Riverside Commerce Center
120 Corporate Blvd.
Norfolk, VA 23502
Notice of Annual Meeting of Stockholders
to be held on May 10, 2006
TO THE STOCKHOLDERS OF PORTFOLIO RECOVERY ASSOCIATES, INC.:
You are cordially invited to attend the Annual Meeting of Stockholders of PORTFOLIO RECOVERY ASSOCIATES, INC. (the “Company”), which will be held at the Company’s Norfolk, Virginia headquarters located at Riverside Commerce Center, 120 Corporate Blvd, Suite 100, Norfolk, Virginia 23502, on May 10, 2006, at 12:00 noon, local time. At the Annual Meeting, you will be asked to:
Elect two directors to serve for three year terms;
Ratify the selection of PricewaterhouseCoopers LLP as the Company’s accountants and independent auditors for the fiscal year ending December 31, 2006, and
Transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
The enclosed Proxy Statement contains detailed information about the business to be transacted at the Annual Meeting.
The Board of Directors unanimously recommends that you vote FOR the election of each director nominee and FOR the ratification of PricewaterhouseCoopers LLP as the Company’s accountants and independent auditors for the fiscal year ending December 31, 2006.
In addition to considering the matters described above, Steve Fredrickson, the President, Chairman and Chief Executive Officer of the Company, will review developments since last year’s Annual Meeting. The Board of Directors has fixed the close of business on March 24, 2006 as the Record Date for the determination of the stockholders who are entitled to this notice, and entitled to vote at the Annual Meeting. Only stockholders of record at the close of business on March 24, 2006 will be entitled to receive notice and to vote at the Annual Meeting. A list of such stockholders will be available during regular business hours at the Company’s headquarters, located at 120 Corporate Blvd., Norfolk, Virginia 23502, for ten days before the Annual Meeting for inspection by any stockholder for any purpose germane to the meeting.
If you have any questions or need additional information about the Annual Meeting, please contact the Company’s investor relations liaison at 757- 519-9300, ext. 13010, or via email toinfo@portfoliorecovery.com.
By Order of the Board of Directors,
Judith S. Scott
Executive Vice President, General Counsel and Secretary
April 14, 2006
Whether or not you plan to attend the Annual Meeting, please act promptly to vote your shares with respect to the proposals described above. You may vote your proxy by marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope provided. If you attend the Annual Meeting, you may vote your shares in person,even if you have previously submitted your proxy in writing. If you vote in person,any previously voted proxy will be withdrawn.
As a holder of common stock of the Company, you are invited to attend the Annual Meeting and vote your shares in person. You also may vote your proxiesproxy by mail. You are entitled to cast one vote per share owned as of the Record Date for each proposal to be considered at the Annual Meeting.
The following table sets forth certain information about the Company’s directors:
| | | | | | | | |
DIRECTOR | | AGE | | TITLE | | APPOINTED |
Steven D. Fredrickson | | | 4546 | | | President, Chief Executive Officer
and Chairman of the Board | | March 1996(1) |
| | | | | | Executive Officer | | |
William P. Brophey | | | 67 | | | Director | | November 2002 |
| | | | | | and Chairman of the Board | | |
Peter A. Cohen |
William P. Brophey | | | 68 | | | Director | | November 2002 |
|
Penelope Kyle | | | 58 | | | Director | | November 2002 October 2005 |
| | | | | | | | |
David N. Roberts | | | 4344 | | | Lead Director | | March 1996(1) |
| | | | | | | | |
James M. Voss | | | 6263 | | | Director | | November 2002 |
| | | | | | | | |
Scott M. Tabakin | | | 4647 | | | Director | | AugustOctober 2004 |
7
| | |
(1) | | Steven D. Fredrickson and David N. Roberts were appointed as directors of the Company upon its creation in August 2002. They were each managers of Portfolio Recovery Associates, L.L.C., the predecessor entity to the Company, sinceat its creation in March 1996. |
| | |
Summary: Board of Directors Information | | 2006 |
Size of Board | | 6 |
Average Age of Directors | | 54 |
Number of Independent Directors | | 5 |
Lead Independent Director | | Yes |
Independent Audit Committee | | Yes |
Independent Compensation Committee | | Yes |
Independent Nominating and Corporate Governance Committee | | Yes |
Number of Board Meetings Held | | 7 |
Corporate Governance Guidelines Approved by the Board | | Yes |
Outside Directors Hold Meetings Without Management Present | | Yes |
Annual Board Self-Evaluation | | Yes |
Annual Review of Independence of Board | | Yes |
Annual Committee Self Evaluations | | Yes |
Charters for Audit, Compensation and Corporate Governance Committees | | Yes |
Annual Equity Grants to Non-Employee Directors | | Yes |
Corporate Compliance Program | | Yes |
Disclosure Committee for Financial Reporting | | Yes |
Code of Ethics | | Yes |
The positions of Chairman of the Board and President and Chief Executive Officer are held by Steven D. Fredrickson. This combination has served the Company well since its inception. The function of the Board in monitoring the performance of the senior management of the Company is fulfilled by the presence of outside Directors of stature who have a substantive knowledge of the business.
10
Nominees for Election to Three-year Terms Which Will Expire in 2008•James M. Voss, Director- Mr. Voss has more than 35 years of business experience as a senior financial executive. He currently heads Voss Consulting, Inc., serving as a financial consultant to community banks regarding policy, organization, credit risk management and strategic planning. From 1992 through 1998, he served as a senior executive of First Midwest Bank, holding the positions of executive vice president and chief credit officer. Mr. Voss’ experience includes more than 24 years as a senior executive (1965-1989) with Continental Bank of Chicago, and he has held the position of chief financial officer at Allied Products Corporation (1990-1991), a formerly publicly traded diversified manufacturer (NYSE). Currently, he serves on the board of Elgin State Bank. Mr. Voss has both an M.B.A. and Bachelor’s Degree from Northwestern University.
•Scott M. Tabakin, Director- Mr. Tabakin was appointed a director of the Company in 2004. A seasoned financial executive, Mr. Tabakin brings significant public-company experience to the Company. Mr. Tabakin served as Executive Vice President and CFO of Amerigroup, (NYSE: AGP), a managed health-care company, through the fall of 2003, and prior to that was Executive Vice President and CFO of Beverly Enterprises, Inc. (NYSE: BEV), one of the nation’s largest providers of long-term health care. Earlier in his career, Mr. Tabakin was an executive with the accounting firm of Ernst & Young. He is a certified public accountant and received a B.S. degree from the University of Illinois.
Directors Continuing in Office — Terms Expiring in 2006
2009
•
Steven D. Fredrickson, President, Chief Executive Officer and Chairman of the Board-. Prior to co-founding the Company in 1996, Mr. Fredrickson was Vice President, Director of Household Recovery Services’ (“HRSC”) Portfolio Services Group from late 1993 until February 1996. At HRSC Mr. Fredrickson was ultimately responsible for HRSC’s portfolio sale and purchase programs, finance and accounting, as well as other functional areas. Prior to joining HRSC, he spent five years with Household Commercial Financial Services managing a national commercial real estate workout team and five years with Continental Bank of Chicago as a member of the FDIC workout department, specializing in corporate and real estate workouts. He received a B.S. degree from the University of Denver and an M.B.A. degree from the University of Illinois. He is a past board member of the American Asset Buyers Association.
•
Peter A. Cohen, Director- Mr. Cohen is Penelope W. Kyle, Director. Ms. Kyle was appointed to the
founderCompany’s Board of
Ramius Capital Group, LLC an absolute return, multi-strategy registered investment advisor with over $7.5 billionDirectors in October 2005. Ms. Kyle currently serves as President of
assets under management. Mr. Cohen is currently a Managing MemberRadford University. Prior to her 2005 appointment as President of Radford University, Ms. Kyle was the Director of the
firmVirginia Lottery, where she served for ten years, under three Virginia Governors. Earlier in her career, Ms. Kyle worked as an attorney in a prominent Richmond, Virginia law firm. She was later employed at CSX Corporation, where, during a 13-year career she became the company’s first female officer and
senior membera vice president in the finance department. Ms. Kyle also has prior service as a director and chairman of the
firm’s Executive Committee. Mr. Cohen began his career at Reynolds & Co. asaudit committee of a
securities analyst and joined the firm of CBWL-Hayden Stone at the end of 1970. From 1971-1990 he held various positions inside the firm which eventually became Shearson Lehman Brothers. In 1981 he was named COO of the firm, 1983 President and 1984 Chairman and CEO. In 1991, Mr. Cohen formed Republic New York Securities and Republic Asset Management for Republic National Bank of New York. Over his career he has served on a number of corporate, industry8
and philanthropic boards, including the New York Stock Exchange, Federal Reserve International Capital Market Advisory Committee, Depository Trust Company, Ohio State University Foundation, New York City Opera, American Express Company, GRC International, Olivetti SpA, Société Générale de Belgique, Telecom Italia SpA, Presidential Life Corporation and Kroll, Inc. He is presently a Director of The Mount Sinai-NYU Medical Center & Health System, The Titan Corporation and Scientific Games Corporation. After receiving a Bachelor of Sciencepublicly traded company. Ms. Kyle received an M.B.A. degree from Ohio Statethe College of William and Mary, and a law degree from the University in 1968, Mr. Cohen earned his M.B.A. from Columbia University in 1969.
of Virginia.
Directors Continuing in Office —– Terms Expiring in 2007 •
William P. Brophey, Director–. Currently retired, Mr. Brophey has more than 35 years of experience as president and chief executive officer of Brad Ragan, Inc., a (formerly) publicly traded automotive product and service retailer, and as a senior executive at The Goodyear Tire and Rubber Company. Throughout his career, he held numerous field and corporate positions at Goodyear in the areas of wholesale, retail, credit, and sales and marketing, including general marketing manager, commercial tire products. He served as president and chief executive officer and a member of the board of directors of Brad Ragan, Inc. (a 75% owned public subsidiary of Goodyear) from 1988 to 1996, and vice chairman of the board of directors from 1994 to 1996, when he was named vice president, original equipment tire sales worldwide at Goodyear. From 1998 until his retirement in 2000, he was again elected president and chief executive officer and vice chairman of the board of directors of Brad Ragan, Inc. Mr. Brophey has a business degree from Ohio Valley College and attended advanced management programs at Kent State University, Northwestern University, Morehouse College and Columbia University.
•David N. Roberts, DirectorLead Director.- Mr. Roberts has been with Angelo, Gordon & Co., L.P. since 1993. He currently manages the firm’s private equity and special situations area and was the founder of the firm’s opportunistic real estate area. Mr. Roberts has invested in a wide variety of real estate, corporate and special situations transactions. Prior to joining Angelo Gordon, Mr. Roberts was a principal at Gordon Investment Corporation, a Canadian merchant bank, from 1989 to 1993, where he participated in
11
a wide variety of principal transactions including investments in the real estate, mortgage banking and food industries. Prior to joining Gordon Investment Corporation, he worked in the Corporate Finance Department of L.F. Rothschild where he specialized in mergers and acquisitions.
HeMr. Roberts has a B.S. degree in economics from the Wharton School of the University of Pennsylvania.
Directors Continuing in Office — Terms Expiring in 2008
•James Voss, Director.Mr. Voss has more than 35 years of business experience as a senior financial executive. He currently heads Voss Consulting, Inc., serving as a financial consultant to community banks regarding policy, organization, credit risk management and strategic planning. From 1992 through 1998, he served as a senior executive of First Midwest Bank, holding the positions of executive vice president and chief credit officer. Mr. Voss’ experience includes more than 24 years as a senior executive (1965-1989) with Continental Bank of Chicago, and he has held the position of chief financial officer at Allied Products Corporation (1990-1991), a publicly traded (NYSE) diversified manufacturer. Currently, he serves on the board of Elgin State Bank. Mr. Voss has both an M.B.A. and Bachelor’s Degree from Northwestern University.
•Scott Tabakin, Director.Mr. Tabakin is a seasoned financial executive who brings significant public-company experience to Portfolio Recovery Associates. Mr. Tabakin served as Executive Vice President and CFO of Amerigroup, a publicly traded (NASDAQ) managed health-care company, through the fall of 2003, and prior to that was Executive Vice President and CFO of Beverly Enterprises, Inc., one of the nation’s largest publicly traded (NYSE) providers of long-term health care. Earlier in his career, Mr. Tabakin was an executive with the accounting firm of Ernst & Young. He is a certified public accountant and received a Bachelor of Science degree from the University of Illinois.
PROPOSAL ONE: ELECTION OF DIRECTORS The Board of Directors of the Company presently consists of six members,
who are classified into three
director classes. Each director serves a
three-yearthree year term. Only one class of directors is elected at each annual meeting of stockholders. At the
20052006 Annual Meeting,
the names of two directors,
James VossSteven D. Fredrickson and
Scott Tabakin arePenelope W. Kyle, will be placed on the ballot for election to
be elected tothe Board of Directors, both of whom will serve in the
“3rd“1st Class” of directors, and upon
their election, will hold office for three-year terms, expiring on the date of the
20082009 Annual Meeting of Stockholders, or until their successors are elected and qualified. Mr.
VossFredrickson currently serves as Chairman of the
Audit Committee,Board of Directors, and
is also
serves on the
NominatingCompany’s President and
Corporate Governance Committee. Mr. TabakinChief Executive Officer. Ms. Kyle currently serves on
the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee.
The nominees are bothMs. Kyle has been determined to be an independent
directorsdirector in accordance with the Nasdaq
Stock Exchange listing
standards, andstandards. Both nominees have consented to be named
as nominees for election in this Proxy Statement, and to serve if elected. However, if for any reason either nominee is unable to serve (which is not anticipated), the shares represented by all valid proxies will be voted for the
9
election of such other person as the Board may nominate at the Annual Meeting.
12
Proxies will be voted for the election of the above two nominees for re-election as directors. Directors will be elected by a plurality of the votes cast or represented by proxy at the Annual Meeting. Broker non-votes (i.e. where brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned a proxy) will be treated as abstentions. Under Delaware General Corporate Law, an abstaining vote is not deemed a “vote cast” or represented by proxy. As a result, abstentions are not included in the tabulation of the results on the election of directors, and therefore do not have the effect of votes in opposition. Broker non-votes (i.e. where brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned a proxy) will be treated as abstentions.
Nominees for director who receive the affirmative votes of a plurality of the common shares represented and voting in person or by proxy at the Annual Meeting will be elected.
Information aboutHowever, in accordance with a policy recommended by the
nomineesNominating and
Corporate Governance Committee and adopted by the
continuing directors whose terms expireBoard of Directors, in
future years is set forth above.an uncontested election, any nominee for election as director who receives a greater number of votes “withheld” from his or her election than votes “for” such election (a majority withheld vote) shall promptly offer his or her resignation following certification of the stockholder vote. The Nominating and Corporate Governance Committee shall consider the resignation offer and recommend to the Board whether to accept it, after determining whether or not the interests of the Company and its stockholders would be best served by accepting or rejecting the candidate’s tendered resignation. Any Director who tenders his or her resignation pursuant to this provision shall not participate in the committee deliberations or Board action regarding whether to accept the resignation offer. The full Board of Directors will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following the certification of the stockholder vote. Thereafter, the Board will promptly disclose its decision whether to accept the Director’s resignation offer (and the reasons for rejecting the resignation offer, if applicable) in a press release to be disseminated in the manner in which the Company’s press releases are typically distributed.
The Board of Directors unanimously recommends a vote “FOR”
“FOR” the nominees named above .above.
Director CompensationCompensation
The Board sets the compensation for non-employee directors is designedso as to fairly pay directors for the work that is required of them, based on the Company’s size and scope, andscope. The Board also has established annual equity awards to directors in order to align directors’each director’s interests with the long-term interests of the Company’s stockholders. In fiscal year 2004, non-employee directors received a quarterly retainer2005, upon the recommendation of $3,750, except for the ChairmanCompensation Committee, the Board of Directors increased the Audit Committee who received aChairman’s quarterly retainer offee from $5,000 per quarter. Beginning in the second quarter of 2005, the retainer of the Chairman of the Audit Committee will increase to $8,750 per quarter, and all other non-employee directors’ retainers will increaseincreased the quarterly retainer fee from $3,750 per quarter to $7,500 per quarter.quarter, for all non-employee directors other than the Lead Director. The Board of Directors named David Roberts as its Lead Director in April 2005, and established the compensation for this position at $35,000 per year, effective July 1, 2005. Each director is also reimbursed for reasonable travel expenses incurred in connection with their attendance at Board meetings. PriorIn addition, the Company pays all reasonable expenses for any director who wishes to attend director continuing education programs. Non-employee directors’ annual retainer compensation are summarized below:
13
Annual Board Retainers
| | | | |
Annual Retainer | | $ | 30,000 | |
Lead Director Supplemental Retainer | | | 5,000 | |
Audit Committee Chair Supplemental Retainer | | | 5,000 | |
Non-employee directors appointed prior to 2004 received two stock option grants: an initial grant of 5,000 stock options upon their appointment to the
adoptionBoard, and an additional grant of 5,000 stock options, to which they became entitled on the first anniversary date of their initial Board appointment. Stock options vest and are exercisable in five equal installments on the first five anniversaries of the grant date, and expire seven years after the grant date. In accordance with the provisions of the Company’s Amended and Restated 2002 Employee Stock Option Plan and 2004 Restricted Stock Plan (the “Amended Plan”),
non-employee directors
receivedare no longer being granted annual
grants of 5,000 stock
options; however, in accordance with the provisions ofoptions. Instead, pursuant to the Amended Plan,
they nownewly appointed directors receive 2,000
restrictednon-vested shares
of the Company’s stock upon their initial appointment to the Board, and
are awarded 1,000
restrictednon-vested shares each year thereafter, on the anniversary date of their appointment.
Security Ownership In fiscal year 2005, each of Certain Beneficial Ownersthe Company’s non-employee directors who were appointed prior to October 2005 received an award of 1,000 non-vested shares of the Company’s stock. Penelope Kyle, who was appointed to the Board in October 2005, received an award of 2,000 non-vested shares of the Company’s stock upon her appointment. Ms. Kyle is eligible to receive an additional 1,000 non-vested shares annually thereafter, on the anniversary of her initial appointment.
The Company maintains policies of directors’ and
Managementofficers’ (“D & O”) liability insurance, and each director is covered under the D & O policy during their term of service as a director. The table below provides information with respect to all compensation paid in fiscal year 2005 to the Company’s non-employee directors.
2005 Director Compensation
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | Director Fees | | | | | | | | | | Non-stock | | | | |
| | Director | | | Paid in | | | Non-vested | | | Option | | | Incentive | | | All Other | |
Name | | Compensation | | | Cash | | | Stock Awards | | | Awards | | | Compensation | | | Compensation | |
William Brophey | | $ | 64,690 | | | $ | 26,250 | | | $ | 38,440 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Peter Cohen | | $ | 26,250 | | | $ | 26,250 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Penelope Kyle | | $ | 82,400 | | | $ | 0 | | | $ | 82,400 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
David Roberts | | $ | 63,190 | | | $ | 27,500 | | | $ | 35,690 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Scott Tabakin | | $ | 68,450 | | | $ | 26,250 | | | $ | 42,200 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
James Voss | | $ | 69,690 | | | $ | 31,250 | | | $ | 38,440 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
The Company has reserved an aggregate of 2,000,000 shares of common stock for issuance to employees and non-employee directors under the Amended Plan. Plan, subject to a proportionate increase or decrease in the event of a stock split, reverse stock split, stock dividend, or other adjustment to the Company’s common stock. The maximum number of shares that may be granted to any participant during any fiscal year is 200,000.
14
The table below provides information with respect to securities authorized for issuance under the Company’s equity compensation plans as of December 31, 2005.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Number of | |
| | | | | | Number of Securities | | | Weighted- | | | Securities | |
| | | | | | to be Issued Upon | | | average | | | Remaining | |
| | Number of | | | Exercise of | | | Exercise Price | | | Available | |
| | Securities | | | Outstanding Options, | | | of Outstanding | | | for Future Issuance | |
| | Authorized for | | | Warrants, and Rights or | | | Options, | | | Under Equity | |
| | Issuance Under the | | | Upon Vesting of Non- | | | Warrants and | | Compensation | |
Plan Category | | Plan | | | vested Shares | | | Rights (1) | | | Plans | |
Equity compensation plans approved by security holders | | | 2,000,000 | | | | 639,846 | | | $ | 11.88 | | | | 1,043,820 | |
Equity compensation plans not approved by security holders | | None | | | None | | | N/A | | | None |
Total | | | 2,000,000 | | | | 639,846 | | | $ | 11.88 | | | | 1,043,820 | |
| | |
(1) | | Includes grants of non-vested shares, for which there is no exercise price, but with respect to which shares become available to the employee without cost when the vesting period expires, which is generally a ratable vesting over 5 years. Excluding the impact of the non-vested shares, the weighted average exercise price of outstanding options, warrants and rights is $15.04. |
Security Ownership of Certain Beneficial Owners and Management
The following table contains information about the beneficial ownership of the Company’s common stock as of March 25, 2005,24, 2006, of (i) each of the Company’s directors, (ii) the Company’s Chief Executive Officer, (iii) the five other most highly paid officers,compensated executives, and (iv) all directors and executive officersexecutives as a group. The beneficial ownership of persons or entities known to hold more than five percent (5%) of the Company’s common stock as of March 24, 2006 is disclosed on page 2 above. Except as indicated by footnote and subject to community property laws where applicable, to the knowledge of the Company the persons or entities named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. In computing the number of shares beneficially owned by a person or entity and the percentage ownership of that person or entity, all outstanding stock options currently exercisable or exercisable within 60 days of March 25, 200524, 2006 are deemed outstanding.
1015
| | | | | | | | | | | | | |
| | | | | | Shares | | | Percent | |
Name | | | | | | Beneficially Owned | | | Beneficially Owned | |
Steven D. Fredrickson (1) | | | | | | | 425,385 | | | | | 2.7% | |
Kevin P. Stevenson (2) | | | | | | | 205,860 | | | | | 1.3 | |
Craig A. Grube (3) | | | | | | | 125,654 | | | | | 0.8 | |
Judith S. Scott (4) | | | | | | | 11,000 | | | | | 0.1 | |
William F. O’Daire (4)(12) | | | | | | | 9,547 | | | | | 0.1 | |
Michael J. Petit (5)(12) | | | | | | | 12,090 | | | | | 0.1 | |
William P. Brophey (6) | | | | | | | 3,000 | | | | | 0.0 | |
Peter A. Cohen (7) | | | | | | | 24,189 | | | | | 0.2 | |
David N. Roberts (8) | | | | | | | 109,232 | | | | | 0.7 | |
Scott M. Tabakin (9) | | | | | | | 0 | | | | | 0.0 | |
James M. Voss (10) | | | | | | 4,000 | | | | | 0.0 | |
All executive officers, officers and directors (11) | | | | | | | 929,957 | | | | | 5.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Options | | | | | | | NV Stock | | | | | | | |
| | | | | | | | | | Vesting | | | | | | | Vesting | | | | | | | |
| | Shares | | | Vested | | | within 60 | | | Non-vested | | | within 60 | | | Beneficial | | | | |
| | Owned | | | Options | | | days of 3/2 | | | Shares(1) | | | days of 3/2 | | | Ownership | | | % Owned | |
Steven Fredrickson | | | 274,385 | | | | — | | | | — | | | | — | | | | — | | | | 274,385 | | | | 1.7 | % |
Kevin Stevenson | | | 131,860 | | | | 18,000 | | | | — | | | | — | | | | — | | | | 149,860 | | | | 0.9 | % |
Craig Grube | | | 50,525 | | | | 2,000 | | | | — | | | | — | | | | — | | | | 52,525 | | | | 0.3 | % |
Judith Scott | | | 11,200 | | | | — | | | | — | | | | 2,550 | | | | — | | | | 11,200 | | | | 0.1 | % |
Michael J. Petit (2) | | | 4,380 | | | | 20,000 | | | | — | | | | 9,070 | | | | — | | | | 24,380 | | | | 0.2 | % |
William F. O’Daire (2) | | | 9,200 | | | | — | | | | — | | | | 2,800 | | | | — | | | | 9,200 | | | | 0.1 | % |
William Brophey | | | 1,700 | | | | 2,500 | | | | — | | | | 1,800 | | | | — | | | | 4,200 | | | | 0.0 | % |
Penelope Kyle | | | — | | | | — | | | | — | | | | 2,000 | | | | — | | | | — | | | | 0.0 | % |
David Roberts | | | 108,232 | | | | 5,000 | | | | — | | | | 1,800 | | | | — | | | | 113,232 | | | | 0.7 | % |
Scott Tabakin | | | 400 | | | | — | | | | — | | | | 2,600 | | | | — | | | | 400 | | | | 0.0 | % |
James Voss | | | 1,200 | | | | 5,000 | | | | — | | | | 1,800 | | | | — | | | | 6,200 | | | | 0.0 | % |
All Executives and Directors | | | 593,082 | | | | 52,500 | | | | — | | | | 24,420 | | | | — | | | | 645,582 | | | | 4.1 | % |
| | |
(1) | | Includes immediately exercisable options to purchase 41,000 shares.Not included in Shares Owned and Beneficial Ownership. |
|
(2) | | Includes immediately exercisable options to purchase 42,000 shares. |
|
(3) | | Includes immediately exercisable options to purchase 22,000 shares. |
|
(4) | | Excludes 1,000 unvested restricted shares. |
|
(5) | | Includes immediately exercisable options to purchase 10,000 shares and excludes 9,360 unvested restricted shares. |
|
(6) | | Includes immediately exercisable options to purchase 2,000 shares and excludes 1,000 unvested restricted shares. |
|
(7) | | Includes immediately exercisable options to purchase 3,000 shares and 21,189 shares held by Ramius Capital Group, LLC, of which Mr. Cohen is a senior member of the Executive Committee and a Managing Member. Mr. Cohen shares voting and disposition authority for the shares and disclaims beneficial interest in the shares except to the extent of his pecuniary interest, if any. Excludes 1,000 unvested restricted shares. |
|
(8) | | Includes immediately exercisable options to purchase 3,000 shares. Also includes 57,711 shares held in trusts for which Mr. Roberts is a beneficiary, as to which shares Mr. Roberts disclaims beneficial ownership except to the extent of his pecuniary interest therein. Excludes 1,000 unvested restricted shares. |
|
(9) | | Excludes 2,000 unvested restricted shares. |
|
(10) | | Includes immediately exercisable options to purchase 3,000 shares. Excludes 1,000 unvested restricted shares. |
|
(11) | | Includes immediately exercisable options to purchase 126,000 shares and excludes 17,360 unvested restricted shares. |
|
(12) | | Although Mr. O’Daire and Mr. Petit are not executive officersnamed Executive Officers of the Company, information concerning their security ownership iscompensation details are included in this table due to their level of compensation. |
Certain Relationships and Related Transactions with Management and Others PRA Investments, L.L.C. (“PRAI”), formerly one of the Company’s principal stockholders, was formed in March 1999
to make an investmentfor the sole purpose of investing in the
Company’s equity.Company. Angelo Gordon, the Managing Member of PRAI, owned 1.1% of its outstanding membership interests as of December 31, 2004. David N. Roberts,
one of the Company’s
directors,Lead Director, is a Managing Director of Angelo Gordon, and
maintainshas an indirect economic interest in Angelo Gordon, but did not exercise any voting or investment power over the shares that were beneficially owned by PRAI, Angelo Gordon, or the entity of which he is a limited partner. In February 2005, all of the shares of PRAI were distributed to its
investors.investors, and PRAI has ceased to exist.
In October 2004, in connection with
theits purchase of the assets of IGS Nevada, Inc.
, (“IGS”)
, the
11
Company became a tenant in a 5,000 square foot office building located in Las Vegas, Nevada, which was used as IGS’s business office. IGS, and the building in which it was operating as of the purchase date, were both owned by JamesJim Snead. After the Company’s purchase of the assets of IGS from Mr. Snead, the Company assumed the lease of the building, and Mr. Snead was named an executive of the Company, with the responsibility of managing the acquired operations of IGS. The Company currently pays $8,040paid $8,040.00 per month as rent for the IGS office building. The Company believes that this rentbuilding during the first quarter of 2005, which is comparable to the rent that would be charged by an unrelated third party for a similar building in the Las Vegas vicinity. It is expected that theThe Company will vacatevacated this building during the second quarter of fiscal year 2005, and re-locatere-located IGS to a larger facility which is owned by a party that is not related to the Company. TheAll of the Company’s lease obligations onwith respect to the original 5,000 square footsq. ft. IGS office building will endended at that time.
The Company entered into new employment agreements with its key executives in 2005, providing for three year terms, effective January 1, 2006. A summary of the terms of such agreements can be found on pages 26-32.
The Company requires that written agreements arebe negotiated and executed by the Company and any related party. Such agreements must be reviewed and approved by the Board.Board of Directors. The agreements discussed above were entered into after arms’arm’s length negotiations between the related parties and the Company.
16
Compensation Committee Report The Compensation Committee has furnished the following report to stockholders of the Company in accordance with rules adopted by the Securities and Exchange Commission:
The Compensation Committee has primary responsibility for developing and administering the compensation programs for the Company’s executives, administering the Company’s incentives and stock ownership programs,
annually reviewing the performance of
senior executive officers, including the chief executive officer,
chief financial officer, executive vice presidents and senior vice presidents, and approving compensation actions affecting
them.all of the Company’s Executive Officers, senior vice presidents, and certain other vice presidents. Recognizing the critical importance of maintaining quality executive leadership to the success of the Company, the committee oversees the development and implementation of the Company’s executive succession plan and ensures that effective plans are in place for both short-term and long-term executive succession. The committee also
oversees development of executive succession plans and makes decisions
affectingwhich affect the compensation of
the Board of Directors and other company
officers.officers and employees. In fiscal year 2005, upon the recommendation of the Compensation Committee following its review of market data and other considerations, the Board approved an increase in director compensation, and also increased the base pay and total compensation of the Company’s Executive Officers, including its President and Chief Executive Officer, as well as certain other executives of the Company. A more complete description of the
committee’sCompensation Committee’s functions is set forth in the committee’s charter, which is published in the Investor Relations section of the Company’s website at
www.portfoliorecovery.com.
Executive
The Compensation Committee has established fundamental standards for executive compensation in order to further enhance the long-term value of the Company, assist the Company in attracting and retaining high quality talent, motivating future performance, and aligning executives’ long-term interests with those of investors. the Company’s stockholders. Accordingly, a substantial portion of each executive officer’s total potential compensation is tied to the Company’s performance. In addition to a base salary, executives are eligible to receive an annual bonus and grants of non-vested shares. The “at risk” compensation opportunities align the interests of executives with those of stockholders:
| • | | Annual bonuses depend on both the achievement of specific financial targets, set in advance by the Compensation Committee in conjunction with the Board’s review of the Company’s strategic and operating plans, and the achievement of individual goals. |
|
| • | | Non-vested share awards create incentives for executives to increase the value of the Company’s stock and to remain with the Company, because their shares vest, and are delivered, over a period of five years after the grant date. |
|
| • | | Targeted stock ownership guidelines require that the Executive Officers named in the “Summary Compensation Table” on page 33 below, and certain other executives of the Company, acquire and retain substantial levels of ownership of stock in the Company. |
17
The Compensation Committee adheres to the principle that compensation for executive officers, including the Chief Executive Officer, should first and foremost be directly and materially linked to
an executive’s individual performance and the Company’s
performance and individualoverall performance, and should also be reasonable in comparison to like positions in like companies. The Compensation Committee
undertookundertakes an annual review of the Company’s executive employees’ total compensation, which includes a review
and approval of
executive salaries inall equity grants to the Company’s executives. In fiscal year
2004, which2005, the compensation review included an analysis and comparison of the
salaries of the Company’s
executive officers’executives’ salaries with those of
certainexecutives in comparable positions in
a peer group of businesses that compete with the Company, and in businesses of a similar size in the business services industry. This analysis was undertaken to ensure that the Company’s executive compensation packages include base pay and incentives that are appropriate and competitive in the relevant
marketplace.marketplace, that compensation would continue to be principally performance based, and the Company’s executives would be able to substantially increase their compensation through achievement of established performance criteria and goals. Additionally, the committee’s intent was to ensure that the Company’s executives’ salaries would
be principallyapproximate the average of those in its peer group, with the potential for higher than average total cash compensation when the Company exceeds the performance
based. The committee analyzed the ability of the Company’s executives to substantially increase their compensation through performance.goals. The performance component of each executive’s
12
compensation package is established to assist the Company in achieving overall corporate performance goals that ultimately enhance stockholder value. In accordance with this philosophy,Accordingly, the Company compensates its executives based upon their individual performance and the performance of the Company, through three primary sources: base pay, performance-based annual bonus, and stock awards. Using this approach, the base salary portion of the compensation forof the Company’s executives may be stipulated, andstipulated; however, a significant additional portion of thetotal compensation may be uncertain.
Base PayPay.Base pay for the Company’s executives is established based on the scope of their responsibilities and the applicable competitive market compensation paid by other companies for similar positions, the performancepositions. An executive’s base pay may be increased from year to year in an amount, generally, of not less than 4% of the employeeexecutive’s current base pay, based on individual performance and the achievement of established goals. However, an executive’s base pay is not dependent upon the Company’s achievement of its performance goals. The Compensation Committee of the Board of Directors undertook a salary survey in 2005, drawing from applicable SEC proxies and Form10-K statements of comparable organizations, taking into account organization size, industry and geographic location. The applicable competitive market includessurveyed included companies of similar size, and companies in the business services, receivables management, and debt collection markets; however, compensation decisions arewere not tied to any particulara specific range or level of total compensation paid to the executives at these companies. Base
Using the data obtained in its salary survey, the Compensation Committee determined that the base pay of senior executives of the Company should be adjusted. The committee accordingly increased the base pay of its top executives and entered into new employment agreements which reflected these changes. The new executive employment agreements became effective January 1, 2006. Generally, the Company’s executives’ base salaries are reviewed
annually, and adjusted from time to time to recognize outstanding individual performance, promotions and competitive compensation levels.annually. The subjective decisions regarding
executive officerthe amount and mix of compensation
elements are primarily based upon an assessment of each
executive officer’sexecutive’s leadership, performance and potential to enhance long-term
stockholdershareowner value,
relying upon judgmentas well as judgments about each
individual, and notexecutive individually, rather than on rigid guidelines or
formulas in determining the amount and mix of compensation elements.formulas. Key factors include: the executive’s performance compared to the goals and objectives established for the executive at the beginning of the year; the nature, scope and level of the executive’s responsibilities; the executive’s contribution to the company’s financial results, and the executive’s effectiveness in leading initiatives to increase stockholder value, productivity, and revenue growth.
Decisions concerning Consideration is also given to the specific compensation elements and total compensation paid or awarded to executive officers, including the chief executive officer, in 2004 were made within this framework. Another consideration was each executive’s current salary, andthe executive’s prior-year bonus, and all of the benefits then accruing to the executive, including the accumulated potential value of prior stock based awards.
18
The decisions concerning specific base compensation elements and the total compensation paid or awarded to the Company’s Executive Officers in fiscal year 2005, including the compensation of the President and Chief Executive Officer, were made within this framework. Decisions involving
2004 total
executive officerExecutive Officer compensation
in fiscal year 2005 were ultimately based upon performance and
potentialanticipated future contributions, and whether the compensation awarded would provide an appropriate incentive and reward for performance that sustains and enhances long-term stockholder value. The
compensation the Companysalaries paid to
itsthe President and Chief Executive Officer and the other
three executive officers (and the twofive most highly
compensated non-executive officers)paid executives of the Company for the past three years
isare shown in the table on page
16.33 of this Proxy Statement (Summary Compensation Table).
Management Bonus ProgramProgram.The Company maintains a management incentive bonus program to reward superior performance for the year. Executive bonuses are paid in January for the prior year’s performance, and areof each year, based uponon an evaluation of each executive’s individualprior year’s performance, duringtaking into consideration the year, in the context of the committee’sCompensation Committee’s assessment of the overall performance of the Company and the executive’s business unitunit’s performance in achieving the specific financial and other key goals established for the Company as well asand the executive’s business unit. This evaluation also includedincludes an assessment of the executive’s individual performance compared to the financial, operational and strategic goals and objectives established for the executive at the beginning of the year. If the results of operations meet or exceed net profitability goals, the amount of an executive’s bonus may be increased at the discretion of the Compensation Committee, and if the results of operations for the year are not positive, andor do not achieve net profitability goals, the Compensation Committee may determine
13
whether or not a bonus will be awarded.awarded at all. Potential annual bonuses are set as a percentage of base salary. The annual bonuses which were awarded to the executives who manage specific operating divisions of the Company depended to a significant degree, on their department’s contributions toward the achievement of Company-wide financial targets. Other factors considered by the Compensation Committee in the determination of the bonus awards to executives for fiscal year 2005 performance included the Company’s (i) exceptional operational achievements during the year, (ii) net income growth of 34%, (iii) revenue growth of 31%, (iv) cash collections growth of 25%, (v) debt purchases of $150 million, (vi) return on equity of 21.1% and (vii) stock performance that exceeded peer group and broad market averages. The annual bonuses paid to the President and Chief Executive Officer and the other three executive officers (and the twofive most highly compensated non-executive officers)paid executives of the Company for the past three years are shown in the table on page 16.
33 of this Proxy Statement (Summary Compensation Table).
Equity IncentivesIncentives.The Corporation’sCompany utilizes long-term equity incentive awards to promote the success of the Company and enhance its value by providing motivation for outstanding performance and employment longevity by linking the personal interests of participants to those of the Company’s stockholders. The Company’s current equity compensation planprogram consists solely of the award of non-vested shares of the Company’s stock pursuant to the Amended Plan.Plan, and a targeted executive share ownership program which was adopted by the Company’s Board of Directors in fiscal year 2005. The Amended Plan, which was approved by the stockholders at the Company’s 2004 Annual Meeting, amended the Company’s 2002 Employee Stock Option Plan in order to enable the Company to grant restrictednon-vested shares of stock, in addition to stock options, to its employees and directors. The Company utilizes the long-term equity incentive awards ofdid not issue any stock options to any of its employees or directors in fiscal year 2005.
19
Targeted Executive Share Ownership. Share ownership by Executive Officers is considered very important to the Company, as it aligns management’s interests directly with stockholders and restricteddemonstrates to the investing public and all of the Company’s other employees, senior management’s commitment to the Company. In fiscal year 2005, the Board of Directors adopted a targeted executive stockholdings policy which establishes for each senior executive, as well as other executives and managers in leadership roles, individual equity ownership goals which are to be achieved within a specified time frame. Further, as of January 1, 2006, each executive’s employment agreement provides that in the event that the targeted equity goals are not achieved within the required time frame, that executive’s annual management bonus may be paid in shares of non-vested stock, rather than in cash, until such equity targets are met. The specific share requirements for each executive are based on a multiple of annual base pay, with the higher multiples applicable to promoteexecutives having the successhighest levels of responsibility. Pursuant to the targeted executive stock ownership program, the President and Chief Executive Officer’s equity target is thirteen times his base salary. The Chief Financial and Administrative Officer’s equity target is eight times his base salary, and the remaining Executive Officers of the Company are required to hold an amount equal in value to not less than two and enhance itsone-half times his or her base salary. Generally, an affected executive has five years to attain the holding requirements. During the five-year vesting period, the non-vested shares received by the executive will be forfeited if the executive’s employment is terminated for any reason (other than due to death or disability).
In order to minimize the impact of significant stock price fluctuations, the Company’s targeted executive share ownership policy expresses executive stock ownership requirements as a minimum number of shares to be held. The policy recognizes, however, that individual circumstances may dictate variances to this policy over time, and that a continuous review of executive share ownership levels is appropriate to ensure meaningful and fair target levels. In order to avoid a program that is overly susceptible to variations in the value of the stock price, either up or down, the policy establishes fixed targeted ownership levels for executives that do not change unless a particular executive achieves a substantial promotion. The first ownership targets were set as of January 1, 2006, based on the approximate average stock price of the Company during 2005, which was approximately $39.50.
An executive may count toward the ownership goal the net value, less exercise price and taxes, of any unexercised, vested options; however, this amount may not account for any more than 50% of the stated target. Once established, the resulting individual stockholding target will not be readjusted unless the executive receives a significant promotion. Neither an increase in base compensation nor a fluctuation in stock price will cause a resetting of the share target, so that there is an understood, established stockholding target, and the executive is not unduly burdened with a constantly fluctuating target.
20
Each year, prior to the payment of any annual bonus, the Company’s President and Chief Executive Officer is required to provide a report to the Compensation Committee of the Board of Directors detailing the status of stockholding for each executive covered by linking the policy. This report includes the executive’s base compensation, total compensation, anticipated bonus, targeted stockholdings, actual stockholdings, increased or decreased actual stockholdings during the prior year, and the amount of both awarded and vested options and/or non-vested shares.
Generally, an executive will be given a period of five years from the date of his or her promotion to achieve the targeted stockholding level; however, steady and proportional progress toward the target is expected each year. If, in the judgment of the Compensation Committee, insufficient progress is being made towards the target, then up to 100% of the affected executive’s current period performance bonus may be paid in non-vested shares, in order to help the executive satisfy the targeted ownership levels. If an executive shows continued failure to make satisfactory progress toward a targeted holding level, the annual performance bonus is put at risk.
The Company’s targeted share ownership policy allows for recognition and reasonable consideration to be given to extenuating personal interestscircumstances when reviewing actual stockholdings compared to targets, which is an acknowledgment of participants to thosehardships, rather than an accommodation of its stockholders, and providing motivationan executive’s lifestyle choices. The matrix below details the equity ownership targets established for outstanding performance. Each stock option permitscertain senior executives of the grantee to purchase one shareCompany, using compensation levels as of January 1, 2006.
Targeted Levels of Executive Stockholdings
| | | | |
| | Targeted Multiple of Base | | |
| | Compensation | | Minimum Targeted Stockholdings |
Steven Fredrickson, CEO | | 13 times | | 115,000 |
Kevin Stevenson, CFO | | 8 times | | 50,000 |
Craig Grube, EVP | | 5 times | | 28,500 |
Michael Petit, SVP | | 3 times | | 12,000 |
William O’Daire, SVP | | 3 times | | 12,000 |
Judith Scott, EVP and GC | | 2.5 times | | 10,000 |
Business Unit Heads | | 3-7 times | | |
Department Heads | | 2 times | | |
Other Leadership Positions | | 1-2 times | | |
21
Non-vested Share Awards.It is a vital element of the Company’s
stock frompractice to identify, develop and motivate the
Company athigh-producing employees who will sustain the
exercise price, which is the priceCompany’s outstanding performance, by providing incentives for employees to increase their efforts to enhance productivity and long-term accomplishments. Therefore, all of the
Company’s high performing employees are eligible to receive equity incentives, including first line employees. Approximately 300 current employees have been awarded one or more stock
on the date of grant. Stock options have value onlybased awards pursuant to the
extent the price of the stock on the date of exercise exceeds the exercise price. During the 2004 fiscal year, 79,350 restricted shares were awarded to employees and no stock options were granted.Restricted shares issued by the Company to its employees will convert into shares of stock only when the restrictions lapse, and only if the individual continues to be employed by the Company. No consideration is received by the Company for the restricted shares granted. In accordance with the Amended Plan, stock options and restricted shares generally vest ratably over a five-year period. Plan.
The Compensation Committee has the authority to determine eligibility, the types
and sizes of grants and any vesting provisions, including acceleration of vesting of options and
restrictednon-vested shares. An aggregate of 2,000,000 shares of the Company’s common stock are available for grant under the Amended Plan, subject to a proportionate increase or decrease in the event of a stock split, reverse stock split, stock dividend, or other adjustment to the Company’s common stock. The maximum number of shares that may be granted to any participant during any fiscal year is 200,000.
More than 270 current
Non-vested shares issued by the Company to its employees
have been awarded oneconvert into actual shares of stock only when the restrictions lapse, and only if the individual continues to be employed by the Company. No consideration is required or
morereceived by the Company for the shares granted. In accordance with the Amended Plan, stock
based awards pursuantoptions and the non-vested shares generally vest ratably over a five-year period. The table on page 34 (Warrant and Stock Option Exercises in Fiscal Year 2005 and Year-End Values) provides information regarding the non-vested shares granted to the
Amended Plan. This includes 79,350 restricted shares whichexecutives named therein, and their values. During 2003, 2004 and 2005, the Company’s three highest paid executives, Messrs. Fredrickson, Stevenson and Grube, were awarded
in fiscal year 2004. Stock based awards are a vital element of the Company’s practice to identify, develop and motivate the high-producing employees who will sustain the Company’s outstanding performance by providing incentives for these employees to sustain and enhance long-term accomplishments. During fiscal year 2004, no
stock options were granted to employees. The Company has always expensed its stock options.The table below provides information with respect to securities authorized for issuance under the Company’s equity compensation plans as of December 31, 2004:
14
incentives.
| | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | Number of | | |
| | | | | | | | | | | | | | Weighted- | | | | Securities | | |
| | | | Number of | | | | Number of Securities to | | | | average | | | | Remaining | | |
| | | | Securities | | | | be Issued Upon Exercise | | | | Exercise Price of | | | | Available for | | |
| | | | Authorized | | | | of Outstanding Options, | | | | Outstanding | | | | Future Issuance | | |
| | | | for Issuance | | | | Warrants, and Rights or | | | | Options, | | | | Under Equity | | |
| | | | Under the | | | | Upon Vesting of | | | | Warrants and | | | | Compensation | | |
| Plan Category | | | Plan | | | | Restricted Shares | | | | Rights (1) | | | | Plans (2) | | |
| Equity compensation plans approved by security holders | | | | 2,000,000 | | | | 836,345 | | | | $ | 12.57 | | | | 1,086,620 | | |
| Equity compensation plans not approved by security holders | | | None | | | None | | | | N/A | | | | None | |
| Total | | | | 2,000,000 | | | | 836,345 | | | | $ | 12.57 | | | | 1,086,620 | | |
|
(1) | | Includes grants of restricted shares, for which there is no exercise price, but with respect to which shares are awarded without cost when the restrictions have been realized. Excluding the impact of the restricted shares, the weighted average exercise price of outstanding options, warrants and rights is $14.09. |
|
(2) | | Excludes 77,035 exercised options and vested shares, which are not available for re-issuance. |
Under the Amended Plan, 2,000,000 shares of the Company’s common stock are available for issuance to the Company’s employees and directors. Such awards have been made available for issuance. The table above reflects the number of shares subject to outstanding awards and the amount available for future issuance. All awards wereeither (i) in the form of stock options with an exercise price equal to the fair market value of the stock at the grant date, except for (a)or (ii) in the form of grants of 97,395171,995 non-vested shares of restricted stock which werehave been issued to employees and directors, and (b)directors. Additionally, warrants to purchase shares of the Company’s common stock which were receivedgranted to certain employees as a result of a one-for-one warrant exchange in connection with the reorganization of the Company in 2002, all of which have an exercise price of $4.20 per share, and of which 40,0003,750 remain unexercised.unexcercised.
22
The number of stock options and
restrictednon-vested shares granted to our
President and Chief Executive Officer and the
other five most highly
compensatedpaid senior executives, and the value of these awards, are shown in the table on page
16.Perquisites
The33 of this Proxy Statement (Summary Compensation Table).
Since its initial public offering in 2002, the Company has always expensed its stock options.
Perquisites.In addition to their base salary and their management bonus, the Company’s top executives receive only the fringe benefits normally provided by the Company to all other employees, including life, hospitalization, surgical, major medical and disability insurance, participation in its 401-K plan, paid time off, and other Company-wide benefits which may be in effect from time to time. Other than these standard employee benefits, the Company does not provide additional perquisites, toany personal direct or indirect benefits, or use any separate set of standards in determining the benefits for its executives other thanor directors. The Company believes that its base pay and total compensation package are reasonable and competitive in the typical fringeindustry, and the Company has demonstrated that it is able to hire and retain talented executives without offering additional perquisites.
The Compensation Committee of the Board of Directors ensures that the Company’s executives are paid fairly, and that the Company has a uniform set of benefits package offeredand perquisites that apply to all employees. Accordingly, the Company’s executives are provided no Company paid or reimbursed special perquisites which are not offered to other employees. It is the philosophy of the Company’s executive team and its Board of Directors that each executive, including the Company’s President and Chief Executive Officer, may determine, within the limits of his or her own compensation, whether or not to personally purchase non-reimbursable luxury travel, private flights, housing, security systems, car service, club memberships, financial planning services, or other such goods and services, including those which are sometimes provided as executive perquisites by other companies, but not offered by the Company. This is consistent with the Company’s general operating principles.
The Company paysplaces a very low value on bureaucracy and typical corporate perquisites, such as elaborate executive offices, special retirement plans, deferred compensation plans, designated parking spaces, private club memberships, private travel and private dining rooms. The Company’s atmosphere is casual, yet incredibly focused and committed. The Company seeks to sustain this egalitarian atmosphere, which is believed to promote good employee morale, loyalty and true sense of individual worth among its employees. In this connection, the totalCompany sponsors an annual family picnic and an annual banquet for all its employees and their guests, and during the year, provides all its employees with periodic free lunches and frequent all-employee cook-outs and barbeques during lunch hour, at which the Company’s Executive Officers work the grills, cook food and personally serve the employees. The Company also gives each of its employees a whole turkey and a bottle of wine or sparkling cider at Thanksgiving, as a “thank you” in consideration of their service to the Company during the year. The Company supports various Company sports teams, and offers all employees on-site amenities, such as break rooms, free internet access and state of the art fitness centers with showers and lockers.
23
In fiscal year 2004, the Board of Directors voted to require that the Company’s Executive Officers submit to a bi-annual comprehensive physical examination, at the Company’s expense. In fiscal year 2005, each of the Executive Officers completed the required physical examination at a cost of approximately $5,000 each.
The Company has never made a mandatory annual health evaluationloan to any of its Executive Officers or directors.
401-K Plan.The Company sponsors a 401-(k) plan for its
executive officers; however,employees who are at least twenty-one years of age or over. This plan is a long-term savings vehicle that enables employees to make pre-tax contributions via payroll deductions, and receive tax-deferred earnings on the
annual health evaluation is consideredcontributions made. Employees are eligible to
bemake voluntary contributions to the plan of up to 100% of their compensation, subject to Internal Revenue Service limitations, after completing six months of service. Employees who were at least fifty years of age by the end of the fiscal year were also eligible to make 401-(k) catch-up contributions up to a
conditionmaximum of
employment, and not a perquisite.$4,000. The Company makes matching contributions of up to 4% to each participating employee. Employees are able to direct their own investments in the Company’s 401-(k) plan.
Compensation of the Chief Executive Officer The Compensation Committee is responsible for setting annual and long-term performance goals for the President and Chief Executive Officer, and for evaluating his performance against such goals. The President and Chief Executive Officer’s base salary for 20042005 was determined by the Compensation Committee after reviewing each aspect of his Employment Agreement,present level of compensation, his currentperformance in 2005, his employment agreement and his total compensation relative to the compensationthat of comparable chief executive officers in a peer group comprised of similar companies of similar size as the Company. Based on this review, the Compensation Committee determined that his performance had exceeded their expectations, and his base salary was set at $245,000. The 2004annual bonus paid to the Chief Executive Officer for his 2005 performance was based on an evaluation of his leadership performance, his potential to enhance long-term shareowner value, meeting and exceeding certain performance goals which were established atthe following factors:
| (a) | | his overall leadership of the Company, resulting in a 2005 turnover rate of zero in the Company’s senior management, and record setting collector productivity; |
|
| (b) | | his role in the enhancement of long-term shareowner value, contributing to the Company’s stock performance exceeding peer group and broad market averages; |
|
| (c) | | his exceeding the operational and financial goals which were established at the beginning of 2005 by the Compensation Committee, and the leadership role he played, resulting in the Company exceeding its goals, including leading the Company to better than forecast financial results in 2005, net income growth of 34%, revenue growth of 31%, return on equity of 21.1%, cash collections growth of 25%, debt purchases of $148 million, the initiation of healthcare receivables purchasing and the continued successful building of bankruptcy purchasing capability; |
|
| (d) | | his leadership in expanding the Company’s line of credit, which enabled the Company to achieve record portfolio purchases in 2005, and |
|
| (e) | | his leadership in accomplishing the Company’s acquisition of the assets of Alatax, Inc. in 2005. |
1524
Based on the beginningabove factors, all of 2004 by the Compensation Committee, and the extent to which these goals were achieved or exceeded. Factors involved in the Chief Executive Officer’s incentive compensation included financial achievements, such as his role in leading the Company to strong financial results in 2004, realizing earnings goals, achieving better than forecast results and achieving significant profitability increases, thereby enhancing long-term stockholder value. Other considerations in arriving at his total compensation included his leadership in driving growth initiatives and building growth capability, including the acquisition of a skip-tracing business, his actions in making the company a leader in the collections business and in financial transparency. All of these factors were collectively taken into account by the Compensation Committee in recommending the salary and bonus compensation for the Chief Executive Officer.Officer, the Compensation Committee determined that the Chief Executive Officer was entitled to a bonus in excess of the target bonus for his performance in fiscal year 2005, and his annual bonus was accordingly set by the committee at $750,000. The President and Chief Executive Officer was awarded no stock options, non-vested shares or other equity based compensation in fiscal year 2005, and he received no perquisites which were not offered generally to all other employees of the Company.
The salary and bonus compensation for the Company’s other
executive officersExecutive Officers was determined in a similar
fashion.Summary Compensation Table
fashion as described above. The following table sets forth alldetails of the employment agreement of the President and Chief Executive are summarized below. His employment agreement contains no arrangements providing for severance payments in the case of a change in control of the Company, or any contractual right to any post-retirement compensation awarded to, earned by, orpackage.
Adjusted Base Pay of the Most Highly Compensated Executives.The Company’s Executives’ base salaries are typically reviewed annually, and adjusted in accordance with the relevant provisions of the executive’s employment agreement, taking into consideration performance factors. In connection with its 2005 review of the terms of the employment agreements of its key executives, the committee assessed the principal employment provisions of their employment agreements, including their base salary. In conducting this assessment, the committee considered each executive’s current salary and prior-year bonus, along with an analysis of the compensation paid to the executive’s peers in similar positions within the industry and in the companies which are most likely to compete with the Company for the services of the Company’s executives. The Company’s principal compensation goals with respect to its top management are to attract high quality executive talent; retain key employees; reward past performance and incent future performance; and align executives’ long-term interests with those of the Company’s investors. The compensation elements utilized to achieve these goals are base salary, annual bonus awards and equity awards, all of which are discussed in detail above.
The Compensation Committee’s decisions on senior executive officers’ compensation are based primarily upon an assessment of each executive’s leadership and operational performance, and his or her potential to enhance long-term shareowner value. Key factors include: performance compared to the financial, operational and strategic goals established for the executive at the beginning of the year; the nature, scope and level of the executive’s responsibilities, and the executive’s contribution to the company’s financial results, particularly with respect to key metrics such as cash flow, revenue, earnings and effectiveness in leading initiatives to increase collections and productivity.
After the completion of its 2005 review of the base salaries of its key executives, the Compensation Committee determined that a salary adjustment for its key executives was appropriate, and that new employment agreements would be executed with each key executive to reflect the base salary adjustments, as well as additional terms, which are described more fully in the summary of employment agreements below. Accordingly, the Compensation Committee entered into new employment agreements with these executives in December, 2005, pursuant to which their base salaries and other terms were adjusted. The new employment agreements provide for three year terms, beginning on January 1, 2006 and ending December 31, 2008. The adjusted salaries established in the new employment agreements of the President and Chief Executive Officer and the other
three executive officers (and the twofive most highly compensated
non-executive officers) for all services rendered toexecutives, in accordance with their new employment agreements, are shown on the
Company and its subsidiaries for the fiscal years ended December 31, 2004, 2003 and 2002, except as may otherwise be specifically noted. | | | | | | | | | | | | |
| | Annual Compensation | | | Long-Term Compensation |
Name and Principal Position | | Year | | Salary($) | | | Bonus($)(1) | | | Warrants(#)/Options(#)/Restricted Stock($) |
|
Steven D. Fredrickson | | 2004 | | | 225,000 | | | | 625,000 | | | 0/0/0 |
President, Chief Executive | | 2003 | | | 197,600 | | | | 425,000 | | | 0/0/0 |
Officer and Chairman of the Board (3) | | 2002 | | | 248,858 | | | | 425,000 | | | 0/190,000/0 |
| | | | | | | | | | | | |
Kevin P. Stevenson | | 2004 | | | 150,000 | | | | 420,000 | | | 0/0/0 |
Executive Vice President, Chief | | 2003 | | | 132,500 | | | | 290,000 | | | 0/0/0 |
Financial Officer, Treasurer and | | 2002 | | | 163,383 | | | | 285,000 | | | 0/105,000/0 |
Assistant Secretary (3) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Craig A. Grube | | 2004 | | | 150,000 | | | | 420,000 | | | 0/0/0 |
Executive Vice President- | | 2003 | | | 132,500 | | | | 290,000 | | | 0/0/0 |
Acquisitions (3) | | 2002 | | | 156,970 | | | | 280,000 | | | 0/105,000/0 |
| | | | | | | | | | | | |
William F. O’Daire (2) | | 2004 | | | 100,000 | | | | 200,000 | | | 0/0/25,660 |
Senior Vice President, | | 2003 | | | 90,000 | | | | 160,000 | | | 0/0/0 |
Operations | | 2002 | | | 80,000 | | | | 160,000 | | | 0/75,000/0 |
| | | | | | | | | | | | |
Michael J. Petit | | 2004 | | | 127,308 | | | | 185,000 | | | 0/0/25,660 |
Senior Vice President, | | 2003 | | | 103,236 | | | | 150,000 | | | 0/50,000/290,197 |
Specialty Acquisitions (2)(4) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Judith S. Scott | | 2004 | | | 100,000 | | | | 150,000 | | | 0/0/25,660 |
Executive Vice President, | | 2003 | | | 90,000 | | | | 100,000 | | | 0/0/0 |
General Counsel and Secretary | | 2002 | | | 83,885 | | | | 50,000 | | | 0/25,000/0 |
table below.
(1) | | This table reflects for a given year all bonuses earned by the above officers for such years. The Company typically pays bonuses in the year following the year in which the bonus was earned. |
|
(2) | | Although Mr. O’Daire and Mr. Petit are not executive officers of the Company, their compensation details |
1625
| | are included in this table due to their levelKey Executives 2006 Base Pay | | | | | Name | | Base Pay | | Steve Fredrickson | | $ | 350,000 | | Kevin Stevenson | | | 235,000 | | Craig Grube | | | 225,000 | | Judith Scott | | | 175,000 | | William O’Daire | | | 155,000 | | Michael Petit | | | 155,000 | |
Employment Agreements The employment agreements of compensation. |
|
(3) | | Prior to the Company’s initial public offering in November 2002, the Company was operated as a limited liability company and Mr. Fredrickson, Mr. Stevenson and Mr. Grube were non-employee members of the limited liability company. As such, they were required to pay self-employment taxes, as well as other taxes not typically incurred by executive officers of a corporation; consequently, they were given additional compensation in 2002 and in prior years to offset the impact of the Company’s operations as a limited liability company as compared to a corporation, for each of the periods presented. |
|
(4) | | Compensation for 2003 includes $50,000 paid as a sign-on bonus. |
Warrant and Stock Option Exercises in Fiscal Year 2004 and Year-End Values
The Company did not grant any options or warrants to the Chief Executive Officer and the other three executive officers (and the two highest-paid non-executive officers) in 2004.
The following table provides information, for the Chief Executive Officer and the other three executive officers (and the twofive most highly compensated non-executive officers), regarding previously granted warrants and stock options exercised last year, and stock options held atpaid executives of the endCompany are summarized below. All of 2004, the value receivedexecutives named below executed new employment agreements in December, 2005, which replaced their prior employment agreements which expired as a result of such exercises, as well as vested and exercisable options and unvested and unexercisable options held by such executives, and their values.
As of December 31, 2004
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Value of | | | | |
| | | | | | | | | | | | | | | | | | | | Unexercised | | | | |
| | | | Shares | | | Value Realized | | | Unexercised Options/Warrants at Y/E | | | and Vested | | | Value of Unexercised | |
| Name | | | Acquired | | | Upon Exercise | | | Exercisable | | | Unexercisable | | | Options | | | and Unvested Options | |
| | | | |
| Steven D. Fredrickson | | | | — | | | $ | — | | | | 76,000 | | | | 114,000 | | | $ | 2,144,720 | | | $ | 3,217,080 | |
| Kevin P. Stevenson | | | | — | | | $ | — | | | | 42,000 | | | | 63,000 | | | $ | 1,185,240 | | | $ | 1,777,860 | |
| Craig A. Grube | | | | — | | | $ | — | | | | 42,000 | | | | 63,000 | | | $ | 1,185,240 | | | $ | 1,777,860 | |
| Judith S. Scott (1) | | | | 7,500 | | | $ | 226,235 | | | | 10,000 | | | | 16,000 | | | $ | 282,200 | | | $ | 464,520 | |
| William O’Daire (1)(3) | | | | 15,000 | | | $ | 351,900 | | | | — | | | | 46,000 | | | $ | — | | | $ | 1,311,120 | |
| Michael J. Petit (2)(3) | | | | 2,090 | | | $ | 55,281 | | | | 10,000 | | | | 49,360 | | | $ | 134,500 | | | $ | 923,819 | |
| | | | |
| Total | | | | 24,590 | | | $ | 633,416 | | | | 180,000 | | | | 351,360 | | | $ | 4,931,900 | | | $ | 9,472,259 | |
| | | | |
(1) | | Includes 1,000 unvested, unexercisable restricted shares. |
|
(2) | | Includes 9,360 unvested, unexercisable restricted shares. |
|
(3) | | Although Mr. O’Daire and Mr. Petit are not executive officers of the Company, details of their stock holdings and exercises are included in this table due to their level of compensation. |
Employment Agreements
• Steven D. Fredrickson is party to an employment agreement which expires on December 31, 2005. The termemployment agreement of Judith Scott was amended in March 2006. All of the employment agreements summarized below provide for three year terms, which began on January 1, 2006, and expire on December 31, 2008. Pursuant to the Company’s senior executive target equity ownership policy, each employment agreement willprovides that if the executive’s targeted equity ownership levels have not been met, the management bonus may be automatically extended for additional one-year terms unless otherwise terminatedpaid, in whole or in part, in shares of the Company’s common stock. Each employment agreement also contains confidentiality, non-competition and indemnification provisions, and provides that each Executive Officer shall be covered under the Company’s D & O liability insurance policy. Change of control rights to which the Executive Officers were entitled pursuant to the expired employment agreements were not included in their current employment agreements, at their request. Neither the employment agreements of the executives below, nor the employment agreements of any other executives of the Company contain provisions regarding severance or other payment arrangements which would be triggered by either party.a change in control of the Company.
•Steven D. Fredricksonserves as the President and Chief Executive Officer of the Company. Mr. Fredrickson’s employment agreement provides for a base salary of $190,000$350,000 per year and an increase of notno less than four percent (4%)in each subsequent year. Mr. Fredrickson is eligible for an annual cash incentive bonus based onpursuant to the Company’s management bonus program. TheUnder this program, Mr. Fredrickson is entitled to a bonus of no less than eighty percent of his base salary if the results of operations for the year achieve net profitability goals specified in the Company’s business plan, and if his performance is determined to have met expectations according to Company policy. Mr. Fredrickson may be entitled to an increased bonus at the sole discretion of the Compensation Committee if the results of operations for the year exceed the net profitability goals of the approved business plan and if Mr. Fredrickson’s performance is determined to have exceeded expectations according to Company policy. If the results of operations for the year fail to achieve net profitability goals specified in the business plan or if his performance is determined not to have met expectations according to Company policy, then the amount, if any, of his bonus would be within the absolute discretion of the Committee.
26
In the event of Mr. Fredrickson’s death, his unpaid base salary through the month in which the death occurred and any unpaid bonus compensation for any fiscal year which ended as of the date of death, or which was at least fifty percent completed as of the date of his death, would be paid to his designated beneficiary, or, in the absence of such designation, to his estate or legal representative. In the case of an incomplete fiscal year, the bonus compensation would be determined based upon the assumption that Mr. Fredrickson would have earned the target bonus compensation. In the event Mr. Fredrickson is unable to perform his duties by reason of illness, injury or incapacity, the Company may terminate his employment agreement, also contains confidentiality provisions and he would be paid his unpaid base salary through the month in which the termination occurred (offset by payments under any disability insurance policy in effect) plus the same bonus compensation that would be awarded in case of his death.
If the Company terminates the employment of Mr. Fredrickson for cause, he would not receive a one year non-compete covenant.base salary or bonus compensation after the date of termination. If the Company terminates Mr. Fredrickson without cause, upon the execution of an approved release, he would receive a severance package, thatwhich would include a lump-sum payment equal to (a) his then current base salary and accrued vacation pay through the date of such termination, plus a pro rata portion of the target bonus compensation for the year in which the termination occurred, (b) the greater of a lump-sum payment equal to two times his then current base salary or the minimum base salary due under the remaining term of his employment agreement and (c) the greater of a lump-sum payment equal to two times the amount of the bonus compensation, if any, paid to him in the year immediately prior to the year of termination or the bonus compensation then due for the remainder of the term.
Mr. Fredrickson’s employment agreement contains a two year non-competition covenant. If his employment agreement is not renewed, the Company will pay him a non-competition severance payment equal to (a) his base salary and accrued vacation through the date of termination, plus a pro rata portion of the target bonus compensation for the year in which the termination occurs and (b) a lump-sum payment equal to two times his then current base salary. Mr. Fredrickson is not required to mitigate the amount of any severance and non-competition payments by seeking other employment.
•Kevin P. Stevensonserves as the Executive Vice President and Chief Financial and Administrative Officer of the Company. His employment agreement provides for a base salary of $235,000 per year and an increase of no less than four percent in each subsequent year. Mr. Stevenson is eligible for an annual cash incentive bonus pursuant to the Company’s management bonus program of no less than seventy-five percent of his base salary if the results of operations for the year achieve net profitability goals, and if his performance is determined to have met expectations according to Company policy. Mr. Stevenson may be entitled to an increased bonus at the sole discretion of the Compensation Committee if the results of operations for the year exceed the net profitability goals of the approved business plan and if his performance is determined to have exceeded expectations according to Company policy. If the results of operations for the year fail to achieve net profitability goals specified in the business plan or if Mr. Stevenson’s performance is determined not to have met expectations, then the amount, if any, of his bonus would be within the absolute discretion of the Committee.
27
In the event of Mr. Stevenson’s death, his designated beneficiary, or, in the absence of such designation, his estate or legal representative will be paid his unpaid base salary through the month in which his death occurred, and any unpaid bonus compensation for the fiscal year which ended as of the date of death, or which was at least fifty percent complete as of the date of his death. In the case of an incomplete fiscal year, the bonus compensation would be determined based upon the assumption that Mr. Stevenson would have earned the target bonus compensation. In the event Mr. Stevenson is unable to perform his duties by reason of illness, injury or incapacity, the Company may terminate his employment and he would be paid his unpaid base salary through the month in which the termination occurred (offset by payments under any disability insurance policy in effect), plus the same bonus compensation that would be awarded in case of his death .
If the Company terminates the employment of Mr. Stevenson for cause, he would not receive a base salary or bonus compensation after the date of termination. If the Company terminates Mr. Stevenson without cause, upon his execution of an approved release, he would receive a severance package, which would include a lump-sum payment equal to (a) his base salary and accrued vacation pay through the date of such termination, plus a pro rata portion of the target bonus compensation for the year in which the termination occurred, (b) the greater of a lump-sum payment equal to two times his then current base salary or the minimum base salary due under the remaining term of his employment agreement and (c) the greater of a lump-sum payment equal to two times the amount of the bonus compensation, if any, paid to him in the year immediately prior to the year of termination or the bonus compensation due under the remaining term of the employment agreement.
17
• Kevin P.Mr. Stevenson’s employment agreement contains a two year non-competition covenant. If his employment agreement is not renewed, the Company will pay him a non-competition severance payment equal to (a) his base salary and accrued vacation through the date of termination, plus a pro rata portion of the target bonus compensation for the year in which his employment terminated and (b) a lump-sum payment equal to two times his then current base salary. Mr. Stevenson is partynot required to an employment agreement which expires on December 31, 2005. The termmitigate the amount of any severance and non-competition payments by seeking other employment.
•Craig A. Grubeserves as the Executive Vice President of Acquisitions of the agreement will be automatically extended for additional one-year terms unless otherwise terminated by either party. TheCompany. His employment agreement provides for a base salary of $120,000$225,000 per year and an increase of notno less than four percent (4%)in each subsequent year. Mr. StevensonGrube is also eligible for an annual cash incentive bonus based on the Company’s management bonus program. Theprogram of no less than seventy-five percent of his base salary if the results of operations for the year achieve net profitability goals for the year specified in the Company’s business plan and if his performance is determined to have met expectations according to Company policy. Mr. Grube may be entitled to an increased bonus at the sole discretion of the Compensation Committee if the results of operations for the year exceed the net profitability goals of the business plan, and if his performance is determined to have exceeded expectations according to Company policy. If the results of operations for the year fail to achieve the net profitability goals specified in the business plan, or if his performance is determined not to have met expectations according to Company policy, then the amount, if any, of his bonus would be within the absolute discretion of the Compensation Committee.
28
In the event of Mr. Grube’s death during the term of his employment agreement, also contains confidentiality provisionshis designated beneficiary, or in the absence of such designation, his estate or legal representative, would receive his unpaid base salary through the month in which his death occurred and a oneany unpaid bonus compensation for any fiscal year non-compete covenant. which ended as of the date of his death, or which was at least fifty percent completed as of the date of death. In the case of an incomplete fiscal year, the bonus compensation would be determined based upon the assumption that Mr. Grube would have earned the target bonus compensation. In the event Mr. Grube is unable to perform his duties by reason of illness, injury or incapacity, the Company may terminate his employment agreement and he would be paid his unpaid base salary through the month in which the termination occurred (offset by payments under any disability insurance policy in effect), plus the same bonus compensation that would be awarded in case of his death.
If the Company terminates Mr.
StevensonGrube for cause, he would not be entitled to receive base salary or bonus compensation after the date of termination. If the Company terminates Mr. Grube without cause,
upon his execution of an approved release, he would receive a severance package,
thatwhich would include a lump-sum payment equal to (a) his
then current base salary and accrued vacation pay through the date of such termination,
plus a pro rata portion of the target bonus compensation for the year in which the termination occurred, (b)
the greater of a lump-sum payment equal to two times his then current base salary
or the minimum base salary due under the remaining term of his employment agreement, and (c)
the greater of a lump-sum payment equal to two times the amount of the bonus compensation, if any, paid to him in the year immediately prior to the year of
termination.• Craig A. Grube is party to an employment agreement which expires on December 31, 2005. Thetermination or the bonus compensation due under the remaining term of the employment agreement.
Mr. Grube’s employment agreement contains a two year non-competition covenant. If his employment agreement is not renewed, the Company will be automatically extendedpay him a non-competition severance sum equal to (a) his base salary and accrued vacation days through the date of termination, plus a pro rata portion of the target bonus compensation for additional one-year terms unless otherwisethe year in which his employment terminated and (b) a lump-sum payment equal to two times his then current base salary. Mr. Grube is not required to mitigate the amount of any severance and non-competition payments by either party. Theseeking other employment.
•Michael J. Petitserves as the Senior Vice President of Bankruptcy Acquisitions of the Company. Mr. Petit’s employment agreement provides for aan annual base salary of $120,000 per year,$155,000 and an increase of notno less than four percent (4%)for each subsequent year. Mr. GrubePetit is eligible for an annual cash incentive bonus based on the Company’s management bonus program. Theprogram of no less than seventy-five percent of his base salary if the results of operations for the year achieve net profitability goals for the year specified in the Company’s business plan, and if his performance is determined to have met expectations according to Company policy. Mr. Petit may be entitled to an increased bonus at the sole discretion of the Compensation Committee if the results of operations for the year exceed the net profitability goals of the approved business plan and if his performance is determined to have exceeded expectations according to Company policy. If the results of operations for the year fail to achieve net profitability goals specified in the business plan or if Mr. Petit’s performance is determined not to have met expectations according to Company policy, then the amount, if any of his bonus would be within the absolute discretion of the Committee.
29
In the event of Mr. Petit’s death, his unpaid base salary through the month in which his death occurred, and any unpaid bonus compensation for any fiscal year which ended, or was at least fifty percent completed as of the date of his death, would be paid to his designated beneficiary, or, in the absence of such designation, his estate or legal representative. In the case of an incomplete fiscal year, the bonus compensation would be determined based upon the assumption that Mr. Petit would have earned the target bonus compensation. In the event Mr. Petit is unable to perform his duties by reason of illness, injury or incapacity, the Company may terminate his employment agreement also contains confidentiality provisions and a one year non-compete covenant. he would be paid his unpaid base salary through the month in which the termination occurred (offset by payments under any disability insurance policy in effect), plus the same bonus compensation that would be awarded in case of his death.
If the Company
should terminateterminates Mr.
GrubePetit’s employment for cause, he would not be entitled to receive his base salary or bonus compensation after the termination date. If the Company terminates Mr. Petit’s employment without cause,
upon his execution of an approved release, he would receive a severance package,
thatwhich would include a lump-sum payment equal to (a) his
then current base salary and accrued vacation pay through the date of such termination,
(b)plus a
lump-sum payment equal to two times his then current base salary and (c) a lump-sum payment equal to two times the amountpro rata portion of the
target bonus compensation
if any, paid to him infor the year
immediately prior toin which the
yeartermination occurred, (b) the greater of
termination.• Michael J. Petit is party to an employment agreement which expires on December 31, 2005. The agreement provides for a base salary of $125,000 per year, and an annual bonus of not less than 33% of base salary. The agreement also contains confidentiality provisions and a one year non-compete covenant. If the Company should terminate Mr. Petit without cause, he would receive a severance package that would include in an amount equal to his then current base salary at the date of termination.
• William F. O’Daire is party to an employment agreement which expires on December 31, 2005. The agreement provides for a base salary of $80,000 per year, and an increase of not less than four percent (4%) each subsequent year. Mr. O’Daire is eligible for an incentive bonus based on the Company’s management bonus program. The agreement also contains confidentiality provisions and a one year non-compete covenant. If the Company should terminate Mr. O’Daire without cause, he would receive a severance package that would include a lump-sum payment equal to (a) his then current base salary and accrued vacation pay through the date of such termination, (b) a lump-sum payment equal to one times his then current base salary or the minimum base salary due him under the remaining term of his employment agreement and (c) the greater of a lump-sum payment equal to the greater of one times the amount of the bonus compensation, if any, paid to him in the year immediately prior to the year of termination or the bonus compensation due under the remaining term of the employment agreement.
Mr. Petit’s employment agreement contains a one-year non-competition covenant.If his employment agreement is not renewed, the Company will pay him a non-competition severance payment equal to (a) his base salary and accrued vacation days through the date of termination, plus a pro rata portion of the target bonus compensation
paidfor the year in which his employment terminated and (b) a lump-sum payment equal to
him duringone times his then current base salary; however, after the
term.• Judith S. Scottend of his one-year non-competition period, his non-competition obligations may be extended for an additional year by the Company’s payment of one times his base salary as of his termination date. Mr. Petit is partynot required to an employment agreement which expires on December 31, 2005. The termmitigate the amount of any severance and non-competition payments by seeking other employment.
•William F. O’Daireserves as the Senior Vice President of Operations of the agreement will be automatically extended for additional one-year terms unless otherwise terminated by either party. TheCompany. His employment agreement provides for a base salary of $85,000$155,000 per year and an increase of notno less than four percent (4%)in each subsequent year. Ms. ScottMr. O’Daire is eligible for an annual cash incentive bonus based onof no less than seventy-five percent of his base salary if the results of operations for the year achieve net profitability goals for the year specified in the Company’s managementbusiness plan and if his performance is determined to have met expectations according to Company policy. Mr. O’Daire may be entitled to an increased bonus program. Theat the sole discretion of the Compensation Committee if the results of operations for the year exceed the net profitability goals of the approved business plan and if his performance is determined to have exceeded expectations according to Company policy. If the results of operations for the year fail to achieve net profitability goals specified in the business plan or if Mr. O’Daire’s performance is determined not to have met expectations according to Company’s policy, then the amount, if any of his bonus would be within the absolute discretion of the Committee.
1830
In the event of Mr. O’Daire’s death during the term of his employment agreement, also contains confidentiality provisionshis unpaid base salary through the month in which the death occurred and a oneany unpaid bonus compensation for any fiscal year non-compete covenant. ending as of his death, or which was at least fifty percent completed as of the date of his death, would be paid to his designated beneficiary, or to his estate or other legal representative. In the case of an incomplete fiscal year, the bonus would be determined based upon the assumption that Mr. O’Daire would have earned the target bonus. In the event Mr. O’Daire is unable to perform his duties by reason of illness, injury or incapacity, the Company may terminate his employment agreement and he would be paid his unpaid base salary (offset by payments under any disability insurance policy in effect), through the month in which the termination occurred, plus the same bonus compensation that would be awarded in case of his death.
If the Company terminates Ms. ScottMr. O’Daire’s employment for cause, he would not be entitled to receive base salary or bonus compensation from the date of termination. If the Company terminates Mr. O’Daire without cause, sheupon his execution of an approved release, he would be entitled to receive a severance package, thatwhich would include a lump-sum payment equal to (a) her then currenthis base salary and accrued vacation pay through the date of such termination, (b)plus a pro-ratapro rata portion of herthe target bonus compensation for the year terminated, whetherin which the termination occurred, (b) a lump-sum payment in the amount of one-half of the amount of his then current base salary and (c) a lump-sum payment equal to one-half of the amount of the bonus compensation, if any, paid to him in the year immediately prior to the year of termination or the bonus compensation due under the remaining term of the employment agreement.
Mr. O’Daire’s employment agreement contains a one-year non-competition covenant.If his employment agreement is not renewed, the Company will pay him a non-competition severance payment equal to (a) his base salary and accrued vacation days through the date of termination, plus one-half of the target bonus compensation for the year in which he ceased being employed and (b) a lump-sum payment equal to one-half his then current base salary; however, after the end of his one-year non-competition period, his non-competition obligations may be extended for an additional year by the Company’s payment of one times his base salary as of his termination date. Mr. O’Daire is actuallynot required to mitigate the amount of any severance and non-competition payments by seeking other employment.
•Judith S. Scottserves as the Executive Vice President, General Counsel and Secretary of the Company. Her employment agreement, which was amended on March 23, 2006, provides for a base salary of $175,000 per year and an increase of no less than four percent in each subsequent year. Ms. Scott is eligible for an annual cash incentive bonus of not less than fifty percent of her base salary if the results of operations for the year achieve net profitability goals for the year specified in the Company’s business plan and if her performance is determined to have met expectations according to Company policy. Ms. Scott may be entitled to an increased bonus at the sole discretion of the Compensation Committee if the results of operations for the year exceed the net profitability goals of the approved business plan and (c)if her performance is determined to have exceeded expectations according to Company policy. If the results of operations for the year fail to achieve net profitability goals specified in the business plan or if Ms. Scott’s performance is determined not to have met expectations according to Company policy, then the amount, if any of her bonus would be within the absolute discretion of the Committee.
31
In the event of Ms. Scott’s death during the term of her employment agreement, her unpaid base salary through the month in which her death occurred, and any unpaid bonus compensation for any fiscal year which ended as of the date of her death, or which was at least fifty percent completed as of the date of her death, would be paid to her designated beneficiary, or to her estate or legal representative. In the case of an incomplete fiscal year, the bonus compensation would be determined based upon the assumption that Ms. Scott would have earned the target bonus compensation. In the event she is unable to perform her duties by reason of illness, injury or incapacity, the Company may terminate her employment agreement and she would be paid her unpaid base salary through the month in which the termination occurred (offset by payments under any disability insurance policy in effect), plus the same bonus compensation that would be awarded in case of her death.
If the Company terminates Ms. Scott’s employment for cause, she would no longer be entitled to receive her base salary and bonus compensation from the date of termination. If the Company terminates Ms. Scott without cause, upon her execution of an approved release, she would receive a severance package, which would include a lump-sum payment equal to (a) her base salary and accrued vacation through the date of such termination, plus a pro rata portion of the target bonus compensation for the year in which her termination occurred, (b) the greater of a
lump sumlump-sum payment equal to one times
the amount of theher then current base salary or
the minimum base salary due
forunder the remaining term
of the employment agreement and
(c) a
lump sumlump-sum payment equal to the greater of one times
the amount of the bonus compensation, if any, paid to her in the year immediately prior to the year of termination or the
target bonus compensation due under the remaining term
(whether or not such target is actually met).Compensation Committee Interlocks and Insider Participation
All of the membersemployment agreement.
Ms. Scott’s employment agreement contains a one-year non-competition covenant. If her employment agreement is not renewed, the Company will pay her a non-competition severance payment equal to (a) her base salary and accrued vacation days through the date of termination, plus a pro rata portion of the
Compensation Committee are non-employee directorstarget bonus compensation for the year in which her employment terminates and
none are former officers(b) a lump-sum payment equal to one times her then current base salary. Ms. Scott is not required to mitigate the amount of
the Company. David Roberts is a limited partner of an entity which is a general partner of Angelo Gordon, one of the Company’s principal stockholders as of December 31, 2004. During 2004, as a limited partner in such entity, Mr. Roberts maintained an indirect economic interest in Angelo Gordon, but exercised no voting or dispositive power with respect to Angelo Gordon or its affiliates. See “Certain Relationshipsany severance and
Related Transactions.”non-competition payments by seeking other employment.
Tax Deductibility of Executive Compensation Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million limit on the amount that a public company may deduct for compensation paid or accrued with respect to covered employees who are employed as of the end of the year. The committee believes that the annual bonuses,
restricted stocknon-vested shares and
vested stock options reported for
20042005 in the
table on page 16tables below will be deductible under Section 162(m).
This report is submitted on behalf of the Compensation Committee:
David Roberts, Chairman
Peter CohenPenelope Kyle
William Brophey
Scott Tabakin
Compensation Committee Interlocks and Insider Participation
All of the members of the Compensation Committee are non-employee directors, and neither is a former officer of the Company. David Roberts is a limited partner of an entity which, prior to fiscal year 2005, was a general partner of Angelo Gordon, formerly, one of the Company’s principal stockholders. However, in fiscal year 2005, all of the shares of this entity were distributed to its investors, and the entity itself was dissolved. See “Certain Relationships and Related Transactions.”
32
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or paid to the Company’s Chief Executive Officer and the other five most highly compensated executives for all services rendered to the Company and its subsidiaries for the fiscal years ended December 31, 2005, 2004 and 2003, except as may otherwise be specifically noted:
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | |
| | Annual Compensation | | | | | | | |
| | | | | | | | | | | | | | Long Term | | | | |
| | | | | | | | | | | | | | Compensation | | | | |
| | | | | | | | | | | | | | Securities | | | All Other: | |
| | | | | | | | | | | | | | Underlying | | | (401-(k) | |
| | | | | | | | | | | | | | Options/Non- | | | Contribution) | |
Name and Principal Position | | Year | | | Salary($) | | | Bonus($)(1) | | | vested Shares | | | ($)(2) | |
|
Steven D. Fredrickson | | | 2005 | | | | 245,000 | | | | 750,000 | | | | 0/0 | | | $ | 8,400 | |
President, Chief Executive | | | 2004 | | | | 225,000 | | | | 625,000 | | | | 0/0 | | | | 8,200 | |
Officer and Chairman of the Board | | | 2003 | | | | 197,600 | | | | 425,000 | | | | 0/0 | | | | 8,000 | |
| | | | | | | | | | | | | | | | | | | | |
Kevin P. Stevenson | | | 2005 | | | | 165,000 | | | | 500,000 | | | | 0/0 | | | $ | 8,400 | |
Executive Vice President, Chief | | | 2004 | | | | 150,000 | | | | 420,000 | | | | 0/0 | | | | 8,200 | |
Administrative & Financial Officer, Treasurer and | | | 2003 | | | | 132,500 | | | | 290,000 | | | | 0/0 | | | | 8,000 | |
Assistant Secretary | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Craig A. Grube | | | 2005 | | | | 165,000 | | | | 500,000 | | | | 0/0 | | | $ | 8,400 | |
Executive Vice President- | | | 2004 | | | | 150,000 | | | | 420,000 | | | | 0/0 | | | | 8,200 | |
Acquisitions | | | 2003 | | | | 132,500 | | | | 290,000 | | | | 0/0 | | | | 8,000 | |
| | | | | | | | | | | | | | | | | | | | |
Michael J. Petit (3)(4) | | | 2005 | | | | 137,298 | | | | 325,000 | | | | 0/84,520 | | | $ | 8,400 | |
Senior Vice President, | | | 2004 | | | | 127,308 | | | | 185,000 | | | | 0/25,660 | | | | 4,262 | |
Specialty Acquisitions | | | 2003 | | | | 103,236 | | | | 150,000 | | | | 50,000/290,197 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
William F. O’Daire (3) | | | 2005 | | | | 110,000 | | | | 200,000 | | | | 0/84,520 | | | | 8,169 | |
Senior Vice President, | | | 2004 | | | | 100,000 | | | | 200,000 | | | | 0/25,660 | | | | 6,692 | |
Operations | | | 2003 | | | | 90,000 | | | | 160,000 | | | | 0/0 | | | | 6,538 | |
| | | | | | | | | | | | | | | | | | | | |
Judith S. Scott | | | 2005 | | | | 110,000 | | | | 175,000 | | | | 0/73,955 | | | $ | 8,400 | |
Executive Vice President, General | | | 2004 | | | | 100,000 | | | | 150,000 | | | | 0/25,660 | | | | 5,202 | |
Counsel and Secretary | | | 2003 | | | | 90,000 | | | | 100,000 | | | | 0/0 | | | | 2,984 | |
| | |
(1) | | This table reflects for a given year all bonuses earned by the above officers for such years. The Company typically pays bonuses in the year following the year in which the bonus was earned. |
|
(2) | | These amounts represent company matching contributions to the recipient’s 401(k) plan up to limits for such plans under IRS rules, and related matching deferred incentive compensation credits related to certain pay in excess of amounts eligible for matching under the 401(k) plan. |
|
(3) | | Although Mr. Petit and Mr. O’Daire are not Named Executive Officers of the Company, their compensation details are included in this table due to their level of compensation. |
|
(4) | | Compensation in 2003 includes $50,000 paid as a sign-on bonus and $5,640 as qualified moving expenses paid for by the Company. |
33
Warrant and Stock Option Exercises in Fiscal Year 2005 and Year-End Values
In Fiscal Year 2005, the Company did not grant any stock options or warrants to the President and Chief Executive Officer and the other five most highly compensated executives, and did not grant any non-vested shares of the Company’s stock to the three most highly compensated Executive Officers of the Company.
The following table provides information, for the President and Chief Executive Officer and the other five most highly paid executives, regarding previously granted warrants and stock options exercised in Fiscal Year 2005, and stock options held at the end of 2005, the value received as a result of such exercises. This table also provides information regarding vested and exercisable options and non-vested shares and unexercisable options and shares held by such executives, and their values.
AS OF 12/31/2005
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Value of | | | Value of | |
| | | | | | | | | | Unexercised Options/Shares at Y/E | | | Unexercised | | | Unexercised | |
| | | | | | Value Realized | | | | | | | | | | | and Vested | | | and Non-vested | |
Name | | Shares Acquired | | | Upon Exercise | | | Exercisable | | | Unexercisable | | | Options/Shares | | | Options/Shares | |
Steve Fredrickson | | | 76,000 | | | $ | 2,102,580 | | | | 38,000 | | | | 76,000 | | | $ | 1,270,720 | | | $ | 2,541,440 | |
Craig Grube | | | 42,000 | | | $ | 1,043,675 | | | | 21,000 | | | | 42,000 | | | $ | 702,240 | | | $ | 1,404,480 | |
Kevin Stevenson | | | — | | | $ | — | | | | 63,000 | | | | 42,000 | | | $ | 2,106,720 | | | $ | 1,404,480 | |
Michael Petit (3)(4) | | | 2,290 | | | $ | 96,882 | | | | 20,000 | | | | 39,070 | | | $ | 373,400 | | | $ | 981,311 | |
William O’Daire(1)(4) | | | 15,200 | | | $ | 356,684 | | | | — | | | | 32,800 | | | $ | — | | | $ | 1,133,232 | |
Judith Scott (2) | | | 15,200 | | | $ | 389,734 | | | | — | | | | 12,550 | | | $ | — | | | $ | 452,822 | |
| | |
(1) | | Includes 2,800 non-vested shares. |
|
(2) | | Includes 2,550 non-vested shares. |
|
(3) | | Includes 9,070 non-vested shares. |
|
(4) | | Although Mr. Petit and Mr. O’Daire are not Named Executive Officers of the Company, details of their stock holdings and exercises are included in this table due to their level of compensation. |
34
Stock Performance Graph
The following graph compares, from November 8, 2002, the date of the Company’s initial public offering, to December 31, 2005, the cumulative stockholder returns assuming an initial investment of $100 on November 8, 2002 in the Company’s Common Stock, the stocks comprising the Nasdaq Stock Market (U.S.) Index and the stocks comprising a peer group index.
*The peer group index consists of eight peers.
* The peer group index consists of eight companies which have industry characteristics that are believed to be similar to those of the Company. The peer group includes Asset Acceptance Capital Corp; Asta Funding, Inc.; CompuCredit Corporation; Encore Capital Group, Inc.; NCO Group, Inc.; EPIQ Systems, Inc.; FTI Consulting, Inc., and West Corporation.
The comparisons of stock performance shown above are not intended to forecast or be indicative of possible future performance of the Company’s common stock. The Company does not make or endorse any predictions as to its future stock performance.
The Audit Committee of the Board of Directors has furnished the following report to stockholders of the Company in accordance with rules adopted by the Securities and Exchange Commission:
Each member of the Audit Committee is an independent director, as defined in Nasdaq Rules 4200(a)(15) and 4350(d)(2). Each member of the committee also satisfies the Securities and Exchange Commission’s additional independence requirement for members of audit committees according to Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act and Nasdaq Rules 4200(a)(15) and 4350(d)(2). In addition, the Company’s Board of Directors has determined that James Voss and Scott Tabakin and Peter Cohen are both “audit committee financial experts,” as defined by paragraph (h)(2) of Item 401 of Regulation S-K of the Securities and Exchange Commission.
35
Pre-Approval Policy. The Audit
Committee’sCommittee ‘s policy is to pre-approve
all engagements for audit and permissible non-audit services provided
for the Company by the Company’s independent auditors. These services may include audit services,
19
audit-related services, tax services, services related to internal controls and other services. The independent auditors and the Company’s Chief Executive Officer and Chief Financial Officer periodically report to the Audit Committee regarding the services provided by the independent auditor in accordance with this pre-approval.
During Fiscal Year 2005, there were no matters taken on without pre-approval under thede minimusprovisions of the Sarbanes-Oxley Act.
The Company’s executives have primary responsibility for establishing and maintaining adequate internal financial controls, preparing the financial statements and managing the public reporting process.
PricewaterhouseCoopers LLP isThe Company’s independent auditors are responsible for expressing opinions on the conformity of the Company’s audited financial statements with generally accepted accounting principles,
reporting on the effectiveness of the Company’s internal controls over financial reporting, and
reporting on management’s assessment of the effectiveness of the Company’s internal controls over financial reporting.
• The Audit Committee reviewed and discussed with management the Company’s audited financial statements for the fiscal year ended December 31,
2004,2005, including a discussion of the acceptability and appropriateness of significant accounting principles and management’s assessment of the effectiveness of the Company’s internal controls over financial reporting. The Audit Committee discussed with
PricewaterhouseCoopers LLPthe Company’s independent auditors its evaluation of the Company’s internal controls over financial reporting and other business matters. The Audit Committee also reviewed with management and the independent auditors the reasonableness of significant estimates and judgments made in preparing the financial statements, as well as the clarity of the disclosures in the financial statements.
• The Audit Committee has discussed with the Company’s independent auditors the matters required to be discussed by Statement on Auditing Standards
No. 61,No.90, as modified or supplemented, “Communications with Audit Committees,” as amended.
• The Audit Committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” as amended or supplemented, and has discussed
their independence with
PricewaterhouseCoopers LLP their independence.them. The Audit Committee has concluded that the audit and non-audit services which were provided by
PricewaterhouseCoopers LLPits independent auditors in
2004 are2005 were compatible with, and did not negatively impact their independence.
Based upon
During fiscal year 2005 the Audit Committee met with the Company’s internal auditor and with its independent auditors, with and without management present, to discuss the overall quality of the Company’s financial reporting. In reliance on such discussions, its review and discussions with management of the Company’s audited financials and the acceptability and appropriateness of significant accounting principles, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above, the Audit Committee recommended to the Board thatof Directors, and the Board approved, the Company’s inclusion and filing with the Securities and Exchange Commission of its audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 for filing with the Securities and Exchange Commission. 2005.
36
Following a review of the independent auditor’s performance and qualifications, including consideration of management’s recommendation, the Audit Committee approved the reappointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for the
2005 fiscal
year.year ending December 31, 2006.
No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing with the Securities and Exchange Commission through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that the Company specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed to be filed under either the Securities Act or the Exchange Act.
This report is submitted on behalf of the following independent directors, who constitute the Audit Committee:
James Voss (Chairman)
Peter CohenWilliam Brophey
20
PricewaterhouseCoopers LLP has acted as independent auditors with respect to the Company’s consolidated financial statements for the year ended December 31,
2004,2005, and has performed certain
audit-relatednon-audit-related services for the
Company.Company during the year. Also, in
2004,2005, PricewaterhouseCoopers LLP audited the Company’s internal
controlscontrol over financial reporting. In connection with its
20042005 taxes, which are anticipated to be completed in
2005,2006, the Company has retained a separate
tax accounting firm which is not related to PricewaterhouseCoopers LLP.
The following table sets forth the aggregate fees billed by PricewaterhouseCoopers LLP for professional services rendered during the years ended December 31, 20042005 and December 31, 2003,2004, and for the reviews of financial statements included in the Company’s registration statements, quarterly reports and services normally provided by the independent auditor in connection with required statutory or regulatory filings or engagements for each of those fiscal years:
37
Principal Accountant Fees and ServicesThe aggregate fees billed or expected to be billed by PricewaterhouseCoopers, LLP for the years ended December 31, 2004 and 2003 are presented in the table below:
| | | | | | | | | | | | | | | | |
| | 2004 | | 2003 | | | 2005 | | 2004 | |
Audit Fees | | |
| | |
Annual Audit | | $ | 160,000 | | $ | 130,575 | | | $ | 410,000 | | $ | 411,854 | |
Sarbanes-Oxley 404 Audit | | 251,854 | | 0 | | |
| | |
Registration Statement | | | 64,225 | (1) | | 118,739 | | |
Registration Statement(1) | | | — | | 64,225 | |
| | | | | | | |
| | |
| | 476,079 | | 249,314 | | | 410,000 | | 476,079 | |
Audit Related Fees | | |
Consultation on various accounting matters | | | | 56,344 | (2) |
| | |
WestLB Attest Service | | 0 | | | 4,700 | (2) | |
Consultation on Various Accounting Matters | | | 56,344 | (3) | | 0 | | |
Tax Fees | | |
| | |
Advice | | 0 | | | 125,507 | (4) | | 9,975(3) | | | |
| | | | | | | |
| | |
| | 0 | | 125,507 | | | 9,975 | |
| | |
Other Fees | | | | 1,500 | (4) | | | 1,500 | (4) |
| | | | | | |
| | |
Total Accountant Fees | | $ | 532,423 | | $ | 379,521 | | | $ | 421,475 | | $ | 533,923 | |
| | | | | | | |
| | |
(1) | | The fees related to the registration statement filed on Form S-3 in November 2004 were paid for in full by one of the selling stockholders. |
21
PORTFOLIO RECOVERY ASSOCIATES, INC.
Riverside Commerce Center
120 Corporate Blvd.
Norfolk, VA 23502
Notice of Annual Meeting of Stockholders
to be held on May 11, 2005
TO THE STOCKHOLDERS OF PORTFOLIO RECOVERY ASSOCIATES, INC.:
You are cordially invited to attend the Annual Meeting of Stockholders of PORTFOLIO RECOVERY ASSOCIATES, INC. (the “Company”), which will be held at the Company’s Norfolk, Virginia headquarters located at Riverside Commerce Center, 120 Corporate Blvd, Suite 100, Norfolk, Virginia 23502, on May 11, 2005, at 12:00 noon, local time. At the Annual Meeting, you will be asked to:
• | Elect two directors to serve for three year terms; |
• | Ratify the selection of PricewaterhouseCoopers LLP as accountants and independent auditors for Portfolio Recovery Associates, Inc., for the year ending December 31, 2005, and |
• | Transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
The enclosed and Proxy Statement contains detailed information about the business to be transacted.
The Board of Directors unanimously recommends that you vote FOR the election of each director nominee and FOR the ratification of PricewaterhouseCoopers LLP as accountants and independent auditors for Portfolio Recovery Associates, Inc.
In addition to considering the matters described above, Steve Fredrickson, the President, Chairman and Chief Executive Officer of the Company will review developments since last year’s stockholders meeting. The Board of Directors has fixed the close of business on March 25, 2005 as the Record Date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting. Only stockholders of record at the close of business on March 25, 2005 will be entitled to notice of and to vote at the Annual Meeting. A list of such stockholders will be available during regular business hours at the Company’s headquarters, located at 120 Corporate Blvd., Norfolk, Virginia 23502, for the ten days before the Annual Meeting for inspection by any stockholder for any purpose germane to the meeting.
If you have any questions or need additional information about the Annual Meeting, please contact the Company’s investor relations liaison at 757-519-9300, ext. 13010, or via email atinfo@portfoliorecovery.com.
| | |
| | By Order of the Board of Directors, |
| | |
| | Judith S. Scott |
| | Executive Vice President, General Counsel and Secretary |
| | |
Norfolk, Virginia | | Date: April 15, 2005 |
Whether or not you plan to attend the Annual Meeting, please act promptly to vote your shares with respect to the proposals described above. You may vote your proxy by marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope provided. If you attend the Annual Meeting, you may vote your shares in person, even if you have previously submitted your proxy in writing. If you vote in person, any previously voted proxy will be withdrawn.
The undersigned hereby appoints William Brophey and David Roberts, the proxies selected by the Company’s Board of Directors, with the powers the undersigned would possess if personally present, and with full power of substitution, to vote at the Annual Meeting of Stockholders of PORTFOLIO RECOVERY ASSOCIATES, INC. to be held May 11, 200510, 2006, and at any adjournments thereof, on the following proposals: