buyer or any other Owner, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Transferor, CAC,
CompuCredit, CB&T and their Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent,
the Buyer or any other Owner, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Transaction Documents. Except
for notices, reports, and other documents and information expressly required to
be furnished to the Buyer and the other Owners by the Agent hereunder, the Agent
shall not have any duty or responsibility to provide any party hereunder with
any credit or other information concerning the affairs, financial condition, or
business of any of the Transferor, CAC, CompuCredit, CB&T or any of their
Subsidiaries or Affiliates that may come into the possession of the Agent or any
of its Affiliates.
SECTION 9.7. RESIGNATION OF AGENT. The Agent may resign at any
time by giving notice thereof to the Buyer, any other Owners and the Transferor.
Upon any such resignation, the Majority Investors shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Investors and shall have accepted such appointment within thirty
(30) days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Buyer and any other Owner, appoint a
successor Agent which shall be a commercial bank organized under the laws of the
United States of America having combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor, such successor shall thereupon succeed to and become vested with all
the rights, powers, discretion, privileges, and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article IX shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
SECTION 9.8. PAYMENTS BY THE AGENT. Unless specifically
allocated to an Owner, pursuant to the terms of this Agreement, all amounts
received by the Agent on behalf of the Owners shall be paid by the Agent to the
Owners (at their respective accounts specified in writing to the Agent) in
accordance with their respective related interests in the Net Investment on the
Business Day received by the Agent, unless such amounts are received after 12:00
noon on such Business Day, in which case the Agent shall use its reasonable
efforts to pay such amounts to the Owners on such Business Day, but, in any
event, shall pay such amounts to the Owners in accordance with their respective
related pro rata interests in the Net Investment not later than the following
Business Day.
SECTION 9.9. UCC FILINGS. The Owners and the Transferor
expressly recognize and agree that the Agent may be listed as the assignee or
secured
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party of record on the various UCC filings required to be made hereunder in
order to perfect the transfer of the Transferred Interest from the Transferor to
the Owners, that such listing shall be for administrative convenience only in
creating a record or nominee owner to take certain actions hereunder on behalf
of the Owners and that such listing will not affect in any way the status of the
Owners as the beneficial owners of their respective interests in the Transferred
Interest. In addition, such listing shall impose no duties on the Agent other
than those expressly and specifically undertaken in accordance with this ARTICLE
IX.
ARTICLE X
GUARANTY AND GUARANTOR COVENANTS
SECTION 10.1. GUARANTY. In consideration of, and in order to
induce the Buyer, any other Owner and the Agent to enter into this Agreement and
to accept the Transfers hereunder, the Guarantor hereby unconditionally and
irrevocably guarantees to the Buyer, any other Owner, the Agent, Liquidity
Provider and Credit Support Provider and their respective successors and
assigns, the due and punctual performance and payment by the Transferor, of all
representations and warranties, covenants, agreements, terms, conditions and
indemnities to be performed and observed by the Transferor under this Agreement,
including, without limitation, the due and punctual payment of all sums which
are or may become due and owing by the Transferor under the terms and provisions
of this Agreement; PROVIDED, HOWEVER, that the Guarantor shall not bear any
recourse for losses on Receivables with respect to which the Obligors have
failed to make payments and, notwithstanding any other provision of this Section
10.1, if the Transferor is unable to pay, as a result of Obligors' failing to
make payment on Receivables, any amount of the Buyer's Net Investment or any
amount constituting Carrying Costs, then CompuCredit shall not be liable for
such amounts (except for amounts with respect to the breach of any of the
Transferor's obligations under Article VIII hereunder or of any of its
representations or warranties or other covenants and indemnifications
hereunder). In no event shall CompuCredit be liable for the nonperformance,
nonobservance or failure to pay by any Person other than the Transferor.
SECTION 10.2. WAIVERS. (a) The Guarantor hereby waives
promptness, diligence and notice of acceptance of the guaranty made in Section
10.1 (the "Guaranty") of any action taken or omitted in reliance hereon or of
any default in the payment of any such sums or in the performance of any
covenants, agreements, terms, conditions and any demand, protest or other notice
of any kind. The Guarantor expressly waives the right to require any party to
protect, secure, perfect, insure, proceed against or exhaust any collateral in
which a security interest, lien, mortgage or like encumbrance has been granted
by the Transferor as security for the payment of any sums due hereunder or to
exhaust any right or take any action against the Transferor or any other Person
or any collateral.
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(b) The obligations of the Guarantor under this Guaranty
constitute a present and continuing guaranty of payment and not of
collectibility and all payments made by the Guarantor hereunder will be made
without set-off, counterclaim or other defense. The obligations of the Guarantor
under this Guaranty shall be absolute and unconditional and shall not be subject
to any counterclaim, set-off, deduction or defense. This Guaranty shall remain
in full force and effect without regard to and shall not be released, discharged
or in any way affected or impaired by any thing, event, happening, matter,
circumstance or condition whatsoever, whether or not the Guarantor shall have
any knowledge or notice thereof or consent thereto, including, without
limitation: (i) any amendment or modification of or supplement to any
Transaction Documents, assignment or transfer of any interest of the Buyer, any
other Owner or Agent therein, including, without limitation, any renewal or
extension of the terms of payment of any sums due or contingently due hereunder
or the granting of time in respect of any payment, any furnishing or acceptance
of security or any release of any security so furnished or accepted for any sum
due or contingently due hereunder; (ii) any waiver, consent, extension, granting
of time, forbearance, indulgence or other action or inaction under or in respect
of any Transaction Document or any exercise or no exercise of any right, remedy
or power in respect thereof; (iii) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceedings with
respect to the Guarantor, Transferor or any other Person, or the properties or
creditors thereof; (iv) the occurrence of any Termination Event under this
Agreement, or any invalidity, illegality or any unenforceability of, or any
misrepresentation, irregularity or other defect in, any provision of any
Transaction Document; (v) any transfer or purported transfer, any consolidation
or merger of the Transferor or any other Person with or into any other
corporation or entity, or any change whatsoever in the objects, capital
structure, constitution or business of the Transferor or any other Person; (vi)
any failure on the part of the Transferor or any other Person to perform or
comply with any term of any Transaction Document; (vii) any suit or other action
brought by any creditors of the Transferor for any reason hatsoever, including,
without limitation, any suit or action in any way attacking or involving any
Transaction Document or (viii) any limitation contained in Section 8.5 hereof.
SECTION 10.3. REINSTATEMENT. The obligations of the Guarantor
in respect of this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment in respect of any
obligations guaranteed hereunder is rescinded or must otherwise be returned by
any of the parties in whose favor this Guaranty is being made upon the
insolvency, bankruptcy or reorganization of the Transferor or otherwise, all as
though such payment had not been made.
SECTION 10.4. SUBROGATION. If the Guarantor shall make any
payment due in respect of this Guaranty, it shall to the extent permitted by
applicable law, be subrogated to the rights of the party in respect of which
such payment was made; provided however, that such rights of subrogation and all
indebtedness and claims arising therefrom shall be, and the Guarantor hereby
declares that they are, and shall at all times be, in all respects subordinate
and junior to all sums due or
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contingently due under the Transaction Documents. The Guarantor hereby agrees
that the foregoing right of subrogation shall not be effective until, and that
it shall not be entitled to receive any payment, under any condition, in respect
of any such subrogated claim unless and until, all sums which may become due, or
are stated in the Transaction Documents to become due, shall have become due,
shall have been paid in full or funds for their payment shall have been duly and
sufficiently provided.
SECTION 10.5. NET WORTH RATIO. The Guarantor agrees that, at
all times during the period referred to in the first paragraph of Section 5.2
hereof, the ratio of (a) its tangible net worth (equal to shareholders' equity
according to GAAP minus any write-up in the book value of assets resulting from
the revaluation thereof subsequent to the date hereof minus treasury stock minus
patents, copyrights, trademarks or goodwill and other like intangibles,
excluding capitalized software not in excess of $4,000,000) to (b) total assets
managed by the Guarantor (determined, with respect to the Receivables and other
credit card receivables acquired by the Guarantor or any Affiliate of the
Guarantor, based on the purchase price paid with respect to the Receivables
pursuant to the Sale and Purchase Agreement with respect to the Receivables and
any other similar purchase agreement with respect to any other credit card
receivables) shall not be less than .08:1.
SECTION 10.6. FINANCIAL REPORTING. CompuCredit will maintain,
a system of accounting established and administered in accordance with GAAP, and
will furnish to the Agent:
(i) ANNUAL REPORTING. (A) Within one hundred five (105)
days after the close of CompuCredit's fiscal year, (beginning with the
fiscal year ending in 1998) audited financial statements, prepared in
accordance with GAAP on a consolidated basis for CompuCredit, including
balance sheets as of the end of such period, related statements of
operations, shareholder's equity and cash flows, accompanied by an
unqualified audit report certified by independent certified public
accountants, which accountants shall be acceptable to the Agent,
prepared in accordance with GAAP and, upon the Agent's request, any
management letter prepared by said accountants and accompanied by a
certificate of said accountants that CompuCredit is in compliance with
its agreement set forth in Section 10.5 or, if CompuCredit is not in
compliance with such agreement, stating the nature and status thereof
and showing the computation of the financial ratios and restrictions
set forth in Section 10.5.
(ii) QUARTERLY REPORTING. Within sixty (60) days after
the close of the first three quarterly periods of CompuCredit's fiscal
year, for CompuCredit consolidated unaudited balance sheets (excluding
financial footnotes) as at the close of each such period and
consolidated related statements of operations, shareholder's equity and
cash flows for the period from the beginning of such fiscal year to the
end of such quarter, and showing the computation of each of the
financial ratios and restrictions set forth in Section
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10.5 all certified by its chief financial officer, chairman, president,
treasurer or any executive vice president.
(iii) COMPLIANCE CERTIFICATE. Together with the
financial statements required hereunder, a compliance certificate
signed by the chief financial officer, chairman, president, treasurer
or any executive vice president of CompuCredit stating that the
attached financial statements (except for the financial footnotes
excluded in clause (ii) above) have been prepared in accordance with
GAAP and, to the best of such person's knowledge, accurately reflect
the financial condition of CompuCredit, and showing compliance with,
the financial ratios and restrictions set forth in Section 10.5.
(iv) SHAREHOLDERS STATEMENTS AND REPORTS. Promptly upon
the furnishing thereof to the shareholders of CompuCredit, copies of
all financial statements, reports and proxy statements so furnished.
(v) S.E.C._FILINGS. Promptly upon the filing thereof,
copies of all registration statements and annual, quarterly, monthly or
other regular reports which CompuCredit files with the Securities and
Exchange Commission.
SECTION 10.7. NOTICES. CompuCredit shall promptly notify the
Agent of (i) a Termination Event or (ii) CB&T's failure to observe, keep or
perform any material term, condition, covenant, representation or warranty of
the Facilities Management Agreement or the Affinity Card Agreement, in each
case, of which it has knowledge.
SECTION 10.8. SUB-SERVICING FEE. On the last day of any
Collection Period, the Servicer shall pay to the Agent, for the benefit of the
Buyer and any other Owner, as applicable, the amount of any Sub-Servicing Fee
retained by the Sub-Servicer during such Collection Period in excess of
one-twelfth of the product of (i) 4% per annum and (ii) the average daily
Principal Receivables during such Collection Period. Such amount shall be paid
by the Servicer in same day funds to the Collection Account, to be distributed
on the next Remittance Date in accordance with Section 2.5 hereof.
SECTION 10.9. CO-BENEFICIARY DESIGNATIONS. By no later than 30
days after the Closing Date, CompuCredit shall cause (and shall furnish the
Agent with evidence demonstrating) the Agent to be designated a co-insured party
on the fidelity bond insurance policy obtained by CompuCredit covering losses
from employee, officer and director theft, fraud, misappropriation, and
embezzlement, for all employees, officers and directors of CompuCredit, in the
amount of at least $12.5 million.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. TERM OF AGREEMENT. This Agreement shall
terminate on the date following the Termination Date upon which the Buyer's Net
Investment has been reduced to zero, all Carrying Costs have been paid in full
and all other Aggregate Unpaids have been paid in full, in each case, in cash;
provided, however, that (i) the rights and remedies of the Agent, Buyer, other
Owner and the Administrative Agent with respect to any representation and
warranty made or deemed to be made by the Transferor pursuant to this Agreement,
(ii) the indemnification and payment provisions of Article VIII, and (iii) the
agreement set forth in Section 11.9 hereof, shall be continuing and shall
survive any termination of this Agreement.
SECTION 11.2. WAIVERS; AMENDMENTS. (a) No failure or delay on
the part of the Agent, the Buyer, the Administrative Agent or any other Owner in
exercising any power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other further exercise thereof or the exercise of
any other power, right or remedy. The rights and remedies herein provided shall
be cumulative and nonexclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement or any other Transaction
Document may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Transferor, the Servicer, the Buyer and the
Majority Owners (and, if Article IX or the rights or duties of the Agent are
affected thereby, by the Agent); provided that no such amendment or waiver
shall, unless signed by each other Owner directly affected thereby, (i) increase
the Commitment of any other Owner, (ii) reduce the Buyer's Net Investment or
rate of interest to accrue thereon or any fees or other amounts payable
hereunder, (iii) postpone any date fixed for the payment of any scheduled
distribution in respect of the Buyer's Net Investment or interest with respect
thereto or any fees or other amounts payable hereunder or for termination of any
Commitment, (iv) change the percentage of the Commitments or the number of other
Owners, which shall be required for the other Owners or any of them to take any
action under this Section or any other provision of this Agreement, (v) release
all or substantially all of the property with respect to which a security
interest therein has been granted hereunder to the Agent or the other Owners or
(vi) extend or permit the extension of the Commitment Termination Date. In the
event the Agent requests the Buyer's or any other Owner's consent pursuant to
the foregoing provisions and the Agent does not receive a consent (either
positive or negative) from the Buyer or such other Owner within 10 Business Days
of the Buyer's or other Owner's receipt of such request, then the Buyer or such
other Owner (and its percentage interest hereunder) shall be disregarded in
determining whether the Agent shall have obtained sufficient consent hereunder.
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SECTION 11.3. NOTICES. Except as provided below, all
communications and notices provided for hereunder shall be in writing (including
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other party at its address or telecopy number set forth below or at
such other address or telecopy number as such party may hereafter specify for
the purposes of notice to such party. Each such notice or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section 11.3 and confirmation is
received, (ii) if given by mail, 3 Business Days following such posting, postage
prepaid, U.S. certified or registered, (iii) if given by overnight courier, one
(1) Business Day after deposit thereof with a national overnight courier
service, or (iv) if given by any other means, when received at the address
specified in this Section 11.3. However, anything in this Section to the
contrary notwithstanding, the Transferor hereby authorizes Buyer to effect
Transfers and funding period selections based on telephonic notices made by any
Person which Buyer in good faith believes to be acting on behalf of the
Transferor. The Transferor agrees to deliver promptly to Buyer a written
confirmation of each telephonic notice signed by an authorized officer of
Transferor. However, the absence of such confirmation shall not affect the
validity of such notice. If the written confirmation differs in any material
respect from the action taken by Buyer, the records of Buyer shall govern absent
manifest error.
If to the Buyer:
Sheffield Receivables Corporation
c/o Barclays Bank PLC
222 Broadway, 7th Floor
New York, New York 10038
Attention: Jay Kim
Telephone: (212) 412-7621
Telecopy: (212) 412-6846
(with a copy to the Agent)
If to the Transferor:
CompuCredit Acquisition Funding Corp.
101 Convention Center Drive
Suite 850-14B
Las Vegas, Nevada 89109
Telephone: (702) 949-0189
Telecopy: (702) 598-3651
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Payment Information:
Bank of America
Las Vegas, Nevada
ABA # 122400724
Account: CompuCredit Acquisition Funding Corp.
Account No. 7100 74 030
If to CompuCredit Corporation:
CompuCredit Corporation
Two Ravinia Drive, Suite 1750
Atlanta, GA 30346
Telephone: (770) 901-5840
Telecopy: (770) 901-5815
If to the Agent:
Barclays Bank PLC
222 Broadway, 7th Floor
New York, New York 10038
Attention: Mary Logan
Telephone: (212) 412-3266
Telecopy: (212) 412-6846
SECTION 11.4. GOVERNING LAW; SUBMISSION TO JURISDICTION;
INTEGRATION.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT
OF LAW PRINCIPLES THEREOF. EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each of the parties hereto
hereby irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 11.4 shall affect the right of the parties hereto to bring any
action or proceeding against any other party hereto or its property in the
courts of other jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
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SOUNDING IN CONTRACT, TORT OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF,
CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
(c) This Agreement contains the final and complete integration
of all prior expressions by the parties hereto with respect to the subject
matter hereof and shall constitute the entire Agreement among the parties hereto
with respect to the subject matter hereof superseding all prior oral or written
understandings.
(d) The Transferor and CompuCredit each hereby appoint CT
Corporation located at 1633 Broadway, New York, New York 10019 as the authorized
agent upon whom process may be served in any action arising out of or based upon
this Agreement, the other Transaction Documents to which such Person is a party
or the transactions contemplated hereby or thereby that may be instituted in the
United States District Court for the Southern District of New York and of any
New York State court sitting in The City of New York by Buyer, the Agent, any
other Owner, or any assignee of any of them.
SECTION 11.5. SEVERABILITY; COUNTERPARTS. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 11.6. SUCCESSORS AND ASSIGNS. (a) This Agreement shall
be binding on the parties hereto and their respective successors and assigns;
provided, however, that (other than as permitted pursuant to Section 5.1(j))
neither the Transferor nor CompuCredit may assign any of its rights or delegate
any of its duties hereunder or under the Receivables Purchase Agreement or under
any of the other Transaction Documents to which it is a party without the prior
written consent of the Agent.
(b) Each of the Transferor and CompuCredit hereby agrees and
consents to the assignment by Buyer from time to time of all or any part of its
rights under, interest in and title to this Agreement and the Transferred
Interest to any Liquidity Provider; PROVIDED, HOWEVER, that any such assignment
shall be made in accordance with the provisions of Section 11.11 hereof.
SECTION 11.7. DISCLOSURE. Each of the Transferor and
CompuCredit hereby consents to the disclosure of any non-public information with
respect to it received by the Buyer, the Agent, any other Owner or the
Administrative Agent to any of the Buyer, the Agent, any nationally recognized
rating agency rating Buyer's
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Commercial Paper, the Agent, any other Owner, or, to the extent that it is an
Affiliate of the Agent, the Liquidity Provider or the Credit Support Provider in
relation to this Agreement.
SECTION 11.8. CONFIDENTIALITY AGREEMENT. Each of the
Transferor and CompuCredit hereby agrees that it will not disclose the contents
of this Agreement or any other proprietary or confidential information of the
Buyer, the Agent, any Liquidity Provider or any other Owner to any other Person
except (i) its auditors and attorneys, employees or financial advisors (other
than any commercial bank) and any nationally recognized rating agency, provided
such auditors, attorneys, employees, financial advisors or rating agencies are
informed of the highly confidential nature of such information, (ii) as
otherwise required by applicable law or order of a court of competent
jurisdiction, or (iii) required in response to any summons or subpoena or in
connection with any litigation; and PROVIDED, FURTHER, however, that the
Transferor and the Servicer shall have no obligation of confidentiality in
respect of any information which may be generally available to the public or
becomes available to the public through no fault of theirs. Such documents shall
include, but not be limited to, research studies, proprietary technology, trade
secrets, know-how, market studies and forecasts, competitive analyses, pricing
policies, the substance of agreements with customers and others, marketing
arrangements, customer lists and other documents embodying such confidential
information.
SECTION 11.9. NO BANKRUPTCY PETITION. (a) Each of the
Transferor and CompuCredit hereby covenants and agrees that, prior to the date
which is one year and one day after the payment in full of all outstanding
Commercial Paper or other indebtedness of Buyer, it will not institute against,
or join any other Person in instituting against, Buyer any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of the United States or any state of the
United States.
(b) Notwithstanding any prior termination of this Agreement,
the Buyer, any other Owner, the Agent, the Servicer, each Person which acquires
an interest in the Transferor's Interest and each of their respective successors
and assigns, shall not, prior to the date which is one year and one day after
the termination of this Agreement, acquiesce, petition or otherwise invoke or
cause the Transferor to invoke the process of any Governmental Authority for the
purpose of commencing or sustaining a case against the Transferor under any
Federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Transferor or any substantial part of its property or ordering the
winding-up or liquidation of the affairs of the Transferor.
SECTION 11.10. NO RECOURSE AGAINST STOCKHOLDERS, OFFICERS OR
DIRECTORS. No recourse under any obligation, covenant or agreement of Buyer
contained in this Agreement shall be had against any stockholder, officer or
director of Buyer, as such, by the enforcement of any assessment or by any legal
or equitable
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proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that this Agreement is solely a corporate obligation of Buyer, and
that no personal liability whatsoever shall attach to or be incurred by the
stockholders, officers or directors of the buyer, as such, or any of them, under
or by reason of any of the obligations, covenants or agreements of Buyer
contained in this Agreement, or implied therefrom, and that any and all personal
liability for breaches by Buyer of any of such obligations, covenants or
agreements, either at common law or at equity, or by statute or constitution, of
every such stockholder, officer or director of the Buyer is hereby expressly
waived as a condition of and consideration for the execution of this Agreement.
SECTION 11.11. TAX MATTERS.
(a) Notwithstanding anything to the contrary herein, the
Servicer shall be entitled to withhold any amount that it determines in its sole
discretion is required to be withheld pursuant to Section 1446 of the Code and
such amount shall be deemed to have been paid for all purposes of the Agreement.
(b) Each Owner agrees that prior to the date on which the
first interest payment hereunder is due thereto, it will provide to the Servicer
(i) if such Owner is incorporated or organized under the laws of a jurisdiction
outside the United States, two duly completed copies of the United States
Internal Revenue Service Form 4224 or, if the Transferor in its sole discretion
consents, Form 1001, or in either case successor applicable or required forms,
(ii) upon the request of the Transferor, a duly completed copy of United States
Internal Revenue Service Form W-9 or, if the Transferor in its sole discretion
consents, Form W-8, or in either case successor applicable or required forms,
and (iii) such other forms and information as may be required to confirm the
availability of any applicable exemption from United States federal, state or
local withholding taxes. Each Owner agrees to provide to the Servicer like
additional subsequent duly completed forms (subject to like consent)
satisfactory to the Servicer on or before the date that any such form expires or
becomes obsolete, or upon the occurrence of any event requiring an amendment,
resubmission or change in the most recent form previously delivered by it, and
to provide such extensions or renewals as may be reasonably requested by the
Servicer. Each Owner certifies, represents and warrants that as of the date of
this Agreement, or in the case of an Owner which is an assignee as of the date
of such Assignment, that it is entitled (x) to receive payments under this
Agreement without deduction or withholding (other than pursuant to Section 1446
of the Code, if applicable) of any United States federal income taxes and (y) to
an exemption from United States backup withholding tax. Each Owner represents
and warrants (but without limitation to its rights under Section 8.2 that it
shall pay any taxes imposed on such Owner (but without limitation to its rights
under Section 8.2) attributable to its interest in the Transferred Interest.
(c) Each Owner agrees with the Transferor that: (i) such Owner, will
deliver to the Transferor, on or before the Closing Date or the effective date
of any
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participation or Assignment, a letter in the form annexed hereto as Exhibit K
(an "INVESTMENT LETTER"), executed by such assignee, with respect to the
purchase by such Owner, of a portion of an interest relating to the Transferred
Interest and (ii) all of the statements made by such Owner, as applicable, in
its Investment Letter shall be true and correct as of the date made.
(d) Each Owner, by its holding of an interest in the
Transferred Interest, hereby severally represents, warrants and covenants, and
each Buyer or Owner, as applicable, that acquires an interest in the Transferred
Interest by Assignment shall be deemed to have severally represented, warranted
and covenanted upon such Assignment that: (i) such Buyer or Owner, as
applicable, has not acquired and shall not sell, trade or transfer any interest
in the Transferred Interest, nor cause any interest in the Transferred Interest
to be marketed, on or through either (A) an "established securities market" (or
the substantial equivalent thereof) within the meaning of Section 7704(b)(1) of
the Code (including an interdealer quotation system that regularly disseminates
firm buy or sell quotations by identified brokers or dealers by electronic means
or otherwise) or (B) a "secondary market" (or the substantial equivalent
thereof) within the meaning of Section 7704(b)(2) of the Code (including a
market wherein interests in the Transferred Interest are regularly quoted by any
person making a market in such interests and a market wherein any person
regularly makes available bid or offer quotes with respect to interests in the
Transferred Interest and stands ready to effect buy or sell transactions at the
quoted prices for itself or on behalf of others), and (ii) unless the Transferor
consents otherwise, such Buyer or Owner, as applicable, (A) is properly
classified as, and shall remain classified as, a "corporation" as described in
Section 7701(a)(3) of the Code and (B) is not, and shall not become, an "S
corporation" as described in Section 1361 of the Code. Each Buyer or Owner, as
applicable, represents, warrants and covenants that it shall (A) cause each of
its Participants otherwise permitted hereunder to make representations,
warranties and covenants similar to the foregoing for the benefit of the
Transferor at the time such Participant becomes a Participant and (B) forward a
copy of such representations, warranties and covenants to the Transferor. In the
event of any breach of the representation, warranty and covenant of a Buyer or
Owner, as applicable, or its Participant that such Buyer or Owner, as
applicable, or Participant shall remain classified as a corporation other than
an S corporation, such Buyer or Owner, as applicable, shall notify the
Transferor promptly upon such Buyer or Owner, as applicable, becoming aware of
such breach, and thereupon the Buyer or Owner, as applicable, hereby agrees to
use reasonable efforts to procure a replacement investor not so affected which
is acceptable to the Transferor and the Buyer to replace such affected Buyer or
Owner, as applicable. In any such event, the Transferor shall also have the
right to procure a replacement investor, provided such replacement investor (i)
is acceptable to the Buyer and the Agent and (ii) any replacement of the Buyer
will terminate the obligations of the Agent hereunder and (iii) any replacement
of the Agent, in its capacity as Agent hereunder or as an Owner, shall require
the replacement of the Buyer. Each affected Buyer and Owner hereby agrees to
take all actions necessary to permit a replacement investor to succeed to its
rights and obligations hereunder. Each
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Buyer and Owner which has a Participant which has breached its representation,
warranty and covenant that it shall remain classified as a corporation other
than an S corporation hereby agrees (without limiting theright of the Transferor
to procure a replacement investor for such Buyer or Owner as applicable, as
provided above in this paragraph) to notify the Transferor of such breach
promptly upon such Buyer or Owner, as applicable, becoming aware thereof and to
use reasonable efforts to procure a replacement Participant, as applicable, not
so affected which is acceptable to the Transferor and the Buyer to replace any
such Participant.
(e) Subject to the provisions of subsection (g), each Owner
may at any time sell, assign or otherwise transfer, to the extent of such
Owner's interest in the Transferred Interest, to (i) a Permitted Assignee, in
the case of an Assignment by Buyer or its assigns or (ii) any other Person to
which the Transferor may consent, which consent shall not be unreasonably
withheld (it being understood that such consent shall be considered to be
withheld reasonably on the basis that, and no Assignment pursuant to clause (i)
or (ii) above shall be permitted if, following such proposed Assignment the
number of Private Holders would exceed 80 or otherwise cause the arrangement
created pursuant to this Agreement to be in jeopardy of being treated as taxable
as a publicly traded partnership pursuant to Section 7704 of the Code) all or
part of its interest in the Transferred Interest; PROVIDED, HOWEVER, that any
Assignment shall be void unless (x) the minimum amount of such Assignment shall
be $5,000,000, (y) such assignee Buyer or other Owner, as applicable, shall
comply with this Section 11.11 and shall have delivered to the Transferor, prior
to the effectiveness of such Assignment, a copy of an agreement under which such
assignee has made the representations, warranties and covenants required to be
made pursuant to this Section 11.11, and (z) such proposed assignee shall
provide the forms described in Section 11.11(b) (subject to the Transferor's
consent, as applicable and as set forth therein) in the manner described
therein. In connection with any Assignment, the assignor Buyer or the Owner, as
applicable, shall request in writing to the Transferor for the consent of the
Transferor (if required pursuant to this Section) (the Transferor shall respond
to any such request within ten Business Days after its receipt and the
Transferor will not unreasonably withhold such consent) it being understood that
the obtaining of such consent (if required pursuant to this Section) is a
condition to the effectiveness of the Assignment. Each assignee of a Buyer or
other Owner, as applicable, is subject to the terms and conditions of subsection
11.11(b) on an ongoing basis and hereby makes the certifications,
representations and warranties contained therein.
(f) Subject to the provisions of subsection (g), any Owner may at any
time grant a participation in all or part of its interest in the Transferred
Interest to (i) a Permitted Assignee, in the case of a participation granted by
Buyer or its assigns or (ii) any other Person to which the Transferor may
consent, which consent shall not be unreasonably withheld (it being understood
that such consent shall be considered to be withheld reasonably on the basis
that, and no participation pursuant to clause (i) or (ii) above shall be
permitted if, following such proposed participation the number of Private
Holders would exceed 80 or otherwise cause the arrangement created pursuant to
this
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Agreement to be in jeopardy of being treated as taxable as a publicly traded
partnership pursuant to Section 7704 of the Code) (each such Person, a
"PARTICIPANT"); PROVIDED, HOWEVER, that such participation shall be void, unless
such Participant complies with the applicable provisions of this Section 11.11
and such Buyer or other Owner, as applicable, delivers to the Transferor, prior
to the effectiveness of its participation, a copy of an agreement under which
such Participant has made the representations, warranties and covenants to be
made pursuant to this Section 11.11. In connection with the granting of any such
participation to any Person, the granting Buyer or other Owner, as applicable,
shall provide a written request to the Transferor for the consent of the
Transferor to the granting of the specified interest to any identified
prospective Participant, if such consent is required to be given pursuant to
this Section, and the Transferor shall respond to any such request within ten
Business Days after its receipt, it being understood that the obtaining of such
consent (if so required) is a condition to the effectiveness of a participation.
Each Buyer and other Owner hereby acknowledges and agrees that any such
participation will not alter or affect in any way whatsoever such Buyer's and
other Owner's direct obligations hereunder and that the Transferor shall have no
obligation to have any communication or relationship whatsoever with any
Participant of such Buyer or other Owner, as applicable, in order to enforce the
obligations of such Buyer or other Owner, as applicable, hereunder. Each Buyer
and other Owner shall promptly notify the Transferor in writing of the identity
and interest of each Participant upon any such disposition. As a condition of
granting any participation, the applicable Buyer or other Owner hereby agrees to
deliver to the Transferor a certification of the proposed Participant pursuant
to which the Participant certifies, represents and warrants that (i) such
Participant is entitled to (x) receive payments with respect to its
participation without deduction or withholding of any United States federal
income taxes and (y) an exemption from United States backup withholding tax,
(ii) prior to the date on which the first interest payment is due to the
Participant, such Buyer or other Owner, as applicable, will provide to the
Servicer the forms described in clauses (i), (ii) and (iii) of subsection
11.11(b) (subject to the Transferor's consent, as applicable and as set forth
therein) as though the Participant were a Buyer or other Owner, as applicable,
(iii) such Buyer or other Owner similarly will provide subsequent forms as
described in subsection 11.11(b) with respect to such Participant as though it
were a Buyer or other Owner, as applicable, and (iv) such Participant will pay
any taxes imposed on its participation interest in the Transferred Interest.
(g) Except (i) as provided in subsections (e) and (f) above and in
Sections 9.9 and 11.6 hereof and (ii) in connection with any pledge to any
Federal Reserve Bank to secure any obligation of the Buyer or other Owner,
neither the Buyer nor any other Owner may transfer, assign, exchange or
otherwise convey or pledge, hypothecate, or otherwise grant a security interest
in the Transferred Interest and any such attempted transfer, assignment,
exchange, conveyance, pledge, hypothecation or grant shall be void.
91
<PAGE>
SECTION 11.12. TAX TREATMENT. The Transferor has entered into
this Agreement, and the interests of the Buyer in the Transferred Interest will
be issued, with the intention that, for federal, state and local income and
franchise tax purposes, the Transferred Interest will qualify as indebtedness
secured by the Receivables. The Transferor, by entering into this Agreement, and
the Buyer, by the acceptance of any such interest in the Transferred Interest,
agree to treat such interest in the Transferred Interest for federal, state and
local income and franchise tax purposes as indebtedness of the Transferor. The
Buyer agrees that it will cause any Person acquiring an interest in the
Transferred Interest through it to comply with this Agreement as to treatment as
indebtedness under applicable tax law, as described in this Section 9.11. None
of the parties hereto shall make the election provided for in Treasury
Regulation section 301.7701-3(c). The provisions of this Agreement shall be
construed in furtherance of the foregoing intended tax treatment.
92
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Transfer and Administration Agreement as of the date first written above.
SHEFFIELD RECEIVABLES CORPORATION,
as Buyer
By: /s/ Michael Wade
----------------------------------
Name: Michael Wade
Title: Associate Director
COMPUCREDIT ACQUISITION FUNDING CORP.
as the Transferor
By: /s/ Rebecca L. Howell
----------------------------------
Name: Rebecca L. Howell
Title: Assistant Secretary
COMPUCREDIT CORPORATION, individually
and as Servicer and Guarantor
By:
----------------------------------
Name:
Title:
BARCLAYS BANK PLC
as the Agent
By: /s/ Illegible
----------------------------------
Name: Illegible
Title:
[Signature Page to Transfer and Administration Agreement]
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Certificate Purchase Agreement, dated as of
January 12, 1999 (the "AGREEMENT"), among CompuCredit Funding Corp., as the
Transferor, CompuCredit Corporation, as the Servicer, the Investors named
therein, Variable Funding Capital Corporation, as the Purchaser, First Union
Capital Markets, a division of Wheat First Securities, Inc., as the Deal Agent,
and First Union National Bank, as the Liquidity Agent. Terms defined in the
Agreement are used herein with the same meaning.
(the "ASSIGNOR") and (the "ASSIGNEE") agree as follows:
- --------------------
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and accepts from the Assignor, that interest in and to
all of the Assignor's rights and obligations under the Agreement as of the date
hereof which represents the percentage interest specified in Section 1 of
Schedule 1 of all outstanding rights and obligations of the Assignor under the
Agreement, including, without limitation, such interest in the Assignor's
Commitment and the interest in the Series Supplement owned by the Assignor.
After giving effect to such sale and assignment, the Assignee's Commitment and
the amount of interest in the Series Supplement owned by the Assignee will be as
set forth in Section 2 of Schedule l.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Agreement or any other instrument or document furnished pursuant thereto;
(iii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of VFCC or the performance or observance by
VFCC of any of its obligations under the Agreement or any other instrument or
document furnished pursuant thereto; and (iv) confirms that the Assignee is an
Eligible Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Deal Agent, the
Liquidity Agent, or the Assignor and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Agreement; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Deal Agent and the Liquidity
Agent each to take such action as agent on its behalf and to exercise such
powers under the Agreement as are delegated to the Deal Agent and the Liquidity
Agent, respectively, by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Agreement are
required to be performed by it as Purchaser.
<PAGE>
The Assignee also covenants with each of the Deal Agent and the Servicer that
the Assignee will not make a public offering of the interest being assigned to
and accepted by it hereby, and will not reoffer or resell such interest, in a
manner that would render the issuance and sale of such interest, whether
considered together with the resale or otherwise, a violation of the Securities
Act of 1933, as needed, or any state securities or "Blue Sky" laws or require
registration pursuant thereto.
4. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee, it will be delivered to each of the Deal Agent and
the Liquidity Agent for acceptance and recording by the Deal Agent. The
effective date of this Assignment and Acceptance (the "TRANSFER DATE") shall be
the date of acceptance thereof by the Deal Agent and the Liquidity Agent, unless
a later date is specified in Section 3 of Schedule 1.
5. Upon such acceptance by the Deal Agent and the Liquidity Agent and
upon such recording by the Deal Agent, as of the Transfer Date, (i) the Assignee
shall be a party to the Agreement and, to the extent provided in this Assignment
and Acceptance, have the rights and obligations of a Purchaser thereunder and
(ii) the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Agreement.
6. Upon such acceptance by the Deal Agent and the Liquidity Agent and
upon such recording by the Deal Agent, from and after the Transfer Date, the
Deal Agent and the Liquidity Agent shall make, or cause to be made, all payments
under the Agreement in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest and commitment fee with
respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Agreement for periods prior to the
Transfer Date directly between themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[SIGNATURES SET FORTH ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
[ASSIGNOR]
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
ADDRESS FOR NOTICES
<PAGE>
[Address]
[ASSIGNEE]
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
ADDRESS FOR NOTICES
[Address]
Acknowledged and accepted
this _____ day of __________, _____
FIRST UNION CAPITAL MARKETS, a division of Wheat First Securities, Inc., a
Virginia corporation, as Deal Agent
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
Acknowledged and accepted
this _____ day of __________, _____
FIRST UNION NATIONAL BANK,
a national banking association,
as Liquidity Agent
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
SCHEDULE I
TO ASSIGNMENT AND ACCEPTANCE
Dated ___________, 19__
SECTION 1.
Percentage Interest: %
-----
SECTION 2.
Assignee's Commitment: $
--------
Aggregate Class A Investment
Amount Owing to the Assignee:
$-------
SECTION 3.
Transfer Date: _________, 19__
<PAGE>
EXHIBIT B
FORM OF NOTICE OF SALE
________ __, 1999
I, _______________, ________________ of COMPUCREDIT FUNDING CORP. (the
"TRANSFEROR"), hereby certify that, with respect to that certain Certificate
Purchase Agreement (as amended from time to time the "AGREEMENT"), dated as of
January 12, 1999, by and among the Transferor, CompuCredit Corporation, as the
Servicer, Variable Funding Capital Corporation, as the Purchaser, First Union
Capital Markets, a division of Wheat First Securities, Inc., as the Deal Agent,
First Union National Bank, as the Liquidity Agent, and the Investors named
therein, the following is true and correct as of the date hereof:
1. The Transferor hereby requests that a purchase of the Class
A Initial Invested Amount or Class A Invested Amount Increase be made in
accordance with the following terms:
(a) The aggregate amount of such Class A Initial Invested
Amount or Class A Invested Amount Increase shall be ______________.
(b) The Purchase Date of such Class A Initial Invested
Amount or Class A Invested Amount Increase shall be ______________.
2. The Transferor hereby confirms as follows:
(a) The representations and warranties contained in
Section 4.1 of the Agreement are true and correct as though made on the date
hereof.
(b) No event has occurred and is continuing, or would result
from the purchase of the Class A Initial Invested Amount or Class A Invested
Amount Increase occurring on the date hereof, which would cause the Termination
Date to occur.
(c) The conditions to the purchase of such Class A Initial
Invested Amount or Class A Invested Amount Increase pursuant to Section 3.1 or
Section 3.2, as applicable, of the Agreement have been satisfied in full.
(d) As of the date of such Class A Initial Invested Amount or
Class A Invested Amount Increase, the Class A Invested Amount (after giving
effect to such purchase) does not exceed the Facility Limit.
(e) On and as of the date hereof, the Transferor and the
Servicer have each performed in all material respects all of the agreements
contained in the Agreement to be performed by such Person at or prior to such
day.
<PAGE>
(f) To the Transferor's best knowledge, no law, rule or
regulation prohibits, and no order, judgment or decree of any federal, state or
local court or governmental body, agency or instrumentality prohibits or
enjoins, the making of the purchase occurring on the Purchase Date indicate
herein.
3. The capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Agreement.
4. Wire Instructions for such Class A Initial Invested Amount
or Class A Invested Amount Increase:
[SIGNATURE SET FORTH ON FOLLOWING PAGE]
IN WITNESS WHEREOF, I have hereunto signed my name as of the date FIRST
above written.
COMPUCREDIT FUNDING CORP., a Nevada
corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
EXHIBIT D
TRADENAMES, FICTITIOUS NAMES AND
"DOING BUSINESS AS" NAMES
CompuCredit Funding Corp.
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
<S> <C>
NAME STATE OF INCORPORATION
----------------------------------- ----------------------
CompuCredit Funding Corp. Nevada
CompuCredit Acquisition Corporation Nevada
CompuCredit Acquisition Funding Corp. Nevada
CompuCredit Acquisition Funding Corp. II Nevada
</TABLE>
<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 February 19, 1999, in the Amendment
No. 2 to Registration Statement (Form S-1 No. 333-69879) and related Prospectus
of CompuCredit Corporation dated February 24, 1999.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF COMPUCREDIT CORPORATION AND SUBSIDIARIES FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0001068199
<NAME> COMPUCREDIT CORPORATION
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 12,256,000 1,678,000
<SECURITIES> 0 0
<RECEIVABLES> 67,163,000 15,498,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0<F1> 0<F1>
<PP&E> 2,259,000 756,000
<DEPRECIATION> 523,000 (79,000)
<TOTAL-ASSETS> 87,583,000 20,215,000
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 0 0
0 0
20,000,000 20,000,000
<COMMON> 0 0
<OTHER-SE> 34,510,000 (873,000)
<TOTAL-LIABILITY-AND-EQUITY> 87,583,000 20,215,000
<SALES> 0 0
<TOTAL-REVENUES> 58,572,000 4,669,000
<CGS> 0 0
<TOTAL-COSTS> 17,663,000 3,972,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 1,422,000
<INTEREST-EXPENSE> 0<F2> 0<F2>
<INCOME-PRETAX> 40,909,000 (725,000)
<INCOME-TAX> 15,479,000 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 25,430,000 (725,000)
<EPS-PRIMARY> 11.32 (0.65)
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1>THE CONSOLIDATED BALANCE SHEET INCLUDED IN THE REGISTRANT'S FORM S-1 IS
UNCLASSIFIED.
<F2>INTEREST EXPENSE IS CONSIDERED AN OPERATING EXPENSE FOR THE REGISTRANT, AS
ONE OF THE REGISTRANT'S PRIMARY SOURCES OF INCOME IS INTEREST EARNED ON
SECURITIZED CREDIT CARD LOANS.
<F3>EPS ON A DILUTED BASIS IS NOT PRESENTED.
</FN>
</TABLE>
