Related Party Transactions
Agreement with Madison Park
On September 30, 2011, we entered into an advisory services agreement with Madison Park, LLC
(“Madison Park”), a business and financial advisory firm wholly-owned by Phillip E. Cohen, the
beneficial owner of all of our outstanding Class B Voting Common Stock.
Summary of Terms — Pursuant to the agreement, Madison Park will provide advisory services related
to our business and long term strategic plan, including (a) identifying, evaluating, and
negotiating potential acquisitions and strategic alliances, (b) assessing operating and strategic
objectives, including new business development, (c) advising on investor relations and relations
with investment bankers, securities analysts and other members of the financial services industry,
(d) assisting in international business development and strategic investment opportunities, and (e)
analyzing, evaluating and advising on various financial matters. In exchange for those services,
we will pay Madison Park a retainer fee of $500,000 per month and will reimburse Madison Park for
its out-of-pocket expenses incurred in connection with the engagement. In addition, we will
indemnify Madison Park (and its officers, directors, employees, and affiliates) from and against
all claims, costs, liabilities, and damages related to or arising out of the engagement (except to
the extent that any claim, cost, liability, or damage results from the recklessness, willful
misconduct, or bad faith of the indemnified party).
The advisory services agreement is effective as of October 1, 2011, and the term of the engagement
runs through September 30, 2012. Either party may terminate the agreement at any time on thirty
days’ written notice to the other party.
Board Governance Process — The engagement of Madison Park pursuant to the advisory services
agreement was
identified and acknowledged by our Board of Directors from the outset as a related party
transaction. Consequently, pursuant to its Policy for Review and Evaluation of Related Party
Transactions (described below), the Board of Directors referred the matter to the Audit Committee,
which is comprised entirely of independent, non-employee directors. Acting pursuant to that
policy, the Audit Committee implemented measures designed to ensure that the advisory services
agreement with Madison Park was considered, analyzed, negotiated and approved objectively. Those
measures included the following:
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|
The Audit Committee engaged a qualified, independent financial advisory firm for the
purpose of evaluating the proposed advisory services agreement relative to comparable market
rates for the services contemplated by the agreement, and that firm counseled and advised the
committee in the course of its consideration and evaluation of the Madison Park relationship
and the proposed terms of the new advisory services agreement. |
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|
The Audit Committee sought, received, and relied upon an opinion from that independent
financial advisory firm to the effect that the consideration to be paid to Madison Park
pursuant to the advisory services agreement is fair to the company from a financial point of
view. |
With those measures, the Audit Committee evaluated and considered a number of factors, including
our need for the services to be provided under the advisory services agreement; the unique
character of our business; the unique capabilities and expertise of Madison Park and its principal,
Mr. Cohen, to provide the needed services; the amount of the proposed annual retainer fee in
relation to comparable related party and other publicly disclosed advisory engagements and in
relation to various financial performance measures; and the extent to which we have benefitted in
prior years from the advisory relationship with Madison Park.
After consideration and discussion of those factors, the information and fairness opinion provided
by its independent financial advisory firm, and the relationships and the interests of Mr. Cohen,
the Audit Committee concluded that the advisory services agreement was fair to, and in the best
interests of, the company and its stockholders and, on that basis, approved the engagement of
Madison Park pursuant to the advisory services agreement.
The advisory services agreement replaces a similar agreement that expired on September 30, 2011.
Under that prior agreement, which was effective for all of fiscal 2011, we paid Madison Park a
total of $4.8 million in exchange for the financial advisory services provided pursuant to the
agreement.
108
Transactions with Brent Turner
As noted above, Brent Turner joined us in September 2011 as President, eCommerce and Card Services,
and in that capacity, is an executive officer. After leaving Rent-A-Center in February 2011 and
before he joined us, Mr. Turner was engaged in a variety of consumer lending business activities
(both brick-and-mortar and online) through a companies he wholly or partially owns, including, FS
Management LLC, 1st Money Centers, Inc. and 1429 Funding, Inc. Those activities
included (a) developing a robust decision science model (including related software programs) to
enable more refined and sophisticated underwriting of consumer loans, (b) entering into a
contractual relationship with an income tax return preparer to facilitate refund anticipation
loans, (c) developing an online consumer lending business in the U.K. and (d) owning and operating
a group of 15 consumer loan stores (10 in Hawaii and five in South Texas). In connection the
hiring of Mr. Turner to lead our eCommerce and Card Services division, we agreed to acquire those
business activities from the relevant entities. The basic terms of the acquisition were agreed to
prior to the commencement of Mr. Turner’s employment (and, thus, prior to Mr. Turner’s becoming an
executive officer), subject to our completion of appropriate due diligence and the execution of
appropriate definitive documentation.
In October 2011, we completed the acquisition of the activities described in (a), (b) and (c) above
for an aggregate purchase price of $1.2 million, which was paid in cash. The definitive agreement
governing the acquisition of the 15 consumer loan stores has not yet been finalized, and we
anticipate that we will complete that acquisition in January 2012. The agreed price for that
acquisition is $12.3 million (adjusted to account for the loan portfolios as of the date of
closing). Mr. Turner will be entitled to receive approximately $6.3 million as a result of the
completion of these transactions.
Even though the terms of the acquisitions were agreed to prior to Mr. Turner’s becoming an
executive officer, we treated these transactions as related party transactions. Consequently,
acting pursuant to our Policy for Review and Evaluation of Related Party Transactions (described
below), the Audit Committee reviewed and evaluated the terms of the acquisition that was completed
in October, and concluded that the transaction was fair to, and in the best interests of, the
company and its stockholders. The Audit Committee will also review the final terms of the store
acquisition, and completion of that transaction will be subject to the Audit Committee’s reaching a
similar conclusion with respect to that transaction.
Review and Approval of Transactions with Related Persons
The Board of Directors has adopted a written comprehensive policy for the review and evaluation of
all related party transactions. Under that policy, the Audit Committee is charged with the
responsibility of (a) reviewing and evaluating all transactions, or proposed transactions, between
the company and a related person and (b) approving, ratifying, rescinding or taking other action
with respect to each such transaction. With respect to any specific transaction, the Audit
Committee may, in its discretion, transfer its responsibilities to either the full Board of
Directors or to any special committee of the Board of Directors designated and created for the
purpose of reviewing, evaluating, approving or ratifying such transaction. As noted under “Related
Party Transactions,” the Audit Committee reviewed and approved the transactions described in that
section.
Director Independence
The Board of Directors believes that the interests of the stockholders are best served by having a
substantial number of objective, independent representatives on the Board. For this purpose, a
director is considered to be independent only if the Board affirmatively determines that the
director does not have any direct or indirect material relationship with the company that may
impair, or appear to impair, the director’s ability to make independent judgments.
The Board has evaluated all relationships between each director and the company and has made the
following determinations with respect to each director’s independence:
Sterling B. Brinkley
Paul E. Rothamel
Joseph J. Beal
Pablo Lagos Espinosa
John Farrell
William C. Love
Gary C. Matzner
Thomas C. Roberts
Richard D. Sage
Item 14. Principal Accountant Fees and Services
BDO USA, LLP is a registered public accounting firm and has been our independent auditor since
2004. In addition to retaining BDO USA, LLP to audit our consolidated financial statements, we
engage the firm from time to time to perform other services. The following table presents all fees
we incurred in connection with professional services provided by BDO USA, LLP during each of the
last two fiscal years:
Audit fees:
Audit of financial statements and
audit pursuant to section 404 of the
Sarbanes-Oxley Act
Quarterly reviews and other audit fees
Total audit fees
Audit related fees (a)
Total fees for services
The amounts shown for fiscal 2011 include our estimated costs for the fiscal 2011 integrated
audit, for which we have not yet received final billings. Included in the amounts for fiscal 2011
above is a $37,583 addition of fees related to the fiscal 2010 integrated audit, as total billings
exceeded our previously estimated costs. Included in the amounts for fiscal 2010 above is a $2,583
reduction of fees related to the fiscal 2009 integrated audit, as our previously estimated costs
exceeded total billings.
The Audit Committee of our Board of Directors has adopted a policy requiring its pre-approval of
all fees to be paid to our independent audit firm, regardless of the type of service. All
non-audit services were reviewed with the Audit Committee, which concluded that the provision of
such services by BDO USA, LLP was compatible with the maintenance of that firm’s independence in
the conduct of its auditing functions.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The following consolidated financial statements of EZCORP, Inc. are included in “Part II, Item 8 —
Financial Statements and Supplementary Data”:
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Report of Independent Registered Public Accounting Firm |
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Consolidated Balance Sheets as of September 30, 2011 and 2010 |
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Consolidated Statements of Operations for each of the three years in the period ended
September 30, 2011 |
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Consolidated Statements of Comprehensive Income for each of the three years in the period ended
September 30, 2011 |
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Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 2011 |
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Consolidated Statements of Stockholders’ Equity for each of the three years in the period
ended September 30, 2011 |
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Notes to Consolidated Financial Statements. |
Exhibits
The following exhibits are filed with, or incorporated by reference into, this report.
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.1*
10.23*
21.1†
23.1†
31.1†
31.2†
32.1††
101.INS†††
101.SCH†††
101.CAL†††
101.LAB†††
101.DEF†††
101.PRE†††
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Sterling B. Brinkley
/s/ Paul E. Rothamel
/s/ Stephen A. Stamp
/s/ Joseph J. Beal
/s/ William C. Love
/s/ Pablo Lagos Espinosa
/s/ John Farrell
/s/ Thomas C. Roberts
EXHIBIT INDEX
10.15*†
10.16*†