QC Holdings DEF 14A 2012
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x Filed by a Party other then the Registrant ¨
Check the appropriate box:
April 27, 2012
Dear Fellow Stockholder:
You are invited to attend the annual meeting of stockholders of QC Holdings, Inc. The meeting will be held at 10:00 a.m., local time, Wednesday, June 6, 2012, at the companys corporate office, 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210. At the annual meeting you will be asked to elect seven members to our board of directors. We will also be discussing our results for the past year and answering your questions.
Whether or not you attend the annual meeting, it is important that your shares be represented and voted at the meeting. Please mark, sign and date your proxy card today and return it in the envelope provided. Many of you can also vote by telephone or via the Internet as described on the proxy card.
Thank you for your support of QC Holdings and your involvement in this important process.
Chairman and Chief Executive Officer
QC HOLDINGS, INC.
9401 Indian Creek Parkway, Suite 1500
Overland Park, Kansas 66210
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Wednesday, June 6, 2012
TO THE STOCKHOLDERS OF QC HOLDINGS, INC.
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of QC Holdings, Inc. will be held at the companys corporate office, 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210 at 10:00 a.m., local time, on Wednesday, June 6, 2012, for the following purposes:
These items of business are more fully described in the proxy statement accompanying this notice.
Only stockholders of record at the close of business on April 16, 2012, are entitled to notice of and to vote at the meeting or any adjournment or postponement thereof. On April 16, 2012, the record date for the annual meeting, there were 17,809,904 shares of common stock outstanding. Each outstanding share is entitled to one vote.
Our board of directors encourages you to mark, sign and date your proxy card and return it today in the enclosed postage prepaid envelope, or vote by telephone or via the Internet (as described on the proxy card), whether or not you intend to be present at the annual meeting.
By Order of the Board of Directors
Mary Lou Early
Overland Park, Kansas
April 27, 2012
QC HOLDINGS, INC.
9401 Indian Creek Parkway, Suite 1500
Overland Park, Kansas 66210
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, June 6, 2012
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement and the enclosed proxy card are furnished to the stockholders of QC Holdings, Inc., a Kansas corporation, in connection with the solicitation of proxies by the company for use at our annual meeting of stockholders, and any adjournments or postponements thereof, to be held at the companys corporate office, 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210 at 10:00 a.m., local time, on Wednesday, June 6, 2012. The mailing of this proxy statement, the proxy card, the notice of annual meeting and our annual report on Form 10-K, which constitutes our 2011 annual report to stockholders, is expected to begin on April 30, 2012. All costs of solicitation will be borne by the company.
You are requested to vote your shares by following the instructions on the proxy card for voting by telephone or via the Internet or by completing, signing, dating and returning the proxy card promptly in the enclosed postage prepaid envelope. Your proxy may be revoked by written notice of revocation delivered to the secretary of the company, by executing and delivering a later dated proxy or by voting in person at the annual meeting. Attendance at the annual meeting will not constitute a revocation of your proxy unless you vote in person at the annual meeting or deliver an executed and later dated proxy. Proxies duly executed and received in time for the annual meeting will be voted in accordance with the stockholders instructions. If no instructions are given, proxies will be voted as follows:
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON WEDNESDAY, JUNE 6, 2012
OUTSTANDING VOTING SECURITIES OF THE COMPANY
Only the record holders of shares of common stock as of the close of business on April 16, 2012, are entitled to vote on the matters to be presented at the annual meeting, either in person or by proxy. At the close of business on April 16, 2012, there were outstanding and entitled to vote a total of 17,809,904 shares of common stock, constituting all of our outstanding voting securities.
The presence at the annual meeting, in person or by proxy, of the holders of at least a majority of the shares of common stock as of the record date is necessary to constitute a quorum. Abstentions and broker non-votes are counted for purposes of determining the presence of a quorum at the annual meeting. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power and has not received voting instructions from the beneficial owner. Each share of common stock is entitled to one vote for each director to be elected and for each other matter properly brought to a vote of the stockholders at the annual meeting. A plurality of the votes cast at the annual meeting is required to elect the directors. Broker non-votes are not counted for purposes of any proposal (including election of directors) for which a vote is not cast. Abstentions have the effect of a negative vote on the proposal to ratify the appointment of Grant Thornton LLP as independent registered public accounting firm for the company.
ELECTION OF DIRECTORS
At the annual meeting, the stockholders will elect seven directors to hold office for one year terms until our 2013 annual meeting of stockholders and until their successors are duly elected and qualified. It is intended that the names of the nominees listed below will be placed in nomination at the annual meeting to serve as directors and that the persons named in the proxy will vote for their election. All nominees listed below are currently members of the board of directors. Each nominee has consented to being named in this proxy statement and to serve if elected. If any nominee becomes unavailable to serve as a director for any reason, the shares represented by the proxies will be voted for the person, if any, designated by the board of directors. The board of directors has no reason to believe that any nominee will be unavailable to serve.
The nominees for director of the company, as well as certain information about them, are as follows:
Don Early has served as chairman of the board of directors and chief executive officer of the company since May 2004. Mr. Early founded the company in 1984 and has served as a director since that time. He served as president and chief executive officer from 1984 until May 2004. Mr. Early is married to Mrs. Early. Mr. Early holds a degree in business administration from the University of Missouri.
Mary Lou Early has served as vice chairman of the board of directors and secretary of the company since May 2004. She has been employed by the company in a variety of executive positions since 1988, including vice president and chief operating officer until May 2004. Mrs. Early became a director of the company in 1997. Mrs. Early is married to Mr. Early and is the mother of Darrin Andersen, our president and chief operating officer.
Richard B. Chalker joined our board of directors in July 2004 immediately following the companys initial public offering. Mr. Chalker currently serves as a director of PBI/Gordon Corporation, an employee-owned manufacturer of pesticides and professional turf and agricultural products, and GuildMaster, Inc., a manufacturer of home furnishings and accessories that trades on the OTC Bulletin Board. Mr. Chalker retired in 2004 as Division Vice President, Tax and Customs, of Hallmark Cards after eight years of service. Mr. Chalker also spent 32 years at Ernst & Young LLP, including 19 years as a partner specializing in taxation. He holds a degree in industrial administration from Yale University and a law degree from DePaul University.
Gerald F. Lamberti joined our board of directors in July 2004 immediately following the companys initial public offering. Mr. Lamberti retired from the Federal Deposit Insurance Corporation (FDIC) in 1998, where he was an attorney for over 25 years, including the last 13 years as Regional Counsel, Kansas City Region, FDIC. Prior to joining the FDIC, Mr. Lamberti was Deputy General Counsel of the United States Catholic Conference in Washington, D.C. He holds a degree in accounting from St. Johns University School of Commerce and a law degree from St. Johns University Law School. Mr. Lamberti served three years in the U.S. Air Force in the Korean War, in which he received the Distinguished Flying Cross.
Francis P. Lemery joined our board of directors in July 2004 immediately following the companys initial public offering. Mr. Lemery retired in 1999 as Senior Vice President and Actuary of Kansas City Life Insurance
Company, a Nasdaq Global Market company. He served on the board of directors of Kansas City Life from 1985 to 1999. Mr. Lemery has been a Fellow of the Society of Actuaries since 1968, and a member of the American Academy of Actuaries since 1969. He holds a degree in business administration and a masters degree in actuarial science from the University of Michigan. In 2011, Mr. Lemery was named Honorary Consul General of Japan at Kansas City.
Mary V. Powell joined our board of directors in July 2004 immediately following the companys initial public offering. Ms. Powell was a partner in Johnson-Powell Accounting Services for more than 30 years until her retirement in 2010, where she provided accounting, auditing and tax preparation services primarily to privately-owned businesses.
Jack L. Sutherland joined our board of directors effective January 1, 2010. Mr. Sutherland has served in various executive capacities with Equity Bank, N.A. since February 2009, including as Kansas City Regional President. He currently is semi-retired from the bank, but continues to provide business development and related services. He provided consulting services to small businesses in connection with bank restructurings, project financings and related matters in 2008. From 2000 to 2008, Mr. Sutherland served Enterprise Bank & Trust (NASDAQ: EFSC) in a number of executive capacities, most recently as Chairman of the Board for the Kansas City Region. Mr. Sutherland has over 40 years of banking experience. He holds a bachelors degree in banking and finance and a MBA in finance from the University of Missouri. Mr. Sutherland was honorably discharged from the U.S. Army after attaining the rank of Captain.
The current members of our board bring a wide range of experience and qualifications, attributes and skills that support the nomination of each of these individuals for re-election to the board at the 2012 annual meeting of stockholders and uniquely position the board to assess the strategic opportunities and challenges that face the company. Mr. Early founded the company, and his extensive knowledge of the payday lending and related industries, leadership skills and entrepreneurial experience are particularly valuable to the board as it continuously assesses the direction and future of the company. Mrs. Early has served the company for more than 20 years and during that time virtually all aspects of operations (other than financial reporting and accounting) have reported to her. She has also participated in the evaluation of every major acquisition and diversification opportunity considered by the company in the past 14 years, and brings a specific commitment and continuity to the companys culture. Mr. Chalkers experience as public company director, and his executive leadership, financial and tax expertise provide insight and talents invaluable to the board. Mr. Lambertis career as a regulator of banks and a lawyer brings a unique perspective to the board regarding regulatory developments and oversight and the role of the industry serving clients who have historically not been served by the banking industry. Mr. Lemery spent his professional career as an officer and later a member of the board of a publicly traded financial services company. He is also professionally educated as an actuary. Those experiences and training bring significant executive leadership, human resources, financial expertise and corporate governance insights to the board. Ms. Powell has been associated with the company as a tax advisor or a board member for over 25 years and brings extensive historical perspective relating to the company and the industry to the board. Each of these directors has served the company since our initial public offering in July 2004 and has gained invaluable experience in serving on the company as a publicly-traded company since that time. Mr. Sutherland was added to the board in 2010 in view of his career as a commercial bank executive, bringing extensive knowledge and experience of the banking and financial services industry, as well as executive leadership, regulatory and financial expertise to the board.
The Board of Directors recommends a vote FOR
the election of the nominees for director named above.
Officers are elected on an annual basis by the board of directors and serve at the discretion of the board. Certain biographical information about our executive officers follows:
Darrin J. Andersen has served as our president and chief operating officer since May 2004. Mr. Andersen joined the company in February 1998 and served as chief financial officer from December 1999 until April 2004. Prior to joining the company, Mr. Andersen worked in the accounting department of Newell Rubbermaid, a manufacturing company listed on the New York Stock Exchange, and in the audit group of Deloitte & Touche. Mr. Andersen is a past president of the Community Financial Services Association of America. Mr. Andersen is the son of Mary Lou Early. Mr. Andersen holds a degree in accounting from the University of Kansas, and is a certified public accountant.
Douglas E. Nickerson joined the company as chief financial officer in April 2004. Prior to joining the company, Mr. Nickerson served for eight years in various management positions with Stilwell Financial Inc., now known as Janus Capital Group, Inc., a New York Stock Exchange provider of diversified financial services. From 2001 to 2003, Mr. Nickerson served as vice presidentcontroller and treasurer of Stilwell, and from 1999 to 2001 served as vice presidentcontroller. Mr. Nickerson holds a degree in accounting from Kansas State University and a law degree from the University of MissouriKansas City. He is a certified public accountant.
Michael O. Walrod has been with the company since 1991. From January 1, 2006, until the appointment to his current position in June 2008, he served as vice president of operations, western U.S. Mr. Walrod served as vice president of operations from December 2004 to December 2005. Between 1992 and December 2004, Mr. Walrod served in various roles, including positions as regional director, regional manager, director of development and several other field-related roles. Mr. Walrod holds a degree in business administration from the University of Kansas.
Matthew J. Wiltanger joined the company in January 2008 as vice presidentgeneral counsel. Prior to joining the company, Mr. Wiltanger was a partner with the law firm Shook, Hardy & Bacon, LLP in Kansas City, with a focus on business litigation, tort matters, antitrust and trade regulation. Mr. Wiltanger joined the firm in 1997 and began serving as outside litigation counsel to the company for certain matters in 2004. Mr. Wiltanger earned a journalism degree from the University of Missouri and a law degree from the University of Kansas.
Wayne S. Wood has served as vice president of operations, eastern U.S. since January 1, 2006. Mr. Wood served as regional director, eastern U.S. from August 2003 to December 2005. Mr. Wood joined the company in June 2002 as regional manager for the state of Virginia, serving in that role until July 2003. Prior to joining the company, Mr. Wood spent four years as a division manager with Advance America Cash Advance Centers, a New York Stock Exchange-listed payday loan company, and in various retail management positions, including 15 years as director of operations with a large national video retailer. Mr. Wood holds a degree in administration of justice from Tidewater Community College.
D. Scott Smith has been with the company since 1994. From October 2001 until his appointment in June 2008 as vice president of operations, western U.S., he served as regional director, with operational responsibility for branches in Missouri, Kansas, Oklahoma and Nebraska. Between 1994 and 2001, Mr. Smith served in all levels of operations at the company, including regional manager, area manager and branch manager. Prior to joining the company, Mr. Smith had 18 years of experience in retail/wholesale fashion management, sales and merchandising. Mr. Smith attended Penn Valley Community College and Western State College.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial ownership of shares of common stock for (i) each director and nominee for election as a director of the company; (ii) each named executive officer, (iii) all directors and executive officers as a group, and (iv) each person known to us to be the beneficial owner of more than 5% of the outstanding shares. Beneficial ownership for directors and officers and for other 5% or greater stockholders is shown as of April 16, 2012. Except as otherwise indicated, each stockholder has sole voting and investment power with respect to the shares beneficially owned.
Section 16(a) Beneficial Ownership Reporting Compliance
We are required to identify any director, officer or 10% or greater beneficial owner of common stock who failed to file timely a report with the SEC required under Section 16(a) of the Securities Exchange Act of 1934 relating to ownership and changes in ownership of our common stock. The required reports consist of initial statements on Form 3, statements of changes on Form 4 and annual statements on Form 5. Based solely upon a review of reports filed under Section 16(a) of the Exchange Act and certain written representations of our directors and officers, we are not aware of any director, officer or 10% or greater beneficial owner of common stock who failed to file on a timely basis any report required by Section 16(a) of the Exchange Act for calendar year 2011.
Compensation Discussion and Analysis
Our compensation programs are designed to attract, motivate, reward, and retain management to achieve long-term stockholder value. Our compensation programs are designed to encourage the achievement of annual and longer-term goals by providing appropriate incentives to our executive officers, as well as to align the financial interests of management and our stockholders.
We established executive compensation practices and philosophies in 2007 and 2008, which largely remained in place through 2011. Effective 2012, we have established new annual and long-term incentive programs, which are different in design but still consistent with certain philosophies adopted by our compensation committee in 2007-08. We discuss the 2011 programs and the new 2012 programs below.
Historically compensation of our executive officers has consisted primarily of the following components:
In the discussion that follows, we state the objective of and explain each compensation element, and note the differences between the compensation programs in effect for 20082011 and the new programs for 2012 and successive years.
Our compensation committee normally reviews executive compensation annually in February in conjunction with the review of our financial results for the preceding year. Stock option and restricted stock awards for executive officers, as well as base salary adjustments, if any, and bonus determinations, have customarily been made at these year-end financial and compensation review meetings. As discussed further below, we have significantly reduced the level of equity-based compensation for our executive officers beginning with 2012. We anticipate, however, that any future equity-based grants and awards will occur in February of each year when the compensation committee reviews the year-end results for the prior calendar year and certifies any incentive-based compensation tied to those year-end results.
Stock option and restricted stock awards have been made without regard to the timing of the release of fourth quarter and year-end financial results. Normally, the February compensation committee meeting at which stock option and restricted stock awards are made occurs shortly prior to the earnings release for the fourth quarter and year-end financial results. We anticipate that our compensation committee will continue the practice of making stock option and restricted stock awards without regard to the timing of quarterly financial results.
Our compensation committee consults with our chief executive officer, our vice chairman and our president regarding all compensation matters, including specifically recommendations for compensation of other executive officers. Our compensation committee also confers with our chief executive officer concerning the evaluation of the performance of our president. Our chief executive officer does not make any recommendations to the compensation committee regarding any component of his compensation or the compensation of the vice chairman. Due to family relationships, our vice chairman does not make recommendations regarding the compensation of our president. Our compensation committee receives input from these three executives
concerning executive compensation matters and includes them in deliberations relative to incentive compensation plan design and related compensation discussions. The compensation committee periodically meets in executive session to consider changes to the executive compensation arrangements, including executive sessions in 2011 and 2012 relative to the new 2012 programs described below.
In 2007, our compensation committee retained Hay Group, Inc., a global compensation consulting firm, to provide certain consulting services to the compensation committee relating to executive compensation. Hay Group was retained to provide assistance to the compensation committee regarding (i) base compensation and overall targeted compensation for the executive officers, (ii) the mix of cash and equity-based compensation for executive officers, (iii) the design of an annual cash incentive compensation program, (iv) the design of a long-term equity-based incentive compensation program, and (v) cash and equity-based compensation of non-employee directors. As a result of this engagement, we adopted new annual and long-term incentive compensation programs, which remained in place for 2007 through 2011.
In 2011, our compensation committee again retained Hay Group, Inc. to assist our compensation committee in reviewing annual incentive compensation, long-term incentive compensation and compensation of independent directors. That engagement resulted in the adoption of a new Annual Incentive Plan and a new Long-Term Incentive Plan effective for 2012 and successive years, as described further below.
In evaluating overall executive compensation, the compensation committee and Hay Group considered a wide range of retail companies and the executive compensation of other publicly traded companies that offer short-term consumer loans or operate in the specialty finance industry. Hay Group provided our compensation committee with data from the Hay Group Retail Industry Executive Compensation database and for the following 14 company peer group: Advance America, Americas Car Mart, Cache, CompuCredit, Credit Acceptance Corp., Dollar Financial, EZ Corp., First Cash Financial, Golfsmith International Holdings, Green Dot Corp., Meta Financial Corp., Net 1 UEPS, Netspend and World Acceptance Corp.
The work with Hay Group in 2007-08 and again in 2011 focused primarily on the incentive compensation for our executive officers, other than Mr. Early, our chairman and chief executive officer, and Mrs. Early, our vice chairman, who have not participated in the annual or long-term incentive compensation programs established by the compensation committee. As discussed further below, the base salaries for Mr. Early and Mrs. Early have been unchanged since our July 2004 initial public offering. Additionally, Mr. Early has received only one stock option grant since our July 2004 initial public offering (in January 2006), and Mrs. Early has received only two stock option grants since our initial public offering (in December 2004 and in January 2006). The compensation committee considered the following in making compensation decisions in 2007 and 2008 with respect to these two executive officers: their prior contributions to the company, their stock ownership positions (which is over 40% for Mr. Early), the cash dividends paid by the company (which, while considered in the discussions, are not an element of compensation for either Mr. Early or Mrs. Early), and their changing roles in the company since the initial public offering. Discretionary bonuses have been granted to Mr. Early and Mrs. Early in 2009, 2010 and 2011 at the same level for all three years, in view of these factors. The compensation committee anticipates that the overall compensation for Mr. Early and Mrs. Early will remain at the same levels (consisting of base salary and discretionary bonuses) for the foreseeable future, absent significant changes in their contributions to the company or the companys results of operations. The compensation committee approved an additional cash bonus in lieu of a salary adjustment for Mr. and Mrs. Early in connection with the review of base salaries of all executive officers that occurred in December 2009, as discussed further below, which cash bonuses were paid in 2010.
The objective of base salary is to reflect job responsibilities, value to the company and individual performance. The compensation committee has reviewed base salary of executives periodically since our initial public offering in July 2004, as discussed further below. The compensation committee evaluates base salary
based primarily upon an assessment of market requirements for similarly positioned executives, with consideration given to industry, geography and level of responsibility.
In December 2006, the compensation committee reviewed the executive officers base salaries for 2007. For the reasons noted above, no changes have been made to the base salary of the chief executive officer or the vice chairman since our initial public offering in July 2004. Increases as of January 1, 2007 for the other executive officers were designed to bring their base salaries in line with executives at competitor companies (including primarily Advance America Cash Advance Centers, Inc., Cash America International, Inc., First Cash Financial Services, Inc., EZ CORP, Inc., Dollar Financial Corp. and CompuCredit Corp.) and other retail companies. The base salaries for these executive officers were largely unchanged from 2008 through 2011 and remain unchanged for calendar year 2012.
As discussed above, while our compensation committee retained Hay Group in 2007 primarily to assist the compensation committee in designing annual and long-term cash and equity-based incentive compensation, the compensation committee consulted with Hay Group regarding base salary levels for the executive officers, and adjusted cash and equity-based incentive compensation to reflect the levels of base salaries established for the executives prior to the time Hay Group began providing consulting services. Again in 2011, the primary focus of the Hay Group engagement was the review and redesign of the annual and long-term incentive programs, but Hay Group provided input regarding executive officer base salaries as part of the 2011 engagement. No changes to base salaries were recommended or made as part of this 2011 review.
In December 2009, the compensation committee reviewed base salaries of all executive officers. The base salary review was in the context of expected record bonuses to be paid for 2009 under the 2009 annual incentive plan discussed below and the preliminary budget for 2010, which showed lower expected earnings for 2010 as compared to 2009. In view of these factors, management recommended no change in base salaries for 2010, but a one-time bonus equal to 10% of current base salary in order to avoid building that increase into the permanent expense budget. Also, in order to increase the stock ownership by executive officers other than Mr. and Mrs. Early, management recommended that the one-time bonus in lieu of base salary adjustment be paid in stock. In order to avoid building a base salary increase into the permanent expense structure and in order to increase the amount of compensation paid to executives in stock (thereby increasing their stock ownership positions), the compensation committee approved the recommended bonus in lieu of base salary increase. The compensation committees decision to pay the one-time bonus in restricted stock also took into account the increased emphasis on paying cash dividends as a way of returning stockholder value, as discussed further below under Long-Term Incentive Plan and Equity-based Compensation. Each executive officer was permitted to receive up to 40% of the one-time bonus in cash to cover withholding taxes on the overall cash/stock bonus. The compensation committee also determined that it was appropriate to pay the one-time 10% of base salary bonus to Mr. Early and Mrs. Early in view of the fact that their base salaries had remained unchanged since July 2004. Due to the substantial stock ownership of Mr. and Mrs. Early, the committee determined to pay those 10% bonuses in cash rather than restricted stock, which cash bonuses were paid in 2010.
At the February 2011 and 2012 meetings, the compensation committee determined to make no changes to base salaries for any executive officers for calendar year 2011 or 2012.
Discretionary and Incentive Cash Bonuses.
In 2007, our compensation committee introduced meaningful elements of performance-based compensation into the mix of overall executive compensation, with the adoption of the 2007 annual incentive plan for executive officers and certain other key employees of the company, other than our chairman and chief executive officer and our vice chairman. The 2007 annual incentive plan was designed to increase the percentage of total compensation for the covered executives that is derived from performance-based measures. From 2008 through 2011, the compensation committee approved annual incentive plans for each of our executive officers (other than Mr. Early and Mrs. Early) in a manner consistent with the 2007 annual incentive plan.
For 2007 through 2011, the target annual cash incentive compensation for the named executive officers covered by the plan were unchanged, as follows:
The opportunity to earn annual incentive compensation in 2007 through 2011 was based on the achievement of performance measures set by the compensation committee tied to earnings per share and EBITDA (as defined below). The compensation committee assessed executive performance against targeted Adjusted EPS and Adjusted EBITDA. The Adjusted EPS and Adjusted EBITDA performance measures have changed slightly from 2007 through 2011, but Adjusted EPS, as used by our compensation committee, means diluted earnings per share computed in accordance with generally accepted accounting principles, excluding discontinued operations (normally, certain branch closing costs) and certain unusual or non-recurring charges in a given year. Adjusted EBITDA, as used by our compensation committee, means income from continuing operations (computed under generally accepted accounting principles) before interest, taxes, depreciation and amortization, adjusted to exclude the charges related to equity-based awards, non-cash gains or losses associated with property dispositions, and certain unusual or non-recurring charges in a given year.
The following table sets forth the financial measures and targets for the 2011 annual incentive plan:
Participants in the plan were eligible to earn 50% of their targeted annual cash incentive compensation by achieving a threshold of 80% of the targeted performance measures, and up to a maximum of 200% of the targeted annual incentive compensation by achieving 120% of the targeted performance measures. The compensation committee retained the authority to make bonus payments in addition to, or in lieu of, payments under the 2009, 2010 and 2011 annual incentive plans and had the authority to modify, amend or adjust the performance measures established under the annual incentive plans as appropriate to adjust for unforeseen circumstances during the calendar year.
The 2011 financial performance for the company was between the threshold and target levels set forth above. Accordingly, the 2011 annual cash incentive bonuses for participating executive officers were prorated between the threshold and target bonus opportunities for each executive for each of these two measures (equal to approximately 70% of target). The compensation committee determined that the discretionary portion of the 2011 annual incentive bonus (30% of the targeted opportunity) for each participating executive would be flexed in accordance with the approximately 70% of the annual incentive bonus paid based on 2011 results for the Adjusted EPS and Adjusted EBITDA performance measures. The 2011 annual cash incentive bonuses were paid in February 2012 in accordance with the 2011 annual incentive plan and the foregoing computations of each component of the plan.
2012 Annual Incentive Plan.
On December 6, 2011, the compensation committee adopted a new structure for annual incentive compensation for certain covered officers for calendar year 2012 and successive years to replace the annual incentive plan structure that was in place for calendar years 2007 2011. Under the new Annual Incentive Plan, an annual incentive pool (the Annual Incentive Pool) for the Covered Officers (as described below) will be established each year in an amount equal to the Distribution Percentage specified by the compensation committee at the time of each Annual Incentive Plan award times the actual EBITDA (as defined below) of the company for the year. See the description of the Distribution Percentages below with respect to the 2012 Annual Incentive Plan awards. The Covered Officers who share in each Annual Incentive Pool and the percentages (the Sharing Percentages) in which those Covered Officers share in the Annual Incentive Pool is set by the compensation committee in conjunction with the Annual Incentive Plan awards for each year (expected to occur each February).
Each year, 90% of the Annual Incentive Pool will be distributed to the Covered Officers in the Sharing Percentages established by our compensation committee for the annual awards. Up to 10% of the Annual Incentive Pool will be distributed by the compensation committee to any or all of the Covered Officers in the sole discretion of the compensation committee, based on the performance of the company and the Covered Officers for the year, such determination to be made by our compensation committee after the close of the fiscal year at the Committees annual review of company financial performance and executive compensation for that year.
For purposes of the new Annual Incentive Plan, EBITDA means the earnings of the company from continuing operations for the calendar year, plus interest expense, taxes, depreciation and amortization, plus equity-based compensation expense, plus or minus, as applicable, other unusual expenses or revenues for the calendar year as may be approved by the compensation committee at the time of confirmation of the Annual Incentive Pool for each calendar year. In conjunction with each Annual Incentive Plan award, the compensation committee may make such adjustments to the definition of EBITDA as it sees fit for that year.
The compensation committee retains the authority to interpret the Annual Incentive Plan and each Annual Incentive Plan award, to amend, modify or suspend the Annual Incentive Plan at any time, in its sole and absolute discretion, to pay discretionary bonuses to any executive officer in addition to or in lieu of any payment under the Annual Incentive Plan or any Annual Incentive Plan award and to modify, amend or adjust the Covered Officers, the Distribution Percentages, the EBITDA levels corresponding to each Distribution Percentage, the Sharing Percentages and the definition of EBITDA under the Annual Incentive Plan to adjust for any events or circumstances that were not foreseen as of the date of each Annual Incentive Plan award.
Our compensation committee set the 2012 Annual Incentive Plan award opportunities at its February 2012 meeting. At that annual compensation review meeting, the compensation committee designated the Covered Officers for the 2012 Annual Incentive Pool, set the Sharing Percentages for those Covered Officers for 2012, and set the Distribution Percentages that correspond with each level of EBITDA for the year. For 2012, the Covered Officers are all executive officers other than Mr. Early, chairman of the board and chief executive officer, and Mrs. Early, vice chairman of the board, and two non-executive officers.
While the compensation committee considered the dollar amount of historical annual incentive compensation targets for the Covered Officers under the 2007-2011 annual incentive plan structure, the Distribution Percentages for the 2012 Annual Incentive Plan are not designed to provide a specified level of annual incentive cash compensation to the Covered Officers. Rather, the Distribution Percentages and Sharing Percentages for 2012 were set based on a number of considerations, including the following: (1) the historical targeted levels of cash incentive compensation set forth in the table above, (2) the percentage of EBITDA in a year that the compensation committee believes should be available to executives, in the aggregate for annual incentive compensation, (3) the belief that the percentage of EBITDA should increase slightly as the company hits higher levels of EBITDA each year, and (4) the belief that the Distribution Percentage should be zero if
EBITDA falls below a certain level. For 2012, the Distribution Percentage ranges from 3.025% to 3.850% for EBITDA between $20.0 million and $49.9 million, with a percentage of zero for EBITDA below $20.0 million and the percentage to be determined by the compensation committee for EBITDA of $50.0 million or more. The compensation committee anticipates that these Distribution Percentage ranges will remain unchanged for the foreseeable future. Because the new Annual Incentive Plan structure represents a profit-sharing approach, it is expected to be less volatile in terms of the overall payout and individual payouts than the prior plan, which fluctuated based on company performance compared to budget for the year.
Our compensation committee anticipates that the Covered Officers, the Distribution Percentages and the Sharing Percentages will remain the same for successive years, absent a change in the mix of Covered Officers.
Our compensation committee continues to believe that it is important for the committee to retain the ability to grant discretionary annual cash bonuses to executive officers, either in lieu of or as a supplement to performance-based cash compensation. There may arise a wide range of circumstances in which the compensation committee may consider it important to grant discretionary bonuses in the future to one or more executive officers, including achievement of specified strategic goals by that officer or the company as a whole (irrespective of impact on performance measures), outstanding individual efforts beyond normal expectations for executive officers at a similar level, specific or unique projects and other similar situations.
Long-Term Incentive Plan and Equity-based Compensation.
We have historically considered equity-based compensation to be an important part of overall compensation of our executive officers and other key employees. As discussed below, the new 2012 Long-Term Incentive Plan structure has moved us away from the emphasis on equity-based compensation that existed in 2007 through 2011.
In accordance with the terms of our 2004 Equity Incentive Plan, as amended (the 2004 Plan), all stock option grants are made with an option exercise price equal to fair market value, which is the closing price of our common stock on the Nasdaq Global Market on the date of the grant. Awards of stock options to executive officers have been made by the compensation committee at regular or special meetings of that committee, in conjunction with year-end review of financial results and executive performance, normally in February of the following year. Our compensation committee does not delegate the authority to grant options to any other committee or person, but for all employees, other than executive officers (and their family members), has followed the recommendation of the president regarding option grants to those non-executive employees.
All options granted by the compensation committee to executive officers vest at a rate of 25% per year over four years, beginning on the first anniversary of the grant date. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.
Under the 2004 Plan, the compensation committee may award stock options, stock appreciation rights, restricted stock awards, performance share awards, cash bonuses or other incentive awards permitted by the plan. The compensation committee determines (i) the timing of option, restricted stock and other long-term incentive awards, (ii) the number of shares of our common stock subject to each award granted to the non-employee directors, officers and other employees of the company, and (iii) all terms, conditions (including performance requirements) and limitations of any award, including the exercise price and vesting for each award granted under the 2004 Plan.
In February 2008 after consultation with Hay Group, as described above, our compensation committee adopted a long-term incentive structure that remained in place from 2007 through 2011. The compensation committee made annual equity-based awards under the 20082011 long-term incentive structure to executive officers (other than our chairman and chief executive officer and our vice chairman). For 2008 and 2009,
long-term incentive awards consisted of approximately 50% of value in stock options and 50% of value in restricted stock awards to executive officers, with the targeted value of awards based on targeted levels of equity based compensation (long-term incentive compensation) for each executive officer. In 2010 and 2011, the long-term incentive awards for executive officers (other than our chairman and chief executive officer and our vice chairman, neither of whom received an award) were made 100% in restricted stock, as discussed further below. Each option grant and restricted stock award vests ratably over four years, beginning on the first anniversary of the grant date.
Our compensation committee set the targeted level of long-term incentive compensation for each executive officer (other than our chairman and chief executive officer and our vice chairman) in consultation with Hay Group in 2007, based on the gap between total cash compensation (including annual incentive bonuses at target levels) and the targeted total direct compensation (total cash plus long-term incentives) for each executive. We determined the targeted total compensation for each executive officer, other than our chairman and chief executive officer and our vice chairman, based on input from Hay Group and in a manner similar to our establishment of base salaries in 2007, as discussed above.
As a result, the equity awards for 2008 and 2009 (consisting of approximately 50% in value represented by stock options and approximately 50% in value represented by restricted stock awards) were approximately 133% of base salary for our president and chief operating officer, approximately 62% of base salary for our chief financial officer, and approximately 50% of base salary for our other executive officers. The equity awards for 2010 and 2011 consisted solely of restricted stock awards at the same approximate targeted dollar levels as 2009 for each of our named executive officers.
As discussed in more detail in the compensation discussion and analysis section of our 2011 proxy statement, our compensation committee determined to make the 2010 and 2011 equity awards solely in shares of restricted stock, after discussions with management, based on the lack of perceived value of stock options to certain senior management and other key employees.
We do not have a formal plan with respect to granting equity awards to non-executive officers, and believe it is important to maintain flexibility year-to-year to determine the best overall compensation package for those employees.
2012 Long-Term Incentive Plan.
As noted above, our compensation committee retained Hay Group in 2011 for a comprehensive review of annual and long-term incentive compensation for certain covered officers. In April 2012, we adopted a new Long-Term Incentive Plan effective as of January 1, 2012, which covers all executive officers, other than our Chairman of the Board and Chief Executive Officer and our Vice Chairman of the Board, and two non-executive officers. The annual long-term incentive awards (LTI Awards) will be made at targeted dollar levels (which are unchanged from the targeted dollar levels of long-term incentive compensation established by our compensation committee in 2008), consisting of Performance Units comprising 75% of the target value and Restricted Stock Units comprising 25% of the target value. Restricted Stock Units comprising a portion of each LTI Award are made pursuant to the 2004 Plan described above and are subject to the terms of the 2004 Plan. The ultimate value of the Performance Units and Restricted Stock Units will be paid in cash to the covered officers.
Performance Units will be based upon a performance measure established by our compensation committee. The performance measure for 2012 is the annual average return on assets for a three-year Performance Period (e.g., 20122014) at a targeted percentage return. The targeted percentage return was established by the compensation committee at a level that reflects competitive performance in relation to other specialty finance businesses and similarly situated retail companies. We do not anticipate that the performance measure or the targeted percentage return will change in the foreseeable future. Each Performance Unit will have a target payout of $100, and covered officers will be eligible to earn 50% of the target aggregate value of Performance Units
awarded to that officer by the company achieving a threshold of 80% of the targeted performance measure for the three-year Performance Period, and up to a maximum of 200% of the target aggregate value of Performance Units by the company achieving 120% of the targeted performance measure for the three-year Performance Period.
Performance Units will be paid in cash at the end of the Performance Period subject to continued employment by the covered officer throughout the Performance Period and subject to change in control events under the 2004 Plan described below.
Restricted Stock Units will be awarded to each covered officer equal to 25% of the targeted total dollar amount of the LTI Award for that officer based on the average weighted trailing three-month price of our common stock prior to the beginning of the Performance Period (e.g., for the fourth quarter of 2011 with respect to the 2012 LTI Awards). Payout of Restricted Stock Units will be made in cash at the end of the Performance Period based on the number of Restricted Stock Units awarded to the covered officer times the average weighted trailing three-month price of our common stock as of December 31 of the third year of the Performance Period (e.g., for the fourth quarter of 2014 with respect to the 2012 LTI Awards).
Restricted Stock Units vest at the end of the Performance Period subject to continued employment by the covered officer throughout the Performance Period and are also subject to vesting upon a change in control event under the 2004 Plan described immediately below.
Severance / Change in Control Arrangements.
We do not have any severance or change in control agreements with any of our executive officers. Stock options, restricted stock and restricted stock units are, however, subject to vesting upon designated change in control events under the 2004 Plan.
The 2004 Plan specifies certain change in control events, including (i) a person acquiring a majority of our voting securities, (ii) our merger or consolidation with another company, (iii) the sale of all or substantially all of our assets, or (iv) any other kind of a corporate reorganization or takeover where we are not the surviving company or where we are the surviving company and the members of the board immediately prior to the reorganization do not constitute a majority of the board of directors of the surviving company.
Awards granted under the 2004 Plan may, in the discretion of the compensation committee, provide that (a) the award is immediately vested, fully earned, exercisable, and, in the case of options, converted into SARs, as appropriate, upon a change in control event, and (b) we will make full payment to each such participant with respect to any performance share award, cash bonus or other incentive award, and permit the exercise of options or SARs, respectively, granted under the 2004 Plan to the participant upon the change in control event.
To date, all stock options granted by the compensation committee under the 2004 Plan have included a provision that in connection with a change in control event, the option may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on the optionee, or the successor corporation may substitute equivalent options. If the successor corporation (if any) does not assume or substitute options, the option will become exercisable in full immediately prior to the consummation of the change in control event, (provided, however, that no acceleration will occur if the optionee is part of the group that is attempting to initiate the change in control event), and if the option is not exercised at or prior to the consummation of the change in control event, the option will terminate immediately upon the consummation of that event.
To date, all time vesting restricted stock awards granted by the compensation committee under the 2004 Plan have provided that if there is a change in control, all restrictions on the unvested shares will lapse and thereafter the remaining unvested shares will vest, free of all restrictions. Similarly, the Restricted Stock Units comprising a part of LTI Awards under the new Long-Term Incentive Plan are also subject to immediate vesting and payout upon a change in control.
Under the 2012 long-term incentive plan, Performance Units will vest upon a change in control event, as defined in the 2004 Plan. Upon vesting due to a change in control event, the Performance Units will be paid in cash based on the time elapsed during the three-year Performance Period and the relative performance of the company (through the last quarter-end preceding the change in control event) relative to the targeted performance measure for that LTI Award, all as computed by our compensation committee.
Retirement and Other Benefits
All full-time employees are eligible to participate in our 401(k) profit sharing plan. Executive officers participate in that plan on the same basis as all other participants.
In 2007, we adopted The QC Holdings, Inc. Executive Nonqualified Excess Plan (the 409A Excess Plan), which permits any executive officer and certain other employees to make voluntary contributions to the 409A Excess Plan. The objective of the 409A Excess Plan is to provide executive officers and other eligible employees an opportunity to defer some or all of their cash compensation on a pre-tax basis, particularly in light of the limitations under our 401(k) plan due to the top-heavy rules under the Internal Revenue Code. The 409A Excess Plan permits a deferral of up to 100% of the cash compensation of the covered employee. We make matching contributions to the 409A Excess Plan equal to 50% of the employees contribution to the 409A Excess Plan, up to a maximum company contribution of 3% of cash compensation. While employee contributions to the 401(k) plan are capped by the Internal Revenue Code ($16,500 for 2009, 2010 and 2011, with slightly higher contributions permitted for employees over 50 years), there are no limits on employee contributions under the companys 409A Excess Plan.
Prior to the 409A Excess Plan, we have provided very few additional retirement or similar benefits to our senior executives, other than benefits such as 401(k) matching contributions that are made available to executives on the same basis as provided to other employees. The compensation committee has noted the absence of these other types of traditional compensation arrangements when it has considered and approved executive base salaries, bonuses and equity-based awards in the past.
Perquisites and Other Personal Benefits
We provide our executive officers with only one perquisite, which is the use of a company automobile or a car allowance, and a tax-gross-up related to the compensation expense for the car allowance or company car. The direct cash cost of this personal benefit for each named executive officer for 2009, 2010 and 2011, is included as All Other Compensation in the Summary Compensation Table.
Employment Agreements and Change in Control Arrangements
We do not have any employment agreements or employment arrangements with any of our executive officers or other key employees. All executive officers are employees at will.
We presently do not have any change in control arrangements with any of our executive officers. Our 2004 Plan has certain change in control features, as described above. To date, all stock option grants to our executive officers and non-employee directors have the change in control provision described above, and all time-vesting and performance-vesting restricted stock awards granted to our executive officers have included the change in control provisions described above.
Tax and Accounting Implications
Deductibility of Executive Compensation.
Section 162(m) of the Internal Revenue Code provides that certain compensation in excess of $1,000,000 per year to our chief executive officer or an employee whose total compensation is required to be reported to stockholders under the executive compensation disclosure rules under the Securities Exchange Act of 1934
(namely, the other executives listed each year in the Summary Compensation Table in our proxy statements) may not be deducted as a business expenses unless the compensation is made pursuant to a qualified performance-based award that is within the scope of Code Section 162(m).
The compensation committee historically has not considered the deductibility of executive compensation under Code Section 162(m) because any amounts of executive compensation subject to Code Section 162(m) limits that have exceeded this amount have been immaterial. While we have begun to use certain performance-based awards under the 2004 Plan and under our annual incentive arrangements, those performance-based awards presently do not come within the scope of the Code Section 162(m) deductibility requirements.
We have not considered any amendments to the 2004 Plan to allow for the grant of performance-based awards under that plan in a manner that is intended to allow for their full tax deductibility as a business expense in accordance with Section 162(m) of the Code. If executive compensation that is subject to the deductibility limits of Code Section 162(m) becomes material in the future, we would consider amending the 2004 Plan to permit the grant of performance-based awards that will be fully tax deductible in accordance with that section. Any Section 162(m) amendments to the 2004 Plan will be subject to stockholder approval.
Accounting for Stock-Based Compensation.
We account for stock-based payments, to date consisting of stock option grants and restricted stock awards, in accordance with the requirements of FASB ASC Topic 718, CompensationStock Compensation.
Compensation for the Years Ended December 31, 2011, 2010 and 2009
The following table sets forth all compensation paid in 2011, 2010 and 2009 to our principal executive officer, principal financial officer and our three most highly compensated executive officers (the named executive officers).
Summary Compensation Table
Grants of Plan-Based Awards
During the Year Ended December 31, 2011
On at least one occasion in the past, the compensation committee has met and granted options to purchase common stock or made awards of restricted stock on a date when the Nasdaq Global Market was not open. In these instances, the option and restricted stock awards were based on the closing market price of our common stock on the last business day prior to the date of grant.
For the named executive officers, an explanation of how their salary, bonus and equity awards are structured in proportion to total compensation is included in Compensation Discussion and Analysis.
Holdings of Equity-Related Interests
The following table sets forth information concerning unexercised stock options and unvested restricted stock awards held by the named executive officers on December 31, 2011. All information set forth below relates to the grant of stock options under the 2004 Plan, and to the award of restricted stock under the 2004 Plan.
On December 27, 2007, we paid a special cash dividend of $2.50 per share on our common stock. In December 2007, the compensation committee approved the adjustment of the option exercise price and the number of shares of common stock subject to each outstanding option in accordance with the terms of the QC Holdings, Inc. 1999 Stock Option Plan and our 2004 Equity Incentive Plan to give equitable effect to the payment of the special cash dividend. The numbers in following table reflect this adjustment with respect to outstanding stock options on that date.
Outstanding Equity Awards at Fiscal Year-End
December 31, 2011
The following table provides information regarding the exercise of stock options and the vesting of stock awards during the fiscal year ended December 31, 2011, for each of the named executive officers.
Option Exercises and Stock Vested
During the Year Ended December 31, 2011
Nonqualified Deferred Compensation
As described in Compensation Discussion and Analysis, certain of our officers and key employees are prohibited by the top-heavy rules of the federal tax code from making the maximum possible contributions to our 401(k) plan. In April 2007, our compensation committee adopted a nonqualified excess plan under Internal Revenue Code Section 409(A) to provide these employees with a mechanism to contribute to a nonqualified plan the difference that they are unable to contribute to our 401(k) plan. While the purpose of the nonqualified plan is to permit those officers and employees to defer the portion of their base salary that they cannot otherwise contribute to the 401(k) plan, the plan permits a deferral of up to 100% of the cash compensation of the covered employee.
Nonqualified Deferred Compensation
The named executive officers, and other participants in the nonqualified plan, can defer up to 100% of their cash compensation into the plan. We make matching contributions to the 409A Excess Plan equal to 50% of the employees contribution to the 409A Excess Plan, up to a maximum company contribution of 3% of cash compensation. Each participant directs the allocation of their plan balance among investment options that mirror the investment options available to participants in our 401(k) plan. Participants may change their elections at any time. While deferred, each participants account accrues earnings based on performance of the investments selected by the participant under the nonqualified plan. The nonqualified plan does not include any company-guaranteed or provide above-market or preferential earnings. The liability of the company to the participants
in the 409A Excess Plan is separate and distinct from the assets that are maintained to satisfy the liability. Unlike the 401(k) Plan assets, which are independent of the company, the assets in the 409A Excess Plan are subject to the claims of creditors of the company.
Potential Payments Upon Termination or Change-in-Control
As described in Compensation Discussion and Analysis, our 2004 Plan has certain change in control features that apply equally to all executive officers and non-employee directors, and to all other employees that receive awards under that plan.
Compensation Policies and Practices As They Relate to Risk Management
We consider the impact of compensation policies on risk taking within the company. For example, we have decreased the use of stock options and increased the use of restricted stock awards for both officers and other key employees, such as regional and area managers. While there are many factors that influence compensation decisions, we believe that equity-based awards in restricted stock create less of an incentive for undue risk taking than do stock options. Similarly, with the move to a cash-based long term incentive approach beginning in 2012, the motivation to unduly increase risk for short-term stock appreciation is further mitigated. We anticipate, however, that we will continue to use restricted stock and stock options, from time to time, as part of our overall compensation strategy for officers and other key employees.
We also recognize that any incentive compensation tied to revenues, cash flow or earnings has inherent in it an incentive to take risks to enhance revenues, cash flow or earnings. The goal of any program, however, is to balance appropriate incentives and appropriate risk taking and not to create incentives that reward undue risk taking. We believe that the budgeting process and the mix among base salary, annual incentive bonuses and long-term awards is appropriately balanced within the company to reward appropriate risk taking without creating a culture of undue risk taking.
The following table provides information regarding the compensation earned by our non-employee directors in the fiscal year ended December 31, 2011.
For the Year Ended December 31, 2011
Beginning in 2007, we established a policy to award approximately $40,000 of equity value to each non-employee director on an annual basis in consideration of his or her continued service on the board. On February 2, 2010, we awarded each non-employee director 8,200 shares of restricted stock at $5.41 per share, the closing price on the date of grant. On February 1, 2011, we awarded each non-employee director 11,800 shares of restricted stock at $4.09 per share. We determine the value of restricted stock awards by dividing the targeted dollar compensation for each director by 90% of the 30-day average closing price of our common stock (90% is used to account for the six-month restriction on resale).
The compensation committees original policy was to award approximately $30,000 of value in nonqualified stock options to each new independent director upon his or her election to the board. Since that policy was first adopted, however, the compensation committee has made all equity-based awards to independent directors in the form of restricted stock awards under our 2004 Equity Incentive Plan, as amended. In view of this practice, the compensation committee has determined that initial equity-based awards to new independent directors will be that number of shares of restricted stock equal to approximately $30,000 divided by the 30-day average closing price of our common stock on the later of (i) the date of grant of the award, or (ii) the effective date of the new directors election to the Board.
In conjunction with the review of executive annual and long-term incentive plans in 2011, the compensation committee also retained Hay Group, Inc. to review compensation of non-employee directors. Based on that review, effective for calendar year 2012, the annual cash retainer for non-employee directors was increased from $25,000 to $35,000, the annual retainer for the audit committee chairman was increased from $6,000 to $10,000 and the annual retainer for the compensation committee chairman was increased from $3,000 to $6,000. All other non-employee director fees and equity-based awards for 2012 remain the same as 2011, as reflected in the table below.
All restricted stock awarded to non-employee directors vests immediately but may not be sold for six months after the date of grant. Because of the required holding period, our compensation committee has determined that a 10% discount should be applied to the grant date fair value when computing the number of shares to be granted for the annual restricted stock awards.
Our non-employee directors currently receive the following fees for board and committee participation:
Following our initial public offering in July 2004, we ceased compensating our employee directors for their service on the board other than reimbursement provided to all directors for reasonable out-of-pocket expenses incurred in attending board and committee meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We amended our term loan and revolving credit agreement effective September 30, 2011. As a condition to the amendment and restatement of the credit agreement, the lenders required that the company issue $3.0 million of senior subordinated notes. On September 30, 2011, we issued $2.5 million initial principal amount of senior subordinated notes to Don Early, the chairman of the board, chief executive officer and largest stockholder of the company. The balance of the subordinated notes were issued to Gregory L. Smith, a greater than 10% stockholder of the company. Mr. Smith is not an officer or director of the company. The subordinated notes bear interest at the rate of 16% per annum, payable quarterly, 75% of which is payable in cash and 25% of which is payable-in-kind (PIK) through the issuance of additional senior subordinated PIK notes. The subordinated notes mature on September 30, 2015, are subject to prepayment at the option of the company, without penalty or premium, on or after September 30, 2014, and are subject to mandatory prepayment, without premium, upon a change of control.
The purchasers of the subordinated notes entered into a subordination agreement with U.S. Bank National Association, as agent for the lenders under the amended credit agreement, pursuant to which the payment of principal of and interest on the subordinated notes is subordinated to the payment of all obligations of the company under the credit facility. The Company may pay cash interest on the subordinated notes of 12% per annum unless the Company has received a notice from the U.S. Bank National Association that an event of default has occurred and is continuing under the amended credit agreement. Thereafter, the Company may not pay cash interest or other cash payments with respect to the subordinated notes. The interest thereon will continue to accrue at a default rate of 20% per annum, but the holders of the subordinated notes may not take any action against the Company to enforce the payment of principal of or interest on the subordinated notes until the Company has either (i) paid all obligations owing to the senior lenders, or (ii) the Bank has provided notice to the Company that the event of default of the senior credit agreement has been cured.
The subordinated notes (i) contain financial covenants related to Total Debt to Total Capitalization Ratio and Total Debt to EBITDA Ratio, each as defined in the subordinated notes, (ii) limit the amount of indebtedness that may be incurred by the company and designated as Senior Indebtedness that is senior in right of payment to the subordinated notes, and (iii) provide that upon the occurrence of an event of default on the subordinated notes the company may not declare or pay any cash dividends or distributions of cash or other property on its capital stock.
On April 18, 2006, we entered into a registration rights agreement with Mr. Early, a director and our chairman and chief executive officer, and a private investment fund that then held approximately 12.5% of our outstanding common stock. In 2009, the private investment fund reduced its ownership of our common stock below 5% of our outstanding common stock and, as a result, its rights under the agreement were terminated.
The registration rights agreement provides that, upon written request by Mr. Early, the estate of Mr. Early, any trust, testamentary or otherwise, that is funded in whole or in part with shares of common stock from Mr. Early or the estate of Mr. Early, or any affiliate of Mr. Early, or any assignee of Mr. Early (individually, a holder), who is at the time of the request, individually or as a group, a holder of at least 5% of our outstanding common stock, we will prepare and file with the SEC, as soon as practicable, a registration statement to enable the reoffer and resale by the requesting holders of the shares of common stock of the company on a delayed or continuous basis under Rule 415 of the Securities Act, and use its best efforts to cause the registration statement to become effective as soon as reasonably practicable after the filing of the registration statement. We are required to keep the registration statement effective until the holder or holders have completed the distribution described in the registration statement relating thereto, but for no more than 120 days or such lesser period until all the registered securities are sold. We have granted two demand registration rights under the agreement to Mr. Early.
The registration rights agreement also provides for certain piggyback registration rights, whereby any holder who did not initiate the registration request will have an opportunity to have their shares of common stock registered in conjunction with the initiating holders registration.
We are obligated to pay customary registration expenses associated with the exercise of demand or piggyback registration rights by Mr. Early or his permitted designees, other than underwriting fees and expenses, which will be the responsibility of the selling stockholders. The agreement includes certain other customary provisions for a registration rights agreement, including various obligations of the company to facilitate the filing and effectiveness of the demand registrations.
We do not maintain key man life insurance on Mr. Early and have no obligation to purchase any stock from Mr. Earlys estate.
Mr. Wood, an executive officer of the company, is the 100% owner (with his spouse) of a company that owns a building that we leased in 2011 for a payday loan branch. We made rental payments to Mr. Woods company in 2011 for that branch equal to approximately $55,793. The lease of that branch is continuing in 2012 on similar terms.
The compensation committee reviews and approves all annual compensation of family members of executive officers in excess of $120,000. Pursuant to its written charter, the audit committee reviews with our independent registered accounting firm and management all material transactions involving related persons or entities, with discussion of arrangements that may involve transaction terms or other aspects that differ from those which would likely be negotiated with clearly independent parties. The compensation committee approves the salary and bonus paid to Mike Waters, our vice president of governmental affairs, and John D. Kinney, our Director of Sales and Marketing. Mr. Waters is the brother of Mary Lou Early and the uncle of Darrin J. Andersen. Mr. Kinney is the son-in-law of Mary Lou Early and the brother-in-law of Darrin J. Andersen. In 2011, we paid Mr. Waters and Mr. Kinney salary and bonus totaling in excess of $120,000. Mr. Kinney was hired in 2010 at a base salary in excess of $120,000. As part of our annual compensation review of all employees, in 2011 the compensation committee also awarded Mr. Waters and Mr. Kinney 8,800 and 2,900 shares of restricted stock, respectively.
Board and Committee Meetings
During 2011, the board of directors met eight times. The board of directors has established an executive committee, an audit committee and a compensation committee. The independent members of the board of directors oversee our procedures regarding nominations and corporate governance. In 2011, each director attended more than 75% of the meetings of the board of directors and of the board committees on which he or she served. All of the continuing directors and nominees attended the 2011 annual meeting of stockholders. We anticipate that each of the nominees for director will attend the 2012 annual meeting of stockholders.
The following table provides membership and meeting information for each of the board committees:
The board has determined that each of the members of the audit committee and the compensation committee, and each of the members of the executive committee, other than Mr. Early, is an independent director as defined in the Nasdaq listing standards, and that each of those directors was independent throughout 2011.
Board Leadership Structure and Role in Risk Oversight
Don Early serves as both chairman of the board and chief executive officer of the company. The company does not have a lead independent director. We believe that the current leadership structure is appropriate given Mr. Earlys status as founder of the company, his extensive executive and leadership experience, the size of the company and the leadership roles served by other executive officers and directors. For example, many key board actions occur through the compensation committee or the audit committee. Normally, each committee meets with the full board so that all board members may be informed as to the decisions and deliberations of that committee. The chairmen of those respective committees lead and direct all matters relating to those committees and thus have lead responsibility for board agendas, discussions and deliberations relative to those topics. Similarly, most business and financial updates for the board are presented by our president and our chief financial officer, while our chairman and chief executive officer receives those reports with other board members. Given these historic practices, the company has not designated a lead director or separated the positions of chairman of the board and chief executive officer.
The board of directors is responsible for oversight of the companys risk management practices, while management is responsible for the day-to day risk management of the company. The company faces a number of risks, including regulatory compliance and operational risks. Executive management reports directly to the board
on these matters at every board meeting. Additionally, the companys internal audit manager presents annually to the audit committee (in the presence of the entire board), the internal audit plan, the results thereof, and any risk assessment projects. In recent years, the company has begun to expand the enterprise risk management component of the annual internal audit plan in an effort to identify and minimize risks to the organization.
The executive committee was formed in December 2004 to act on behalf of the board of directors between the regularly scheduled and special meetings of the full board. The executive committee has the power and authority to act on all matters that can be brought before the full board of directors other than certain actions that are reserved to the board in the our bylaws.
On June 15, 2004, our board adopted procedures regarding nominations and corporate governance. The policy can be found on our website, www.qcholdings.com, by selecting Governance under the heading Investment Center. Directors of the company meeting the independence standards set forth in the Nasdaq listing standards are charged with enforcement of the policy.
The independent directors evaluate and select nominees to the board based on their ability to fulfill the duties of care and loyalty to the companys stockholders. While the companys nomination and corporate governance policy does not prescribe specific diversity standards, the independent directors seek to identify nominees that have a variety of perspectives, professional experience, education and personal qualities that will result in a well-rounded board. To be considered for nomination to the board of directors, an individual should:
The seven nominees for election at the 2012 annual meeting of stockholders were nominated pursuant to these nominating procedures. All nominees are already serving as directors of the company.
The board of directors will consider nominees recommended by stockholders for the 2013 annual meeting of stockholders, provided that the name of each nominee is submitted in writing, no later than January 1, 2013, to the corporate secretary or the nominating committee, QC Holdings, Inc., 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210. Each submission must include a statement of the qualifications of the nominee, the consent of the nominee evidencing a willingness to serve as a director, if elected, and a commitment by the nominee to meet personally with the board of directors. Additional submission requirements are contained in the companys bylaws, a copy of which may be obtained from the companys secretary at the address shown above.
Other than the submission requirements set forth above, there are no differences in the way the non-employee directors evaluate their own nominees for director and the way they evaluate a nominee recommended by a stockholder.
The audit committee of the board of directors is responsible for overseeing managements financial reporting practices and internal controls. The audit committee acts under a written charter that was adopted by the board of directors on June 15, 2004, and currently consists of four of the independent members of the board of directors. A copy of the audit committees charter can be found on the companys corporate website, www.qcholdings.com, by selecting Governance under the heading Investment Center. The board of directors has determined that each member of the audit committee is an audit committee financial expert as defined by the rules of the Securities and Exchange Commission. The audit committee was established in accordance with all applicable rules of the SEC, including Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended.
Audit and Other Service Fees
Grant Thornton LLP has audited the financial statements of the company for 2011 and 2010. The audit committee expects to reappoint, and recommends your ratification of, Grant Thornton LLP as independent registered public accounting firm for the company for 2012. A representative of Grant Thornton LLP will be present at the annual meeting with the opportunity to make a statement if he or she desires and will be available to respond to questions.
The following table sets forth the aggregate fees billed to the company for the years ended December 31, 2011, and 2010 by our principal accounting firm, Grant Thornton LLP:
The audit committee has considered whether the provision of non-audit services is compatible with maintaining Grant Thornton LLPs independence. Additionally, the audit committee approved all non-audit and tax services performed by Grant Thornton LLP in 2011 in accordance with the pre-approval policy of the audit committee described below.
In August 2004, the audit committee adopted a pre-approval policy under which audit, non-audit and tax services to be rendered by our independent public accountants are pre-approved by the audit committee. Pursuant to this policy, the audit committee pre-approves audit, non-audit and tax services to be provided by the independent registered public accounting firm, at specified dollar levels, which dollar levels are reviewed by the audit committee periodically, and no less often than annually. Any proposed services exceeding the pre-approved fee level or budgeted amount requires specific pre-approval by the audit committee. Additionally, the audit committee may provide explicit prior approval of specific engagements not within the scope of a previous pre-approval resolution. The pre-approval policy also specifies certain services (consistent with the SEC rules and regulations) that may not be provided by the companys independent registered public accounting firm in any circumstance.
Audit Committee Report
In connection with the consolidated financial statements for the fiscal year ended December 31, 2011, the audit committee has:
Based on these actions, the audit committee recommended to the board of directors that the companys audited financial statements be included in its annual report on Form 10-K for the year ended December 31, 2011, for filing with the SEC.
Richard B. Chalker, Chairman
Francis P. Lemery
Mary V. Powell
Jack L. Sutherland
Audit Committee of the Board of Directors
The compensation committee of the board of directors was formed on June 15, 2004, and currently consists of all five independent members of the board of directors. The compensation committee acts under a written charter that was adopted by the board of directors on June 15, 2004. A copy of the compensation committees charter can be found on the companys corporate website, www.qcholdings.com, by selecting Governance under the heading Investment Center. The compensation committee is responsible for approving the compensation of the chief executive officer and, in consultation with the chief executive officer, the compensation of the other executive officers of the company, and the non-employee members of the board of directors. The compensation committee also administers our equity and other long-term incentive plans, and as such, has approved all long-term cash incentive programs, stock option grants and restricted stock awards to non-employee directors, officers and all other employees of the company under the plan.
The compensation committee is responsible for overseeing and evaluating the compensation of the executive officers, including the chief executive officer, of the company and its subsidiaries, and their performance relative to compensation, in order to assure that they are compensated in a manner consistent with our stated compensation strategy, internal equity considerations, competitive practices and the requirements of applicable regulatory bodies. In addition, the compensation committee evaluates and makes recommendations regarding the compensation of non-employee directors, including their compensation for service on board committees and the terms of any stock compensation awards.
The compensation committee periodically evaluates our annual and long-term incentive plans, equity-related plans and certain employee benefit programs. The compensation committee administers our 2004 Plan and exercises all other rights granted to the compensation committee or the board of directors under our 2004 Plan. The compensation committee does not delegate authority to grant options or other awards, or other forms of executive or director compensation, to any other committee or person. Certain executive officers participate with the compensation committee in certain compensation-related discussions, as described in Compensation Discussion and Analysis.
As discussed in Compensation Discussion and Analysis, the compensation committee initially engaged Hay Group, a global compensation consulting firm, in 2007 to assist the compensation committee in developing an annual incentive plan. This engagement was expanded to include a general review of all elements of executive compensation, including base salary and bonus, and the possibility of a long-term incentive plan. The compensation committee re-engaged Hay Group during 2011 in connection with evaluation and development of an updated compensation structure for executives (as discussed under Compensation Discussion and Analysis above).
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the companys board of directors or compensation committee and the board of directors or compensation committee of any other company.
Compensation Committee Report
In connection with its duty to review and approve executive compensation, the compensation committee has:
Francis P. Lemery, Chairman
Richard B. Chalker
Gerald F. Lamberti
Mary V. Powell
Jack L. Sutherland
Compensation Committee of the Board of Directors
Corporate Governance Policies
We maintain a corporate website, www.qcholdings.com. The following corporate policies of the company and our board of directors are available on our website by selecting Governance under the heading Investment Center.
Our Code of Ethics applies to all employees, officers and directors, and specifically our chief executive officer and chief financial/accounting officer.
RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS OF THE COMPANY
The audit committee of the board of directors expects to appoint, and recommends your ratification of, Grant Thornton LLP as the independent registered public accounting firm to audit our consolidated financial statements for the year ending December 31, 2012. The submission of this matter for ratification by stockholders is not legally required. The board of directors, however, believes that this submission to stockholders is consistent with best practices in corporate governance and is an opportunity for stockholders to provide direct feedback to the board of directors on an important issue of corporate governance. If the selection is not ratified, the audit committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, the audit committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of the company and our stockholders.
The Board of Directors recommends that stockholders vote FOR the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm.
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
Stockholders may communicate with the board generally or with a specific director at any time by writing to our corporate secretary at 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210. The secretary will review all messages received and will forward any message that reasonably appears to be a communication from a stockholder about a matter of stockholder interest that is intended for communication to the board.
Proposals of stockholders intended to be presented at the 2013 annual meeting of stockholders must be received by our corporate secretary at QC Holdings, Inc., 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210, no later than January 1, 2013, to be eligible for inclusion in the companys proxy statement and proxy related to that meeting. Additionally, if properly requested, a stockholder may submit a proposal for consideration at the 2013 annual meeting of stockholders, but not for inclusion in the companys proxy statement. Under the companys bylaws, for a stockholder to request properly that business be brought before the annual meeting of stockholders, the secretary of the company must receive the request from a stockholder of record entitled to vote at the meeting. Notice of matters proposed to be brought before the 2013 annual meeting of stockholders must be received on or before February 2, 2013. A copy of the companys bylaws, which include additional conditions, may be obtained without charge from the secretary of the company at the address shown above.
Our annual report on Form 10-K, which constitutes our 2011 annual report to stockholders, is included with this proxy statement. Stockholders sharing an address and receiving multiple copies of annual reports and proxy statements can contact our corporate secretary at QC Holdings, Inc., 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66210, to request future delivery of a single copy of annual reports and proxy statements to the shared address.
The board of directors is not aware of any other matters that will be presented for action at the annual meeting. If other matters properly come before the meeting, it is intended that the holders of the proxies hereby solicited will vote thereon in accordance with their best judgment.
Dated: April 27, 2012
QC HOLDINGS, INC.
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, June 6, 2012
QC Holdings, Inc.
9401 Indian Creek Parkway, Suite 1500
Overland Park, Kansas 66210
This proxy is solicited by the Board of Directors for use at the Annual Meeting on June 1, 2011.
The undersigned hereby appoints Don Early and Darrin Andersen, and each of them in the order named, proxies with full power of substitution to vote all shares of Common Stock of QC Holdings, Inc. of record in the name of the undersigned at the close of business on April 16, 2012, at the Annual Meeting of Stockholders of QC Holdings, Inc. to be held on June 6, 2012, or at any adjournment or adjournments, hereby revoking all former proxies.
(Continued and to be signed on reverse side)
(Fold and Detach Here)
MARK, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAID
The Board of Directors Recommends a Vote FOR Item 1.
The Board of Directors Recommends a Vote FOR Item 2.
(PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED)
(Fold and Detach Here)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.