Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CASH AMERICA INTERNATIONAL INC (807884) 10-Q published on Aug 04, 2016 at 5:18 pm
Reporting Period: Jun 29, 2016
In July 2015, the Department of Defense published a finalized set of new rules under the Military Lending Act. The Military Lending Act (and rules previously adopted thereunder) has previously restricted the Company from offering its short-term unsecured credit products to members of the military or their dependents because none of the Company’s short-term unsecured credit products carry a military annual percentage rate of 36% or less. The new rule expands the scope of the credit products covered by the Military Lending Act to include certain non-purchase money loans secured by personal property or vehicles and certain unsecured installment loan products to the extent any of such products have a military annual percentage rate greater than 36%. Because none of the Company’s pawn loans or secured or unsecured installment loans have a military annual percentage rate of 36% or less, once the new rule takes effect, the Company may not be able to offer any of its current credit products (including pawn loans) to members of the military or their dependents. The rules under the Military Lending Act contain various disclosure requirements, limitations on renewals and refinancing and other restrictions, including restrictions on the use of prepayment penalties, arbitration provisions and certain waivers of rights. The rule provides that a lender is subject to fines and other penalties if it extends credit to a member of the military or a military dependent on terms prohibited by the rule. The new rule does provide a safe harbor for a lender if it verifies a potential borrower’s military status before extending credit by checking the Department of Defense’s database or a database of a national credit reporting agency that provides military status information. As to the Company’s pawn loan and longer-term credit products, compliance with the new rule is required by October 3, 2016. Compliance with the new rule and coordinating with a safe harbor database could be complex and increase compliance costs. The Company is still assessing the potential impact of these new rules on its pawn business.
FCFS’s and the Company’s executive officers and directors have certain interests in the Merger that may be different from, or in addition to, the interests of FCFS and the Company’s stockholders generally.
FCFS’s and the Company’s executive officers and directors have certain interests in the Merger that may be different from, or in addition to, the interests of FCFS stockholders and the Company shareholders generally. FCFS’s executive officers and the Company’s executive officers negotiated the terms of the Merger Agreement. The executive officers of FCFS and the Company have arrangements with FCFS and the Company, respectively, that provide for severance benefits if their employment is terminated under certain circumstances following the completion of the Merger. In addition, certain of FCFS’s and the Company’s compensation and benefit plans and arrangements provide for payment or accelerated vesting or distribution of certain rights or benefits upon completion of the Merger, including accelerated vesting of restricted stock held by FCFS executive officers, and the conversion of the Company restricted stock units held by the Company’s executive officers and directors into the right to receive a payment in cash or FCFS common stock equal in value to the Merger consideration and, in certain circumstances, shares of common stock of Enova. Executive officers and directors also have rights to indemnification and directors’ and officers’ liability insurance that will survive completion of the Merger.
Upon completion of the Merger, the board of directors of the combined company will be comprised initially of seven members, (i) three of whom will be selected by FCFS, (ii) three of whom will be selected by the Company and (iii) a former FCFS director selected by FCFS and approved by the Company. Mr. Wessel, the current chairman, president and chief executive officer of FCFS, will serve as the chief executive officer and vice chairman of the combined company, and Mr. Feehan, the current executive chairman of the board of directors of the Company, will serve as chairman of the board of directors of the combined company. Additionally, the combined company’s management team will include executives from each of FCFS and the Company. R. Douglas Orr, the current chief financial officer and an executive vice president of FCFS, will serve as the chief financial officer and an executive vice president of the combined company. T. Brent Stuart, currently the president and chief executive officer of the Company, will serve as the president and chief operating officer of the combined company. In connection with the Merger, Messrs. Wessel, Orr and Stuart have discussed entering into employment agreements but have not yet entered into such agreements as of the date of this report.
The boards of directors of FCFS and the Company were aware of these interests at the time each approved the Merger and the Merger Agreement. These interests, including the continued employment of certain executive officers of FCFS and the Company by the combined company, the continued positions of certain directors of FCFS and the Company as directors of the combined company and the indemnification of former directors and officers by the combined company, may cause FCFS’s and the Company’s directors and executive officers to view the Merger proposal differently and more favorably than shareholders may view it.
Dissenters’ or appraisal rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a Merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. Under the Texas Business Organizations Code (the “TBOC”), shareholders generally have appraisal rights in the event of a Merger or consolidation. However, these appraisal rights are not available if (i) the shares held by the shareholder are part of a class of shares listed on a national securities exchange or held of record by at least 2,000 holders, (ii) the shareholder is not required to accept for his or her shares any consideration that is different than the consideration to be provided to any other holder of shares of the same class held by the shareholder, and (iii) the shareholder is not required to accept any consideration other than shares of a corporation that satisfy the requirements in clause (i) above.
Because the Company’s common stock is listed on the New York Stock Exchange, a national securities exchange, and the FCFS common stock is listed on the NASDAQ, a national securities exchange, and is expected to
FCFS is a party to that certain Credit Agreement, dated as of February 5, 2014 (as the same has been or in the future will be amended, restated, supplemented or otherwise modified from time to time, the “FCFS Credit Facility”), with Wells Fargo Bank, National Association (“Wells”) acting as agent for the lenders party thereto from time to time. The Company is a party to that certain Credit Agreement, dated March 30, 2011 (as the same has been or in the future will be amended, restated, supplemented or otherwise modified from time to time, the “Line of Credit”), with Wells acting as agent for the lenders party thereto from time to time. As of June 30, 2016, the principal amount outstanding under the FCFS Credit Facility and the Company’s Line of Credit was $50.5 million and $3.8 million, respectively, or an aggregate principal amount of $54.3 million. Both the FCFS Credit Facility and the Company’s Line of Credit prohibit FCFS and Company from merging with another party, subject to certain exceptions that are not applicable to the Merger. Accordingly, prior to the consummation of the Merger, FCFS and the Company must obtain the consent of certain lenders under their respective credit facilities and amend the terms of such credit facilities to accommodate the working capital needs of the combined company and repay any amounts outstanding under the Company’s Line of Credit.