CCRT » Topics » Transactions with Related Persons

This excerpt taken from the CCRT DEF 14A filed Apr 6, 2009.

Transactions with Related Persons

Thomas G. Rosencrants (Director) and two family members as joint tenants with right of survivorship own $200,000 principal amount of our 3.625% Convertible Senior Notes due May 30, 2025 (the “3.625% Notes”). The 3.625% Notes mature on May 30, 2025, unless earlier converted, redeemed or repurchased, and bear interest at a rate of 3.625% per year. Interest is payable semi-annually in arrears. Mr. Rosencrants also has two immediate family members who own $200,000 aggregate principal amount of the 3.625% Notes. As of the Record Date, CompuCredit has paid the Rosencrants family an aggregate of $3,625 of interest and no principal on these notes.

K.K. Srinivasan (President (Credit Cards)) owns $2,000,000 principal amount of our 5.875% Convertible Senior Notes due November 30, 2035 (the “5.875% Notes”). The 5.875% Notes mature on November 30, 2035, unless earlier converted, redeemed or repurchased, and bear interest at a rate of 5.875% per year. Interest is payable semi-annually in arrears. Mr. Srinivasan’s wife owns $1,000,000 principal amount of our 3.625% Notes. As of the Record Date, CompuCredit has paid the Srinivasans an aggregate of $76,875 of interest and no principal on these notes.

J.Paul Whitehead, III (Chief Financial Officer) owns $215,000 principal amount of our 3.625% Notes. As of the Record Date, CompuCredit has paid Mr. Whitehead an aggregate of $3,897 of interest and no principal on these notes.

The Rosencrants family, the Srinivasan family and Mr. Whitehead purchased the 3.625% Notes and the 5.875% Notes described above at prevailing market prices from unrelated third parties.

Under a shareholders agreement into which we entered with David G. Hanna (Chairman and Chief Executive Officer), Frank J. Hanna, III (Director), Richard R. House, Jr. (President and Director), Richard W. Gilbert (Chief Operating Officer and Vice Chairman) and certain trusts that were or are affiliates of the Hannas following our initial public offering, if (i) 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 that is a party to the agreement may elect to sell its shares to the purchaser on the same terms and conditions, and (ii) shareholders that are a party to the agreement 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 that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.

In June 2007, we entered into a sublease for 1,000 square feet of excess office space at our new Atlanta headquarters, with HBR Capital, Ltd., a company co-owned by David G. Hanna and Frank J. Hanna, III. The sublease rate of $22.44 per square foot is the same as the rate that we pay on the prime lease. This sublease expires in May 2022.

In June 2007, a partnership formed by Richard W. Gilbert, Richard R. House, Jr., J.Paul Whitehead III, Krishnakumar Srinivasan and other individual investors (including an unrelated third-party individual investor) acquired £4.7 million ($9.2 million) of class “B” notes originally issued to another investor out of our U.K. Portfolio securitization trust. The acquisition price of the notes was the same price at which the original investor had sold $60 million of notes to another unrelated third party. As of the Record Date, the outstanding balance of the notes held by the partnership was £1.0 million ($1.6 million). The notes held by the partnership comprised approximately 0.5% of the $287.4 million in total notes within the trust on the Record Date and are subordinate to the senior tranches within the trust. The class “B” tranche bears interest at LIBOR plus 9%. The partnership received $0.7 million of interest payments from January 1, 2008 through the Record Date.

In December 2006, we established a contractual relationship with Urban Trust Bank, a federally chartered savings bank (“Urban Trust”), pursuant to which we purchase credit card receivables underlying specified Urban

 

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Trust credit card accounts. Under this arrangement, in general Urban Trust is entitled to receive 5% of all payments received from cardholders and is obligated to pay 5% of all net costs incurred by us in connection with managing the program, including the costs of purchasing, marketing, servicing and collecting the receivables. Because the parties agreed in 2008 to waive Urban Trust’s requirements to pay 5% of all net costs incurred by us, Urban Trust’s interest in future net payments received from cardholders is only 2.7% as of December 31, 2008; its interests are netted against securitized earnings assets on our consolidated balance sheets. Frank J. Hanna, Jr., who is the father of our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III, owns a substantial minority interest in Urban Trust and serves on its Board of Directors. In December 2006, Urban Trust deposited $0.7 million with us to cover its share of future expenses of the program. Also in December 2006, we deposited $0.3 million with Urban Trust to cover purchases by Urban Trust cardholders. Through December 31, 2008, Urban Trust used all of the $0.7 million deposit to fund its share of the net costs of the program and made certain net additional contributions to cover further growth. As of December 31, 2008, our deposit with Urban Trust grew to $2.4 million, corresponding to growth in purchases by Urban Trust cardholders.

This excerpt taken from the CCRT DEF 14A filed Apr 16, 2008.

Transactions with Related Persons

Under a shareholders agreement into which we entered with David G. Hanna (Chairman and Chief Executive Officer), Frank J. Hanna, III (Director), Richard R. House, Jr. (President and Director), Richard W. Gilbert (Chief Operating Officer and Vice Chairman) and certain trusts that were or are affiliates of the Hannas following our initial public offering, if (i) 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 that is a party to the agreement may elect to sell its shares to the purchaser on the same terms and conditions, and (ii) shareholders that are a party to the agreement 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 that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.

Richard R. House, Jr. and Richard W. Gilbert each indirectly owned 9.5% of Visionary Systems, Inc. (“VSI”), the third-party developer of our database management system, prior to the sale of VSI in 2004 to an unaffiliated third party. During 2007, we paid approximately $8.8 million to VSI for software development, account origination and consulting services. Under the terms of the VSI sale agreement, Messrs. House and Gilbert are entitled to receive earn-out payments based on increases in the gross revenues of VSI in 2004, 2005 and 2006 over the prior year. Messrs. House and Gilbert each received an earn-out payment of $79,000 during 2007. CompuCredit is one of VSI’s most significant customers.

From 2001 until August 2007, we subleased 7,316 square feet of excess office space to Frank J. Hanna, Jr., who is the father of our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III. The sublease rate per square foot was the same as the rate that we paid on the prime lease. Total rent for the sublease was $0.1 million for 2007.

In June 2007, we entered into a sublease for 1,000 square feet of excess office space at our new Atlanta headquarters, to HBR Capital, Ltd., a company co-owned by David G. Hanna and Frank J. Hanna, III. The sublease rate of $22.00 per square foot is the same as the rate that we pay on the prime lease. This sublease expires in May 2022.

In June 2007, a partnership formed by Richard W. Gilbert, Richard R. House, Jr., J.Paul Whitehead III (Chief Financial Officer), Krishnakumar Srinivasan (President (Credit Cards)) and other individual investors

 

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(including an unrelated third-party individual investor) acquired £4.7 million ($9.2 million) of class “B” notes originally issued to another investor out of our U.K. Portfolio securitization trust. The acquisition price of the notes was the same price at which the original investor had sold $60 million of notes to another unrelated third party. As of December 31, 2007, the outstanding balance of the notes held by the partnership was £3.9 million ($7.9 million). The notes held by the partnership comprise approximately 1.5% of the $539.0 million in total notes within the trust on that date and are subordinate to the senior traunches within the trust. The class “B” notes bear interest at LIBOR plus 9%.

Certain of our subsidiaries had agreements with third-party financial institutions pursuant to which the applicable subsidiaries serviced loans on behalf of the financial institutions in exchange for servicing fees; these servicing activities ceased in May 2006 as a result of the FDIC’s decision effectively asking FDIC-insured financial institutions to cease loan origination activities through these types of servicing arrangements. As a result of this guidance, the originating bank for which we previously serviced loans in four states exited that business and liquidated its existing loans through a loan participation relationship with Maverick Management Company LLC (“Maverick”). To facilitate that transaction and our orderly exit from these servicing operations, we agreed to indemnify Maverick for up to $2.8 million in losses that it may incur as a result of its being a successor to the bank’s interest in the loans and their liquidation. Richard W. Gilbert, a member of our Board of Directors and our Chief Operating Officer, has a 20% economic interest in Maverick, and Mr. Gilbert’s son is its manager. As of December 31, 2007, we had paid claims submitted by Maverick of $1.7 million against this indemnification obligation, and no further claims will be made as we have received a waiver terminating any further indemnification obligation to Maverick.

In December 2006, we established a contractual relationship with Urban Trust Bank, a federally chartered savings bank (“Urban Trust”), pursuant to which we purchase credit card receivables underlying specified Urban Trust credit card accounts. Under this arrangement, in general Urban Trust receives 5% of all payments received from cardholders and is obligated to pay 5% of all net costs incurred by us in connection with managing the program, including the costs of purchasing, marketing, servicing and collecting the receivables. Frank J. Hanna, Jr., who is the father of our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III, owns a substantial minority interest in Urban Trust and serves on its Board of Directors. In December 2006, Urban Trust deposited $0.7 million with us to cover its share of future expenses of the program. Also in December 2006, we deposited $0.3 million with Urban Trust to cover purchases by Urban Trust cardholders. Through December 31, 2007, Urban Trust used all of the $0.7 million deposit to fund its share of the net costs of the program and made net additional contributions to cover further growth. Also through December 31, 2007, we increased our deposit with Urban Trust to $5.9 million to cover the growth in purchases by Urban Trust cardholders.

This excerpt taken from the CCRT DEF 14A filed Apr 10, 2007.

Transactions with Related Persons

Under a shareholders agreement into which the Company entered with David G. Hanna (Chairman and Chief Executive Officer), Frank J. Hanna, III (Director), Richard R. House, Jr. (President and Director), Richard W. Gilbert (Chief Operating Officer and Vice Chairman) and certain trusts that were or are affiliates of the Hannas following our initial public offering, if (i) 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 that is a party to the agreement may elect to sell its shares to the purchaser on the same terms and conditions, and (ii) shareholders that are a party to the agreement 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 that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions.

Richard R. House, Jr. and Richard W. Gilbert each indirectly owned 9.5% of Visionary Systems, Inc. (“VSI”), the third-party developer of our database management system, prior to the sale of VSI in 2004 to an unaffiliated third party. During 2006, the Company paid approximately $8.4 million to VSI for software development, account origination and consulting services. Under the terms of the VSI sale agreement, Messrs. House and Gilbert are entitled to receive earn-out payments based on increases in the gross revenues of VSI in 2004, 2005 and 2006 over the prior year. Messrs. House and Gilbert each received an earn-out payment of $79,000 during 2006. Assuming VSI’s gross revenues grow at the maximum rate contemplated by the merger agreement, Messrs. House and Gilbert would each be entitled to a maximum annual payment of approximately $400,000 in 2007. CompuCredit is one of VSI’s most significant customers.

Since 2001, the Company has been subleasing 7,316 square feet of excess office space to Frank J. Hanna, Jr., who is the father of our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III. The current sublease rate of $24.19 per square foot is the same as the rate that CompuCredit pays on the prime lease. Total rent for 2006 for the sublease was approximately $0.2 million.

 

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The Company has been a long-term contributor to the Solidarity School, a philanthropically-funded grade school program serving the children of Hispanic immigrant families. A substantial portion of the Company’s contributions to the Solidarity School have been funded by proceeds from the Company’s Aspire a Mas credit card, one of the Company’s credit card offerings marketed primarily to the Hispanic community previously with the promise that at least 1% of cardholder purchases will be reinvested in the Hispanic community through contributions to qualifying charitable organizations (which includes the Solidarity School). The 2006 contribution was approximately $0.8 million, which was higher than prior donations due to the Company’s pledge to assist the school in the expansion of its educational facilities. David G. Hanna (our Chief Executive Officer and Chairman of the Board of Directors) and Frank J. Hanna, III (a member of our Board of Directors) are both members of the board of directors of the Solidarity School and, consistent with prior philanthropic activities, Frank J. Hanna, III also has personally guaranteed the mortgage on the school’s facility. The Company historically has made charitable contributions to a variety of worthy causes and we expect to continue to support the Solidarity School and other organizations that are aimed at helping others through social, educational and spiritual means. For more information on the Company’s charitable activities, please see our annual report on Form 10-K for the year ended December 31, 2006.

Certain of the Company’s subsidiaries had agreements with third-party financial institutions pursuant to which the applicable subsidiaries serviced loans on behalf of the financial institutions in exchange for servicing fees; these servicing activities ceased in May 2006 as a result of the FDIC’s decision effectively asking FDIC-insured financial institutions to cease loan origination activities through these types of servicing arrangements. As a result of this guidance, the originating bank for which the Company previously serviced loans in four states exited that business and liquidated its existing loans through a loan participation relationship with Maverick Management Company LLC (“Maverick”). To facilitate that transaction and the Company’s orderly exit from these servicing operations, the Company agreed to indemnify Maverick for up to $2.8 million in losses that it may incur as a result of its being a successor to the bank’s interest in the loans and their liquidation. Richard W. Gilbert, a member of the Company’s Board of Directors and the Company’s Chief Operating Officer, has a 20% economic interest in Maverick, and Mr. Gilbert’s son is its manager. As of December 31, 2006 the Company has paid claims submitted by Maverick of $1.6 million against this accrued indemnification liability. At December 31, 2006 the remaining accrued liability was $215,000, which the Company believes to be appropriate to cover additional indemnification claims expected in the future.

On December 4, 2006, the Company established a contractual relationship with Urban Trust Bank, a federally chartered savings bank (“Urban Trust”), pursuant to which the Company purchases credit card receivables underlying specified Urban Trust credit card accounts. Under this arrangement, in general Urban Trust receives 5% of all payments received from cardholders and is obligated to pay 5% of all net costs incurred by the Company in connection with managing the program, including the costs of purchasing, marketing, servicing and collecting the receivables. Frank J. Hanna, Jr., who is the father of our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III, owns a substantial minority interest in Urban Trust and serves on its Board of Directors. In December 2006, Urban Trust deposited $750,000 with CompuCredit to cover its share of future expenses of the program. Also in December 2006, CompuCredit deposited $300,000 with Urban Trust to cover purchases by Urban Trust cardholders.

On September 1, 2006, the Company entered into a Managed Account Agreement with United Capital Asset Management LLC (“UCAM”), pursuant to which UCAM provides the Company investment advice and otherwise manages certain funds. The Managed Account Agreement has a three-year term, but generally is terminable on 30 days notice. Under the Managed Account Agreement, UCAM receives (i) a quarterly management fee equal to 0.5% of the net asset value of the managed funds and (ii) a quarterly performance fee equal to 20% of the amount by which the managed funds’ net asset value exceeds the highest value at the end of any previous quarter, which is commonly referred to as a “high water mark.”

Prior to September 2006, the Company purchased and sold investments directly from/to United Capital Markets, Inc. (“UCM”), an affiliate of UCAM. The Company earned interest on certain of the securities while it

 

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held them, and the Company paid interest to UCM’s clearing firm for margin borrowings it obtained from that clearing firm to finance certain purchases. In September 2006, the Company sold substantially all of these investments, transferred the proceeds from the sales of the securities to a wholly owned subsidiary, and then reinvested these proceeds in new securities as directed by UCAM in accordance with the Managed Account Agreement.

CompuCredit paid UCAM and UCM $2.0 million for services provided in 2006.

According to filings with the SEC, United Capital Markets Holdings, Inc. (“UCM Holdings”) owns UCAM and UCM. John Devaney is the sole shareholder of UCM Holdings and is the Chief Executive Officer of UCM Holdings, UCAM and UCM.

Mr. Devaney was not a “related person” (as defined in Item 404 of Regulation S-K) of CompuCredit prior to and at the time we established a contractual relationship with UCAM and UCM. Mr. Devaney later became a “related person” through acquisitions of the Company’s common stock on the open market. Mr. Devaney subsequently sold all of the shares of CompuCredit that he beneficially owned and, as of the Record Date, Mr. Devaney was no longer a “related person” of CompuCredit.

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