Filed Pursuant to Rule 424(b)(3)

Registration No. 333-215442

 

Offer by

 

IEG HOLDINGS CORPORATION

 

to Exchange 20 Shares of IEG Holdings Corporation Common Stock

 

For

 

Each Share of Common Stock of

 

ONEMAIN HOLDINGS, INC.

 

Up to an Aggregate of 6,747,723 Shares of OneMain Holdings, Inc. Common Stock

 

THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON JUNE 15, 2017, UNLESS EXTENDED.

 

IEG Holdings Corporation (“IEG Holdings”) is offering to exchange 20 shares of IEG Holdings’ common stock, par value $0.001 per share, for each share of common stock of OneMain Holdings, Inc. (“OneMain”), par value $0.01 per share, up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017, validly tendered and not properly withdrawn in the offer.

 

The purpose of the offer is for IEG Holdings to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017.

 

IEG Holdings’ obligation to accept for exchange, and to exchange, OneMain shares for shares of IEG Holdings’ common stock in the offer is subject to a number of terms and conditions, including the proration provisions. See “The Offer—Conditions of the Offer” and “The Offer – Proration.”

 

IEG Holdings’ common stock is quoted on the OTCQB market tier of The OTC Markets Group under the symbol “IEGH.” OneMain common stock is listed on the NYSE under the symbol “OMF.” On May 18, 2017, the closing price of a share of IEG Holdings common stock on the OTCQB was $2.48, and the closing price of a share of OneMain common stock on the NYSE was $22.38. Accordingly, the offer of 20 IEG Holdings shares for each OneMain share represents a premium of approximately 121.6%.

 

For a discussion of certain factors that OneMain stockholders should consider in connection with the offer, please read “Risk Factors” beginning on page 13.

 

IEG Holdings has not authorized any person to provide any information or to make any representation in connection with the offer other than the information contained or incorporated by reference in this document, and if any person provides any information or makes any representation of this kind, that information or representation must not be relied upon as having been authorized by IEG Holdings.

 

Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

 

The date of this prospectus/offer to exchange is May 19, 2017.

 

   
 

 

the Offering

 

This section summarizes material information presented in greater detail elsewhere in this document. However, this summary does not contain all of the information that may be important to OneMain stockholders. You are urged to carefully read the remainder of this document and the related letter of transmittal and the other documents to which we have referred because the information in this section is not complete. See “Where To Obtain More Information.”

 

The Offeror
(see page 64)
IEG Holdings Corporation, a Florida corporation, was formed on January 21, 1999, under the name Interact Technologies, Inc. After two subsequent name changes, we changed our name to IEG Holdings Corporation in February 2013.
   
The Offer
(see page 51)
IEG Holdings is offering to exchange 20 shares of IEG Holdings’ common stock for each share of common stock of OneMain, up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017, validly tendered and not properly withdrawn in the offer, on the terms and conditions of the offer, including the proration provisions. See “The Offer—Conditions of the Offer” and “The Offer—Proration.” On May 18, 2017, the closing price of a share of IEG Holdings common stock on the OTCQB was $2.48, and the closing price of a share of OneMain common stock on the NYSE was $22.38. Accordingly, the offer of 20 IEG Holdings shares for each share OneMain share represents a premium of approximately 121.6%.
   
Purpose of the Offer
(see page 57)
The purpose of the offer is for IEG Holdings to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017. IEG Holdings wishes to acquire up to an aggregate of 6,747,723 for several reasons, namely:

 

  IEG Holdings believes that the acquisition of OneMain’s shares is a solid short-term investment for IEG Holdings’ stockholders, significantly increasing IEG Holdings’ net asset value per share.
     
  IEG Holdings intends to use its OneMain stockholdings to become an activist investor, to pressure OneMain’s board to implement changes to its online strategy and execute substantial cost cuts in order to increase the value of IEG Holdings’ OneMain stockholdings.
     
  This tender offer may be the first step in an ongoing attempt by IEG Holdings to obtain control of OneMain, through subsequent tender offers or otherwise.
     
  If IEG Holdings decides not to pursue control of OneMain in the future and if OneMain’s board refuses to (i) appoint an IEG Holdings representative to its board and/or management team, (ii) implement substantial cost cuts, and/or (iii) implement a new and improved online strategy, IEG Holdings likely would seek to liquidate its OneMain shareholdings, which is likely to be a net asset accretive strategy.

 

Information About IEG Holdings
Corporation (see page 50)
We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states. We have a history of reporting recurring losses and have not generated positive net cash flows from operations. For the years ended December 31, 2016 and 2015, we generated revenue of $2,135,046 and $1,835,165, respectively, and had net losses of $4,728,869 and $5,698,198, respectively. For the three months ended March 31, 2017 and 2016, we generated revenue of $467,383 and $524,972, respectively, and had net losses of $503,939 and $956,679, respectively.
   

About OneMain
(see page 50)

OneMain is a financial services holding company whose principal subsidiaries are Springleaf Finance, Inc. (“SFI”) and Independence Holdings, LLC (“Independence”). SFI’s principal subsidiary is Springleaf Finance Corporation (“SFC”), and Independence’s principal subsidiary is OneMain Financial Holdings, LLC (“OMFH”). SFC and OMFH are financial services holding companies with subsidiaries engaged in the consumer finance and insurance businesses. At March 31, 2017, Springleaf Financial Holdings, LLC (the “Initial Stockholder”) owned approximately 57% of OneMain’s common stock. The Initial Stockholder is owned primarily by a private equity fund managed by an affiliate of Fortress Investment Group LLC. As of March 31, 2017, OneMain had nearly 1,700 branch offices in 44 states. OneMain maintains an online consumer loan origination business. As of December 31, 2016, OneMain had over 10,100 employees. Although many new customer applications are sourced online, most online applications are closed in a branch.

 

   
 

 

Expiration of the Offer
(see page 53)

The offer is scheduled to expire at 5:00 p.m., Eastern time, on June 15, 2017, unless extended by IEG Holdings. “Expiration date” means June 15, 2017, unless and until IEG Holdings has extended the period during which the offer is open, in which event the term “expiration date” means the latest time and date at which the offer, as so extended by the IEG Holdings, will expire.

   
Extension, Termination or
Amendment (see page 53)

IEG Holdings will effect any extension, termination, amendment or delay by (i) giving oral or written notice to the depository and exchange agent, (ii) making a public announcement promptly thereafter as described under “The Offer—Extension, Termination and Amendment,” (iii) filing with the SEC an amendment to Schedule TO reporting promptly any material changes in the information set forth in the schedule previously filed and including copies of any additional tender offer materials as exhibits, and (iv) as required by Rule 14d-4(d)(2) promulgated under the Exchange Act, keeping the tender offer open from the date that material changes to the tender offer materials are disseminated to securityholders as follows: (a) five business days for a prospectus supplement containing a material change other than price or share levels, (b) 10 business days for a prospectus supplement containing a change in price, the amount of securities sought or other similarly significant change, (c) 10 business days for a prospectus supplement included as part of a post-effective amendment, and (d) 20 business days for a revised prospectus when the initial prospectus was materially deficient.

 

In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the offer be promptly disseminated to stockholders in a manner reasonably designed to inform them of such change) and without limiting the manner in which IEG Holdings may choose to make any public announcement, IEG Holdings assumes no obligation to publish, advertise or otherwise communicate any such public announcement of this type other than by issuing a press release. During any extension, OneMain shares previously tendered and not properly withdrawn will remain subject to the offer, subject to the right of each OneMain stockholder to withdraw previously tendered OneMain shares.

 

No subsequent offering period will be available following the expiration of the offer.

 

   
 

 

Significant Conditions of the
Offer (see page 5)
The offer is subject to certain conditions, including:

 

  lack of legal prohibitions, and
     
  the effectiveness of the registration statement on Form S-4 of which this document is a part.

 

   Subject to applicable SEC rules and regulations, IEG Holdings also reserves the right, in its sole discretion, at any time or from time to time to waive any condition identified as subject to waiver in “The Offer—Conditions of the Offer” by giving oral or written notice of such waiver to the depository and exchange agent. IEG Holdings will not accept for exchange or exchange any OneMain shares, may postpone the acceptance for exchange, or the exchange, of tendered OneMain shares, if at the expiration date any of the conditions of the offer is not satisfied or validly waived.
   
Withdrawal Rights
(see page 54)
Tendered OneMain shares may be withdrawn at any time prior to the expiration date. Additionally, if IEG Holdings has not agreed to accept the shares for exchange on or prior to June 15, 2017, OneMain stockholders may thereafter withdraw their shares from tender at any time after such date until IEG Holdings accepts the shares for exchange. Once IEG Holdings accepts shares for exchange pursuant to the offer, all tenders not previously withdrawn become irrevocable.
   
Procedure for Tendering
(see page 55)
To validly tender OneMain shares pursuant to the offer, OneMain stockholders must:

 

   deliver a properly completed and duly executed letter of transmittal, along with any required signature guarantees and any other required documents, and certificates for tendered OneMain shares to the depository and exchange agent at its address set forth on the back cover of this document, all of which must be received by the depository and exchange agent prior to the expiration date; or
     
  deliver an agent’s message in connection with a book-entry transfer, and any other required documents, to the depository and exchange agent at its address set forth on the back cover of this document, and shares must be tendered pursuant to the procedures for book entry tender set forth herein (and a confirmation of receipt of that tender received), and in each case be received by the depository and exchange agent prior to the expiration date.

 

  OneMain stockholders who hold OneMain shares in “street name” through a bank, broker or other nominee holder, and desire to tender their OneMain shares pursuant to the offer, should instruct the nominee holder to do so prior to the expiration date.
   
Exchange of Shares;
Delivery of Shares of IEG
Holdings Common Stock
(see page 54)
Upon the terms and subject to the satisfaction or waiver of the conditions of the offer (including, if the offer is extended or amended, the terms and conditions of any extension or amendment), promptly following the expiration date, IEG Holdings will accept for exchange, and will exchange, all OneMain shares validly tendered and not properly withdrawn prior to the expiration date.
   
Dissenters’ Rights
(see page 57)
No dissenters’ rights are available in connection with the offer
   
Comparative Market Price
and Dividend Matters
(see page 61)
In 2016, IEG Holdings’ common stock was quoted on the OTCQX under the symbol “IEGH”. Beginning in January 2017, IEG Holdings’ common stock is quoted on the OTCQB. OneMain shares are listed on the NYSE under the symbol “OMF”. On January 4, 2017, the trading day prior to the initial filing of the registration statement on Form S-4 of which this document is a part, the closing price per OneMain share on the NYSE was $23.90, and the closing price per share of IEG Holdings common stock on the OTCQB was $5.45. On May 18, 2017, the closing price per OneMain share on the NYSE was $22.38, and the closing price per share of IEG Holdings common stock on the OTCQB was $2.48. OneMain stockholders should obtain current market quotations for OneMain shares and shares of IEG Holdings common stock before deciding whether to tender their OneMain shares in the offer and before electing the form of offer consideration they wish to receive. See “Comparative Market Price and Dividend Matters” for a discussion of pro forma per share data.
 

 
 

 

Ownership of IEG Holdings
After the Offer Closes
(see page 87)
IEG Holdings estimates that, assuming all 6,747,723 OneMain shares are tendered in the offer, former OneMain stockholders would own, in the aggregate, approximately 93.3% of the shares of IEG Holdings common stock outstanding after the offer closes. For a detailed discussion of the assumptions on which this estimate is based, see “The Offer—Ownership of IEG Holdings After the Offer.”
   
Comparison of Stockholders’
Rights (see page 155)
The rights of IEG Holdings stockholders are different in some respects from the rights of OneMain stockholders. Therefore, OneMain stockholders will have different rights as stockholders once they become IEG Holdings stockholders. The differences are described in more detail under “Comparison of Stockholders’ Rights.”
   
Material U.S. Federal
Income Tax Consequences
(see page 151)

OneMain stockholders who receive shares of IEG Holdings common stock in exchange for such stockholders’ OneMain shares generally will realize a taxable event, which could result in a gain or loss depending upon their tax bases in their OneMain shares.

 

Each OneMain stockholder should read the discussion under “Material U.S. Federal Income Tax Consequences” and should consult its own tax advisor for a full understanding of the tax consequences of the offer to such stockholder.

   
Accounting Treatment
(see page 60)
In accordance with accounting principles generally accepted in the United States, IEG Holdings will account for the acquisition of shares as an available-for-sale investment.
   
Questions about the Offer
(see page 5)

Questions or requests for assistance or additional copies of this document may be directed to the information agent at the telephone number and addresses set forth below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the offer.

 

The information agent for the Offer is:

 

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, NY 10104

Banks, Brokers and Shareholders

Call Toll-Free (800) 279-6913

Or Contact via E-mail at:

IEGH@georgeson.com

   
Risk Factors
(see page 13)
OneMain stockholders should see “Risk Factors” and the other information in this document for a discussion of the factors that they should carefully consider before deciding to tender their shares.

 

   
 

 

TABLE OF CONTENTS

 

    Page
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS   4
INDUSTRY AND MARKET DATA   4
QUESTIONS AND ANSWERS ABOUT THE OFFER   5
NOTE ON ONEMAIN INFORMATION   8
THE OFFERING    
SUMMARY HISTORICAL FINANCIAL DATA OF IEG HOLDINGS   8
SUMMARY HISTORICAL FINANCIAL DATA OF ONEMAIN   9
COMPARATIVE PER SHARE DATA   10
RISK FACTORS   11
THE COMPANIES   45
THE OFFER   46
COMPARATIVE MARKET PRICE AND DIVIDEND MATTERS   58
INFORMATION ABOUT IEG HOLDINGS   59
DESCRIPTION OF IEG HOLDINGS’ BUSINESS   59
IEG HOLDINGS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   78
IEG HOLDINGS’ MANAGEMENT   88
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS – IEG HOLDINGS   90
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT – IEG HOLDINGS   91
EXECUTIVE COMPENSATION – IEG HOLDINGS   92
INFORMATION ABOUT ONEMAIN   93
DESCRIPTION OF ONEMAIN’S BUSINESS   93
ONEMAIN’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   101
ONEMAIN’S MANAGEMENT   149
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS – ONEMAIN   156
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT – ONEMAIN     161
EXECUTIVE COMPENSATION    
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES   163
DESCRIPTION OF IEG HOLDINGS CAPITAL STOCK   165
COMPARISON OF STOCKHOLDERS’ RIGHTS   168
LEGAL MATTERS   175
EXPERTS   175
DISCLOSURE OF COMMISSION’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES   175
WHERE TO OBTAIN MORE INFORMATION   176
INDEX TO FINANCIAL STATEMENTS   F-1

 

2
  

 

If you have questions about the offer, or if you need to obtain copies of this document, the letter of transmittal or other documents incorporated by reference in this document, you may contact the company listed below. You will not be charged for any of the documents you request.

 

Georgeson LLC
1290 Avenue of the Americas, 9th Floor

New York, NY 10104

(800) 279-6913

 

If you would like to request documents, please do so by June 13, 2017, in order to receive them before the expiration of the offer.

 

3
  

 

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Various statements contained in, or incorporated by reference in, this document, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are “forward-looking statements.” Forward-looking statements include statements IEG Holdings makes concerning its plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Some forward-looking statements appear under the headings “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” When used in this document, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,” “likely,” “may,” “might,” “will,” “should,” “goal,” “target” or “intends” and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. All forward-looking statements are based upon information available to IEG Holdings on the date of this document.

 

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of IEG Holdings’ control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this document in the sections captioned “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Some of the factors that IEG Holdings believes could affect its results include:

 

limitations on IEG Holdings’ ability to continue operations and implement its business plan;
   
IEG Holdings’ history of operating losses;
   
the timing of and IEG Holdings’ ability to obtain financing on acceptable terms;
   
the effects of changing economic conditions;
   
the loss of members of the management team or other key personnel;
   
competition from larger, more established companies with greater economic resources than IEG Holdings has;
   
costs and other effects of legal and administrative proceedings, settlements, investigations and claims, which may not be covered by insurance;
   
costs and damages relating to pending and future litigation;
   
the impact of additional legal and regulatory interpretations and rulemaking and IEG Holdings’ success in taking action to mitigate such impacts;
   
control by IEG Holdings’ principal equity holders; and
   
the other factors set forth herein, including those set forth under “Risk Factors.”

 

There are likely other factors that could cause IEG Holdings’ actual results to differ materially from the results referred to in the forward-looking statements. All forward-looking statements attributable to IEG Holdings in this document apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. IEG Holdings undertakes no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law. You are advised to consult any further disclosures IEG Holdings makes on related subjects in the reports it files with the SEC pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

INDUSTRY AND MARKET DATA

 

We are responsible for the disclosure in this document. However, this document includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this document. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this document.

 

4
  

 

QUESTIONS AND ANSWERS ABOUT THE OFFER

 

Below are some of the questions that you as a holder of OneMain shares may have regarding the offer and answers to those questions. You are urged to carefully read the remainder of this document and the related letter of transmittal and the other documents to which we have referred because the information contained in this section and in the “Summary” is not complete. Additional important information is contained in the remainder of this document and the related letter of transmittal. See “Where To Obtain More Information.” As used in this document, unless otherwise indicated or the context requires, “IEG Holdings,” and “we” refer to IEG Holdings Corporation and its consolidated subsidiaries, and “OneMain” refers to OneMain Financial, Inc. and its consolidated subsidiaries.

 

Who is offering to buy my OneMain shares?

 

IEG Holdings Corporation is making this offer to exchange IEG Holdings common stock for OneMain shares. We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

 

What are the classes and amounts of OneMain securities that IEG Holdings is offering to acquire?

 

IEG Holdings is seeking to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017.

 

What will I receive for my OneMain shares?

 

IEG Holdings is offering to exchange for each outstanding OneMain share validly tendered and not properly withdrawn in the offer 20 shares of IEG Holdings common stock. On May 18, 2017, the closing price of a share of IEG Holdings common stock on the OTCQB was $2.48, and the closing price of a share of OneMain common stock on the NYSE was $22.38. Accordingly, the offer of 20 IEG Holdings shares for each share OneMain share represents a premium of approximately 121.6%. IEG Holdings’ common stock is quoted on the OTCQB tier of the OTC Markets. Trading in IEG Holdings common stock is thin and sporadic, and the price of IEG Holdings common stock has been in the past, and likely will be in the future, very volatile because of several factors, including a limited public float.

 

The table below shows certain historical prices of IEG Holdings and OneMain common stock.

 

    IEG Holdings     OneMain  
             
January 4, 2017 (the day prior IEG Holdings’ launch of the OneMain tender offer)   $ 5.45     $ 23.90  
May 18, 2017   $ 2.48     $

22.38

 

 

Because the offer is subject to proration, the number of shares of OneMain common stock IEG Holdings accepts in the tender offer may be less than the number of shares you tender.

 

Will all the shares of OneMain common stock that I tender be accepted in the tender offer?

 

Not necessarily. The maximum number of shares of OneMain common stock that will be accepted if the tender offer is completed will be equal to 6,747,723. Depending on the number of shares of OneMain common stock validly tendered in the tender offer and not validly withdrawn, IEG Holdings may have to limit the number of shares of OneMain common stock that it accepts in the exchange offer through a proration process. Any proration of the number of shares accepted in the tender offer will be determined on the basis of the proration mechanics described under “The Offer—Proration.”

 

Will I have to pay any fee or commission to exchange my OneMain shares?

 

If you are the record owner of your OneMain shares and you tender these shares in the offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your OneMain shares through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your OneMain shares on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.

 

Why is IEG Holdings making this offer?

 

The purpose of the offer is for IEG Holdings to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017. IEG Holdings wishes to acquire up to an aggregate of 6,747,723 for several reasons, namely:

 

IEG Holdings believes that the acquisition of OneMain’s shares is a solid short-term investment for IEG Holdings’ stockholders, significantly increasing IEG Holdings’ net asset value per share.
   
IEG Holdings intends to use its OneMain stockholdings to become an activist investor, to pressure OneMain’s board to implement changes to its online strategy and execute substantial cost cuts in order to increase the value of IEG Holdings’ OneMain stockholdings.
   
This tender offer may be the first step in an ongoing attempt by IEG Holdings to obtain control of OneMain, through subsequent tender offers or otherwise.
   
If IEG Holdings decides not to pursue control of OneMain in the future and if OneMain’s board refuses to (i) appoint an IEG Holdings representative to its board and/or management team, (ii) implement substantial cost cuts, and/or (iii) implement a new and improved online strategy, IEG Holdings likely would seek to liquidate its OneMain shareholdings, which is likely to be a net asset accretive strategy.

 

What are the most significant conditions of the offer?

 

The offer is conditioned upon, among other things, the following:

 

The registration statement on Form S-4 of which this document is a part having become effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and no stop order having been issued or proceeding seeking a stop order having been commenced; and
   
There being no law, order or injunction restraining, enjoining or otherwise prohibiting the consummation of the offer.

 

The offer is subject to a number of additional conditions set forth below in the section entitled “The Offer—Conditions of the Offer.” The conditions to the offer are for the sole benefit of IEG Holdings and may be asserted by IEG Holdings regardless of the circumstances giving rise to any such condition or may be waived by IEG Holdings, by express and specific action to that effect, in whole or in part at any time and from time to time, in each case.

 

5
  

 

How long do I have to decide whether to tender my OneMain shares in the offer?

 

The offer is scheduled to expire at 5:00 p.m., Eastern time, on June 15, 2017, unless extended by IEG Holdings. Any extension, delay, termination, waiver or amendment of the offer will be followed promptly by public announcement thereof to be made no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled expiration date.

 

IEG Holdings will effect any extension, termination, amendment or delay by (i) giving oral or written notice to the depository and exchange agent, (ii) making a public announcement promptly thereafter as described under “The Offer—Extension, Termination and Amendment,” (iii) filing with the SEC an amendment to Schedule TO reporting promptly any material changes in the information set forth in the schedule previously filed and including copies of any additional tender offer materials as exhibits, and (iv) as required by Rule 14d-4(d)(2) promulgated under the Exchange Act, keeping the tender offer open from the date that material changes to the tender offer materials are disseminated to securityholders as follows: (a) five business days for a prospectus supplement containing a material change other than price or share levels, (b) 10 business days for a prospectus supplement containing a change in price, the amount of securities sought or other similarly significant change, (c) 10 business days for a prospectus supplement included as part of a post-effective amendment, and (d) 20 business days for a revised prospectus when the initial prospectus was materially deficient.

 

During any such extension, all OneMain shares previously tendered and not properly withdrawn will remain subject to the offer, subject to the rights of a tendering stockholder to withdraw such stockholder’s shares. “Expiration date” means June 15, 2017, unless and until IEG Holdings has extended the period during which the offer is open, in which event the term “expiration date” means the latest time and date at which the offer, as so extended by IEG Holdings, will expire.

 

Any decision to extend the offer will be made public by an announcement regarding such extension as described under “The Offer—Extension, Termination and Amendment.”

 

How do I tender my OneMain shares?

 

To tender your OneMain shares represented by physical certificates in the offer, you must deliver the certificates representing such shares, together with a completed letter of transmittal and any other documents required by the letter of transmittal, to Computershare Trust Company, N.A. (“Computershare”), the depository and exchange agent for the offer, not later than the expiration time of the offer. The letter of transmittal is enclosed with this document.

 

If your OneMain shares are held in “street name” (i.e., through a broker, dealer, commercial bank, trust company or other nominee), these shares can be tendered by your nominee by book-entry transfer through The Depository Trust Company.

 

We are not providing for guaranteed delivery procedures and therefore you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of The Depository Trust Company prior to the expiration date. Tenders received by the depository and exchange agent after the expiration date will be disregarded and of no effect. In all cases, you will receive your consideration for your tendered OneMain shares only after timely receipt by the depository and exchange agent of certificates for such shares (or of a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed letter of transmittal and any other required documents.

 

For a complete discussion on the procedures for tendering your OneMain shares, see “The Offer—Procedure for Tendering.”

 

Until what time can I withdraw tendered OneMain shares?

 

You may withdraw your previously tendered OneMain shares at any time until the offer has expired and, if IEG Holdings has not accepted your OneMain shares for payment by June 15, 2017, you may withdraw them at any time on or after that date until IEG Holdings accepts shares for payment. Once IEG Holdings accepts your tendered OneMain shares for payment upon expiration of the offer, however, you will no longer be able to withdraw them. For a complete discussion of the procedures for withdrawing your OneMain shares, see “The Offer—Withdrawal Rights.”

 

How do I withdraw previously tendered OneMain shares?

 

To withdraw previously tendered OneMain shares, you must deliver a written notice of withdrawal with the required information to the depository and exchange agent at any time at which you have the right to withdraw shares. If you tendered OneMain shares by giving instructions to a broker, dealer, commercial bank, trust company or other nominee, you must instruct such broker, dealer, commercial bank, trust company or other nominee to arrange for the withdrawal of your OneMain shares and such broker, dealer, commercial bank, trust company or other nominee must effectively withdraw such OneMain shares at any time at which you have the right to withdraw shares. For a discussion on the procedures for withdrawing your OneMain shares, including the applicable deadlines for effecting withdrawals, see “The Offer—Withdrawal Rights.”

 

6
  

 

What happens if the tender offer is oversubscribed and IEG Holdings is unable to fulfill all tenders of OneMain common stock?

 

In that case, all shares of OneMain common stock that are validly tendered and not validly withdrawn will generally be accepted for exchange on a pro rata basis in proportion to the number of shares tendered, which is referred to as “proration.”

Proration for each tendering stockholder will be based on the number of shares of OneMain common stock tendered by that stockholder in the tender offer, and not on that stockholder’s aggregate ownership of OneMain common stock. Any shares of OneMain common stock not accepted for exchange as a result of proration will be returned to tendering stockholders. IEG Holdings will announce its preliminary determination, if any, of the extent to which tenders will be prorated by press release by 9:00 a.m., Eastern time, on the business day immediately following the expiration of the tender offer. This preliminary determination is referred to as the “preliminary proration factor.” IEG Holdings will announce its final determination of the extent to which tenders will be prorated by press release promptly after this determination is made. This final determination is referred to as the “final proration factor.”

 

When and how will I receive the offer consideration in exchange for my tendered OneMain shares?

 

IEG Holdings will exchange all validly tendered and not properly withdrawn OneMain shares promptly after the expiration date of the offer, subject to the terms thereof and the satisfaction or waiver of the conditions to the offer, as set forth in “The Offer—Conditions of the Offer.” IEG Holdings will deliver the consideration for your validly tendered and not properly withdrawn shares through the depository and exchange agent, which will act as your agent for the purpose of receiving the offer consideration from IEG Holdings and transmitting such consideration to you. In all cases, you will receive your consideration for your tendered OneMain shares only after timely receipt by the depository and exchange agent of certificates for such OneMain shares (or a confirmation of a book-entry transfer of such shares as described in “The Offer—Procedure for Tendering”) and a properly completed and duly executed letter of transmittal and any other required documents for such shares.

 

Why does the cover page to this document state that this offer is preliminary and subject to change, and that the registration statement filed with the SEC is not yet effective? Does this mean that the offer has not commenced?

 

No. Completion of this document and effectiveness of the registration statement are not necessary to commence this offer. The offer was commenced on the date of the initial filing of the registration statement on Form S-4 of which this document is a part. IEG Holdings cannot, however, accept for exchange any OneMain shares tendered in the offer or exchange any shares until the registration statement is declared effective by the SEC and the other conditions to the offer have been satisfied or waived.

 

What are the U.S. federal income tax consequences of receiving shares of IEG Holdings common stock in exchange for my OneMain shares?

 

Since the offer and acquisition transaction described in this registration statement is not being made in pursuance of a plan of reorganization adopted by each of IEG Holdings and OneMain, even if IEG Holdings were to be able to acquire the requisite 80% control of OneMain under the Internal Revenue Code of 1986, as amended (the “Code”) required to effectuate a tax-neutral, stock for stock exchange, the exchange by OneMain stockholders of their shares of OneMain common stock for shares IEG Holdings common stock constitutes a taxable event which, depending upon their income tax bases in their OneMain common stock, could result in a tax obligation to the holders of OneMain common stock who would tender their OneMain shares. Each OneMain stockholder should read the discussion under “The Offer—Material U.S. Federal Income Tax Consequences” and should consult its own tax advisor for a full understanding of the tax consequences of the offer to such stockholder.

 

Will I have the right to have my OneMain shares appraised?

 

Appraisal rights are not available in connection with the offer, and OneMain stockholders who tender their shares in the offer will not have appraisal rights in connection with the offer. See “The Offer—Dissenters’ Rights.”

 

Who should I contact if I have questions about the offer?

 

If you have questions about the offer, you may call Georgeson LLC, the information agent, toll free at (800) 279-6913 or contact them via e-mail at IEGH@georgeson.com.

 

Where can I find more information about IEG Holdings and OneMain?

 

You can find more information about IEG Holdings and OneMain from various sources described in the section of this document entitled “Where To Obtain More Information.”

 

7
  

 

NOTE ON ONEMAIN INFORMATION

 

All information concerning OneMain, its business, management and operations presented or incorporated by reference in this prospectus/offer to exchange is taken from publicly available information (primarily filings by OneMain with the SEC). This information may be examined and copies may be obtained at the places and in the manner set forth in the section titled “Where You Can Find More Information.” IEG Holdings is not affiliated with OneMain, and IEG Holdings has not had access to OneMain’s books and records in connection with the exchange offer. Therefore, non-public information concerning OneMain has not been used by IEG Holdings for the purpose of preparing this prospectus/offer to exchange. Although IEG Holdings has no knowledge that would indicate that statements relating to OneMain contained or incorporated by reference in this prospectus/offer to exchange are inaccurate or incomplete, IEG Holdings was not involved in the preparation of those statements and cannot verify them.

 

Pursuant to Rule 409 under the Securities Act and Rule 12b-21 under the Exchange Act, IEG Holdings requested that OneMain provide IEG Holdings with information required for complete disclosure regarding the businesses, operations, financial condition and management of OneMain. As of the date of this prospectus/offer to exchange, IEG Holdings has not received a response from OneMain with respect to such request. IEG Holdings will amend or supplement this prospectus/offer to exchange to provide any and all information IEG Holdings receives from OneMain, if IEG Holdings receives the information before the exchange offer expires and IEG Holdings considers it to be material, reliable and appropriate.

 

An auditor’s report was issued on OneMain’s financial statements and included in OneMain’s filings with the SEC. Pursuant to Rule 439 under the Securities Act, the consent of OneMain’s independent auditors is required to incorporate by reference the audit reports included in OneMain’s Annual Report on Form 10-K for the year ended December 31, 2016 into this prospectus/offer to exchange, and because such consent has not been received, such audit reports are not incorporated herein by reference. IEG Holdings has requested, and, as of the date hereof, has not received, such consent from OneMain’s independent auditors. IEG Holdings has requested that the SEC dispense with such consent requirement pursuant to Rule 437 under the Securities Act. If IEG Holdings receives this consent, IEG Holdings will promptly file it as an exhibit to IEG Holdings’ registration statement of which this prospectus/offer to exchange forms a part. Because IEG Holdings has not been able to obtain OneMain’s independent auditors’ consent, you may not be able to assert a claim against OneMain’s independent auditors under Section 11 of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by OneMain’s independent auditors or any omissions to state a material fact required to be stated therein.

 

SUMMARY HISTORICAL FINANCIAL DATA OF IEG HOLDINGS  

 

The summary financial data set forth below have been derived from the Company’s audited and unaudited financial statements included elsewhere in this document, and previously published historical financial statements not included in this document. The summary financial data set forth below should be read in connection with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s audited and unaudited financial statements, including the footnotes. Basic and diluted loss per share has been adjusted retroactively for the 1-for-100 reverse split that occurred on June 17, 2015 and for the net 1-for-10 reverse split that occurred on October 27, 2016.

 

   For the Fiscal Years Ended December 31,   Three Months Ended March 31, 
   2016   2015   2014   2013   2012   2017   2016 
   (dollars in millions, except per share amounts)   (dollars in millions, except per share amounts) 
       (unaudited) 
Statements of Income Data:                                   
Revenues  $2.135046   $1.835165   $0.529225   $0.062949   $0.037779   $0.467383   $0.524972 
Operating expenses   6.876194    7.012609    5.381671    4.345539    2.494321    0.971471    1.486728 
Loss from operations   (4.741147)   (5.177444)   (4.852446)   (4.282590)   (2.456542)   (0.504088)   (0.961756)
Other income (expense)  $0.012278   $(0.520754)  $(0.549308)  $(0.195385)  $(0.005098)  $0.000149   $0.005077 
Net loss  $(4.728869)  $(5.698198)  $(5.401754)  $(4.477975)  $(2.507522)  $(0.503939)  $(0.956679)
Dividends on preferred shares   (0.035517)   (0.311056)   (0.204526)   -    -    --    (0.029939)
Net loss attributable to common stockholders  $(4.764386)  $(6.009254)  $(5.606280)  $(4.477975)  $(2.507522)  $(0.503939)  $(0.986618)
Net loss attributable to common stock per share, basic and diluted  $(0.60)  $(2.52)  $(4.20)  $(7.24)  $(9.20)  $(0.05)  $(0.33)

 

   December 31,   March 31, 
   2016   2015   2014   2013   2012   2017   2016 
                       (dollars in millions, except per share amounts) 
                       (unaudited) 
Cash  $0.322441   $0.485559   $0.433712   $0.281879   $0.178601   $0.446632   $1.143886 
Current Assets  $1.710370   $1.689063   $1.026758   $0.346598   $0.400202   $

1.838745

   $ 2.449414 
Total Assets  $6.821947   $7.758149   $4.929120   $0.922140   $0.791196   $6.373118   $

8.024278

 
Current Liabilities  $0.001060   $0.107963   $0.307156   $0.627384   $1.608111   $

0.056169

  

$

1.321454

 
Long-Term Liabilities  $-   $-   $2.230000   $2.296212   $0.250000   $

-

   $

-

 
Retained Earnings  $(25.110319)  $(20.381450)  $(14.683252)  $(9.281498)  $(4.803523)  $

(25.614258

)  $

(21.338129

) 
Stockholders’ Equity  $6.820887   $7.650186   $2.391964   $(2.001456)  $(1.006915)  $6.316949   $

6.702824

 
                                    
Other Operating Data:                                   
Ratio of earnings to fixed charges (a)   -    -    -    -    -         

 

(a)       For all years and periods presented, we incurred losses from operations, and as a result, our earnings were insufficient to cover our fixed charges by:

 

12/31/2016   12/31/2015   12/31/2014   12/31/2013   12/31/2012   3/31/2017   3/31/2016 
$-4.764386   $-6.009254   $-5.606280   $-4.477975   $-2.507522   $-0.503939   $-1.016557 

 

8
  

 

SUMMARY HISTORICAL FINANCIAL DATA OF ONEMAIN

 

The following table presents our selected historical consolidated financial data and other operating data. The consolidated statement of operations data for the years ended December 31, 2016, 2015, and 2014 and the consolidated balance sheet data as of December 31, 2016 and 2015 have been derived from our audited consolidated financial statements included elsewhere herein. The statement of operations data for the years ended December 31, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from our consolidated financial statements not included elsewhere herein.

 

The following selected financial data should be read in conjunction with OneMain’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and OneMain’s audited consolidated financial statements and related notes, each included elsewhere in this document.

 

(dollars in millions, except per  At or for the Years Ended December 31, 
share amounts)  2016   2015(a)   2014   2013   2012 
                     
Consolidated Statements of Operations Data:                         
Interest income  $3,110   $1,930   $1,973   $2,141   $1,713 
Interest expense   856    715    734    920    1,075 
Provision for finance receivable losses   932    716    423    435    333 
Other revenues   773    262    746    153    97 
Other expenses   1,739    987    701    782    701 
Income (loss) before provision for (benefit from) income taxes   356    (226)   861    157    (299)
Net income (loss)   243    (93)   589    157    (214)
Net income attributable to non-controlling interests   28    127    126    149    - 
Net income (loss) attributable to OneMain Holdings, Inc.   215    (220)   463    8    (214)
                          
Earnings (loss) per share:                         
Basic  $1.60   $(1.72)  $4.03   $0.07   $(2.14)
Diluted   1.59    (1.72)   4.02    0.07    (2.14)
                          
Consolidated Balance Sheet Data:                         
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses  $12,457   $14,305   $6,210   $13,413   $11,570 
Total assets   18,123    21,190    10,929    15,336    14,581 
Long-term debt   13,959    17,300    8,356    12,714    12,593 
Total liabilities   15,057    18,460    8,997    13,335    13,349 
OneMain Holdings, Inc. shareholders’ equity   3,066    2,809    2,061    1,618    1,232 
Non-controlling interests   -    (79)   (129)   383    - 
Total shareholders’ equity   3,066    2,730    1,932    2,001    1,232 
                          
Other Operating Data:                         
Ratio of earnings to fixed charges    1.40    

(b)

 2.16    1.17    

(b)

 

(a) Selected financial data for 2015 includes OneMain’s results effective from November 1, 2015, pursuant to our contractual agreements with Citigroup.
   
(b)

Earnings did not cover total fixed charges by $226 million in 2015 and $299 million in 2012.

 

9
  

 

COMPARATIVE PER SHARE DATA
(UNAUDITED)

 

The following table reflects historical information about basic and diluted income per share, cash dividends per share, and book value per share for the year ended December 31, 2016.

 

OneMain stockholders should read the information presented in the following table together with the historical financial statements of IEG Holdings and OneMain and the related notes included elsewhere in this document.

 

   

OneMain

Historical

    IEG Holdings
Historical
 
Net income per share attributable to common stockholders for the year ended December 31, 2016:                
Basic earnings per share   $ 1.60     $ (0.60 ) 
Diluted earnings per share   $ 1.59     $ (0.60 )
Cash dividends declared per share for the year ended December 31, 2016   $ 0.00       0.00  
Book value per share as of December 31, 2016   $ 22.75     $ 0.70  

 

10
  

 

RISK FACTORS

 

OneMain stockholders should carefully read this document and the other documents referred to or incorporated by reference into this document, including in particular the following risk factors, in deciding whether to tender shares pursuant to the offer.

 

IEG HOLDINGS RISK FACTORS

 

Risk Factors Relating to the Offer

 

The market price of IEG Holdings common stock may decline after the consummation of the offer and the acquisition of tendered shares.

 

The market price of IEG Holdings common stock may decline after the offer and the acquisition of the tendered shares are completed because, among other things, IEG Holdings likely will be unable to effect any business or management changes at OneMain.

 

As of May 1, 2017, there were 9,714,186 shares of IEG Holdings common stock outstanding, held of record by approximately 672 stockholders. The purpose of the offer is for IEG Holdings to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017. Although IEG Holdings plans to initiate a stock repurchase program, an increase in the number of outstanding shares of IEG Holdings common stock may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market price of IEG Holdings common stock.

 

The offer remains subject to conditions that IEG Holdings cannot control.

 

The offer is subject to conditions, lack of legal prohibitions and the registration statement on Form S-4 of which this document is a part becoming effective. There are no assurances that all of the conditions to the offer will be satisfied. If the conditions to the offer are not met, then IEG Holdings may allow the offer to expire, or could amend or extend the offer. See “The Offer—Conditions of the Offer” for a discussion of the conditions to the offer.

 

OneMain stockholders who receive IEG Holdings common stock in the offer will become IEG Holdings stockholders. IEG Holdings common stock may be affected by different factors and IEG Holdings stockholders will have different rights than OneMain stockholders.

 

Upon consummation of the offer, OneMain stockholders receiving shares of IEG Holdings common stock will become stockholders of IEG Holdings. IEG Holdings’ business differs from that of OneMain, and IEG Holdings’ results of operations and the trading price of IEG Holdings common stock may be adversely affected by factors different from those that would affect OneMain’s results of operations and stock price.

 

In addition, holders of shares of IEG Holdings common stock will have rights as IEG Holdings stockholders that differ from the rights they had as OneMain stockholders before the offer. For a detailed comparison of the rights of IEG Holdings stockholders to the rights of OneMain stockholders, see “Comparison of Stockholders’ Rights.”

 

The receipt of shares of IEG Holdings common stock in the offer will be taxable to OneMain stockholders.

 

IEG Holdings anticipates that the offer and the acquisition of OneMain shares will not satisfy all of the requisite elements to enable the exchange of shares to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Owing to the fact that the offer and acquisition would not be effectuated in pursuance of a plan of reorganization, and that the percentage of One Main shares acquired by IEG Holdings completed via the share exchange proposed hereunder would not, in the aggregate, be sufficient to qualify such exchanges taken as a whole as a non-taxable “reorganization” within the meaning of Section 368(a) of the Code, the exchange of OneMain shares for shares of IEG Holdings common stock in connection with the offer hereunder would be taxable to such OneMain stockholders for U.S. federal income tax purposes.

 

OneMain stockholders should consult their tax advisors to determine the specific tax consequences to them of the offer and the acquisition, including any federal, state, local, foreign or other tax consequences, and any tax return filing or other reporting requirements.

 

If we are successful in implementing proposed changes to OneMain’s operations, the conversion of OneMain’s business model to an “online only” may be more costly or difficult than anticipated.

 

We have experience in converting a business from “brick and mortar” to “online only.” However, our experience is limited to a substantially smaller business than that of OneMain. Conversion of OneMain’s operations to an online only structure would entail more significant changes due to the substantially larger size of OneMain’s assets and more complex structure of its operations. Therefore, implementation of our proposed changes may prove more costly or difficult than anticipated.

 

IEG Holdings will incur direct and indirect costs as a result of the offer.

 

IEG Holdings will incur substantial expenses in connection with and as a result of completing the offer, including but not limited to printing and mailing costs, exchange agent and information agent costs, legal costs and accounting costs.

 

11
  

 

Risks Related to IEG Holdings’ Business and Industry

 

Our limited operating history and our failure since inception to achieve an operating profit makes our future prospects and financial performance unpredictable.

 

We commenced operations in 2010 and as a result, we have a limited operating history upon which a potential investor can evaluate our prospects and the potential value of an investment in our company. In addition, we have not made an operating profit since our incorporation. We remain subject to the risks inherently associated with new business enterprises in general and, more specifically, the risks of a new financial institution and, in particular, a new Internet-based financial institution. Our prospects are subject to the risks and uncertainties frequently encountered by companies in their early stages of development, including the risk that we will not be able to implement our business strategy. If we are unable to implement our business strategy and grow our business, our business will be materially adversely affected.

 

We may not be able to implement our plans for growth successfully, which could adversely affect our future operations.

 

Since January 2015, the amount we have loaned to borrowers (our loan book) has increased by 157% from $5,549,023 to $14,249,023 as of March 31, 2017.  We expect to continue to grow our loan book and number of customers at an accelerated rate in the future. Our future success will depend in part on our continued ability to manage our growth. We may not be able to achieve our growth plans, or sustain our historical growth rates or grow at all. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede our ability to expand our market presence. If we are unable to grow as planned, our business and prospects could be adversely affected.

 

Our inability to manage our growth could harm our business.

 

We anticipate that our loan book and customer base will continue to grow significantly over time. To manage the expected growth of our operations and personnel, we will be required to, among other things:

 

  improve existing and implement new transaction processing, operational and financial systems, procedures and controls;
     
  maintain effective credit scoring and underwriting guidelines; and
     
  increase our employee base and train and manage this growing employee base.

 

If we are unable to manage growth effectively, our business, prospects, financial condition and results of operations could be adversely affected.

 

We may need to raise additional capital that may not be available, which could harm our business.

 

Our growth will require that we generate additional capital either through retained earnings or the issuance of additional debt or equity securities. Additional capital may not be available on terms acceptable to us, if at all. Any equity financings could result in dilution to our stockholders or reduction in the earnings available to our common stockholders. If adequate capital is not available or the terms of such capital are not attractive, we may have to curtail our growth and our business, and our business, prospects, financial condition and results of operations could be adversely affected.

 

As an online consumer loan company whose principal means of delivering personal loans is the Internet, we are subject to risks particular to that method of delivery.

 

We are predominantly an online consumer loan company and there are a number of unique factors that Internet-based loan companies face. These include concerns for the security of personal information, the absence of personal relationships between lenders and customers, the absence of loyalty to a conventional hometown branch, customers’ difficulty in understanding and assessing the substance and financial strength of an online loan company, a lack of confidence in the likelihood of success and permanence of online loan companies and many individuals’ unwillingness to trust their personal details and financial future to a relatively new technological medium such as the Internet. As a result, some potential customers may be unwilling to establish a relationship with us.

 

Conventional “brick and mortar” consumer loan companies, in growing numbers, are offering the option of Internet-based lending to their existing and prospective customers. The public may perceive conventional established loan companies as being safer, more responsive, more comfortable to deal with and more accountable as providers of their lending needs. We may not be able to offer Internet-based lending that has sufficient advantages over the Internet-based lending services and other characteristics of conventional “brick and mortar” consumer loan companies to enable us to compete successfully.

 

12
  

 

We may not be able to make technological improvements as quickly as some of our competitors, which could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition and liquidity.

 

Both the Internet and the financial services industry are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. In addition to improving the ability to serve customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market conditions, customer requirements or emerging industry standards, our business, prospects, financial condition and results of operations could be adversely affected.

 

A significant disruption in our computer systems or a cyber security breach could adversely affect our operations.

 

We rely extensively on our computer systems to manage our loan origination and other processes. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber security breaches, vandalism, severe weather conditions, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities. If our systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results of operations. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss of confidence in our security measures, which could harm our business.

 

Our ability to protect the confidential information of our borrowers and investors may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions.

 

We process certain sensitive data from our borrowers and investors. While we have taken steps to protect confidential information that we receive or have access to, our security measures could be breached. Any accidental or willful security breaches or other unauthorized access to our systems could cause confidential borrower and investor information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, our relationships with borrowers and investors could be severely damaged, and we could incur significant liability.

 

Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, federal regulators and many federal and state laws and regulations require companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause borrowers and investors to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation, we could lose borrowers and investors and our business and operations could be adversely affected.

 

Any significant disruption in service on our platform or in our computer systems, including events beyond our control, could prevent us from processing or posting payments on loans, reduce the attractiveness of our marketplace and result in a loss of borrowers or investors.

 

In the event of a system outage and physical data loss, our ability to perform our servicing obligations, process applications or make loans available would be materially and adversely affected. The satisfactory performance, reliability and availability of our technology are critical to our operations, customer service, reputation and our ability to attract new and retain existing borrowers and investors.

 

Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with our borrowers and investors and our reputation. Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing or posting payments on the loans, damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause borrowers and investors to abandon our marketplace, any of which could adversely affect our business, financial condition and results of operations.

 

13
  

 

We contract with third parties to provide services related to our online web lending and marketing, as well as systems that automate the servicing of our loan portfolios. See “—We depend on third-party service providers for our core operations including online lending and loan servicing and interruptions in or terminations of their services could materially impair the quality of our services.” While there are material cybersecurity risks associated with these services, we require that our vendors provide industry-leading encryption, strong access control policies, Statement on Standards for Attestation Engagements (SSAE) 16 audited data centers, systematic methods for testing risks and uncovering vulnerabilities, and industry compliance audits to ensure data and assets are protected. To date, we have not experienced any cyber incidents that were material, either individually or in the aggregate.

 

Our unsecured loans generally have delinquency and default rates higher than prime and secured loans, which could result in higher loan losses.

 

We are in the business of originating unsecured personal loans. As of March 31, 2017, approximately 2.28% of our customers are subprime borrowers, which we define as borrowers having credit scores below 600 on the credit risk scale developed by VantageScore Solutions, LLC. Unsecured personal loans and subprime loans generally have higher delinquency and default rates than secured loans and prime loans. Subprime borrowers are associated with lower collection rates and are subject to higher loss rates than prime borrowers. Subprime borrowers have historically been, and may in the future become, more likely to be affected, or more severely affected, by adverse macroeconomic conditions, particularly unemployment. If our borrowers default under an unsecured loan, we will bear a risk of loss of principal, which could adversely affect our cash flow from operations. Delinquency interrupts the flow of projected interest income from a loan, and default can ultimately lead to a loss. We attempt to manage these risks with risk-based loan pricing and appropriate management policies. However, we cannot assure you that such management policies will prevent delinquencies or defaults and, if such policies and methods are insufficient to control our delinquency and default risks and do not result in appropriate loan pricing, our business, financial condition, liquidity and results of operations could be harmed. If aspects of our business, including the quality of our borrowers, are significantly affected by economic changes or any other conditions in the future, we cannot be certain that our policies and procedures for underwriting, processing and servicing loans will adequately adapt to such changes. If we fail to adapt to changing economic conditions or other factors, or if such changes affect our borrowers’ capacity to repay their loans, our results of operations, financial condition and liquidity could be materially adversely affected. At March 31, 2017, we had 202 loans considered past due at 31+ days past due, representing 12.80% of the number of loans in our active portfolio. At March 31, 2017, we had 103 loans delinquent or in default (defined as 91+ days past due) representing 6.58% of the number of loans in our active portfolio. Loans become eligible for a lender to take legal action at 60 days past due.

 

If our estimates of loan receivable losses are not adequate to absorb actual losses, our provision for loan receivable losses would increase, which would adversely affect our results of operations.

 

We maintain an allowance for loans receivable losses. To estimate the appropriate level of allowance for loan receivable losses, we consider known and relevant internal and external factors that affect loan receivable collectability, including the total amount of loan receivables outstanding, historical loan receivable charge-offs, our current collection patterns, and economic trends. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect our allowance for loan receivable losses, our provision may be inadequate. Our allowance for loan receivable losses is an estimate, and if actual loan receivable losses are materially greater than our allowance for loan receivable losses, our financial position, liquidity, and results of operations could be adversely affected.

 

Our risk management efforts may not be effective which could result in unforeseen losses.

 

We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational risks related to our business, assets and liabilities. Our risk management policies, procedures, and techniques, including our scoring methodology, may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify additional risks to which we may become subject in the future.

 

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We face strong competition for customers and may not succeed in implementing our business strategy.

 

Our business strategy depends on our ability to remain competitive. There is strong competition for customers from personal loan companies and other types of consumer lenders, including those that use the Internet as a medium for lending or as an advertising platform. Our competitors include:

 

  large, publicly-traded, state-licensed personal loan companies such as OneMain;
     
  peer-to-peer lending companies such as LendingClub Corp. and Prosper Marketplace Inc.;
     
  online personal loan companies such as Avant;
     
  “brick and mortar” personal loan companies, including those that have implemented websites to facilitate online lending; and
     
  payday lenders, tribal lenders and other online consumer loan companies.

 

Some of these competitors have been in business for a long time and have name recognition and an established customer base. Most of our competitors are larger and have greater financial and personnel resources. In order to compete profitably, we may need to reduce the rates we offer on loans, which may adversely affect our business, prospects, financial condition and results of operations. To remain competitive, we believe we must successfully implement our business strategy. Our success depends on, among other things:

 

  having a large and increasing number of customers who use our loans for financing needs;
     
  our ability to attract, hire and retain key personnel as our business grows;
     
  our ability to secure additional capital as needed;
     
  our ability to offer products and services with fewer employees than competitors;
     
  the satisfaction of our customers with our customer service;
     
  ease of use of our websites; and
     
  our ability to provide a secure and stable technology platform for providing personal loans that provides us with reliable and effective operational, financial and information systems.

 

If we are unable to implement our business strategy, our business, prospects, financial condition and results of operations could be adversely affected.

 

We depend on third-party service providers for our core operations including online lending and loan servicing, and interruptions in or terminations of their services could materially impair the quality of our services.

 

We rely substantially upon third-party service providers for our core operations, including online web lending and marketing and vendors that provide systems that automate the servicing of our loan portfolios which allow us to increase the efficiency and accuracy of our operations. These systems include tracking and accounting of our loan portfolio as well as customer relationship management, collections, funds disbursement, security and reporting. This reliance may mean that we will not be able to resolve operational problems internally or on a timely basis, which could lead to customer dissatisfaction or long-term disruption of our operations. If these service arrangements are terminated for any reason without an immediately available substitute arrangement, our operations may be severely interrupted or delayed. If such interruption or delay were to continue for a substantial period of time, our business, prospects, financial condition and results of operations could be adversely affected.

 

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If we lose the services of any of our key management personnel, our business could suffer.

 

Our future success significantly depends on the continued service and performance of our Chief Executive Officer, Paul Mathieson and our Chief Operating Officer, Carla Cholewinski. Competition for these employees is intense and we may not be able to attract and retain key personnel. We do not maintain any “key man” or other related insurance. The loss of the service of our Chief Executive Officer or our Chief Operating Officer, or the inability to attract additional qualified personnel as needed, could materially harm our business.

 

We have incurred, and will continue to incur, increased costs as a result of being a public reporting company.

 

In April 2015, we became a public reporting company. As a public reporting company, we incur significant legal, accounting and other expenses that we did not incur as a non-reporting company, including costs associated with our SEC reporting requirements. We expect that the additional reporting and other obligations imposed on us under the Exchange Act, will increase our legal and financial compliance costs and the costs of our related legal, accounting and administrative activities significantly. Management estimates that compliance with the Exchange Act reporting requirements as a reporting company will cost in excess of $200,000 annually. Given our current financial resources, these additional compliance costs could have a material adverse impact on our financial position and ability to achieve profitable results. These increased costs will require us to divert money that we could otherwise use to expand our business and achieve our strategic objectives.

 

We operate in a highly competitive market, and we cannot ensure that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.

 

The consumer finance industry is highly competitive. Our success depends, in large part, on our ability to originate consumer loan receivables. We compete with other consumer finance companies as well as other types of financial institutions that offer similar products and services in originating loan receivables. Some of these competitors may have greater financial, technical and marketing resources than we possess. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us. While banks and credit card companies have decreased their lending to non-prime customers in recent years, there is no assurance that such lenders will not resume those lending activities. Further, because of increased regulatory pressure on payday lenders, many of those lenders are starting to make more traditional installment consumer loans in order to reduce regulatory scrutiny of their practices, which could increase competition in markets in which we operate.

 

Negative publicity could adversely affect our business and operating results.

 

Negative publicity about our industry or our company, including the quality and reliability of our marketplace, effectiveness of the credit decisioning and scoring models used in the marketplace, changes to our marketplace, our ability to effectively manage and resolve borrower and investor complaints, privacy and security practices, litigation, regulatory activity and the experience of borrowers and investors with our marketplace or services, even if inaccurate, could adversely affect our reputation and the confidence in, and the use of, our marketplace, which could harm our business and operating results. Harm to our reputation can arise from many sources, including employee misconduct, misconduct by our partners, outsourced service providers or other counterparties, failure by us or our partners to meet minimum standards of service and quality, inadequate protection of borrower and investor information and compliance failures and claims.

 

Our business is subject to extensive regulation in the jurisdictions in which we conduct our business.

 

Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. In most states in which we operate, a consumer credit regulatory agency regulates and enforces laws relating to consumer lenders such as us. These rules and regulations generally provide for licensing as a consumer lender, limitations on the amount, duration and charges, including interest rates, for various categories of loans, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors’ rights. In certain states, we are subject to periodic examination by state regulatory authorities. Some states in which we operate do not require special licensing or provide extensive regulation of our business.

 

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We are also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These laws require us to provide certain disclosures to prospective borrowers and protect against discriminatory lending and leasing practices and unfair credit practices. The principal disclosures required under the Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract or loan. The Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, age or marital status. According to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring system used by us must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency and to respond to consumers who inquire regarding any adverse reporting submitted by us to the consumer reporting agencies. Additionally, we are subject to the Gramm-Leach-Bliley Act, which requires us to maintain the privacy of certain consumer data in our possession and to periodically communicate with consumers on privacy matters. We are also subject to the Servicemembers Civil Relief Act, which requires us, in most circumstances, to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military duty.

 

A material failure to comply with applicable laws and regulations could result in regulatory actions, lawsuits and damage to our reputation, which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

The Consumer Financial Protection Bureau (the “CFPB”) is a new federal agency formed pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and there continues to be uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business.

 

The CFPB, constituted pursuant to the Dodd-Frank Act, which commenced operations in 2011, has broad authority over the business in which we engage. This includes authority to write regulations under federal consumer financial protection laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act, and to enforce those laws against and examine financial institutions for compliance. The CFPB is authorized to prevent “unfair, deceptive or abusive acts or practices” through its regulatory, supervisory and enforcement authority. To assist in its enforcement, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including the loan products we facilitate. This system could inform future CFPB decisions with respect to its regulatory, enforcement or examination focus.

 

We are subject to the CFPB’s jurisdiction, including its enforcement authority, as a servicer and acquirer of consumer credit. The CFPB may request reports concerning our organization, business conduct, markets and activities. The CFPB may also conduct on-site examinations of our business on a periodic basis if the CFPB were to determine, through its complaint system, that we were engaging in activities that pose risks to consumers.

 

There continues to be uncertainty as to how the CFPB’s strategies and priorities, including in both its examination and enforcement processes, will impact our businesses and our results of operations going forward. Actions by the CFPB could result in requirements to alter or cease offering affected loan products and services, making them less attractive and restricting our ability to offer them.

 

Actions by the CFPB or other regulators against us or our competitors that discourage the use of the marketplace model or suggest to consumers the desirability of other loan products or services could result in reputational harm and a loss of borrowers or investors. Our compliance costs and litigation exposure could increase materially if the CFPB or other regulators enact new regulations, change regulations that were previously adopted, modify, through supervision or enforcement, past regulatory guidance, or interpret existing regulations in a manner different or stricter than have been previously interpreted.

 

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If our involvement in a December 11, 2014 article published in the Examiner or any other publicity regarding our company or the Offering during the waiting period, including our December 2, 2014 press release, were held to be in violation of federal or state securities laws, we could incur monetary damages, fines or other damages that could have a material adverse effect on our financial condition and prospects.

 

On December 11, 2014, information about our company was published in an article by the Examiner. Our Chief Executive Officer, Mr. Mathieson, did not participate in an interview with the author of the Examiner article. Rather, the author included certain quotations from Mr. Mathieson that were contained in prior press releases by us and summarized statements previously made by Mr. Mathieson that were contained in a prior article published by the Opportunist Magazine. Prior to its publication, the author of the December 11th article provided Mr. Mathieson a copy of the article.

 

In addition, we issued a press release on December 2, 2014 in which we referenced, among other things, our intention to file a registration statement on Form S-1 and to list our securities on NASDAQ. The December 2nd press release presented certain statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus/offer to exchange.

 

If it were determined that the December 11th article, the December 2nd press release or any of our other publicity-related activities constituted a violation of Section 5 of the Securities Act, the SEC and relevant state regulators could impose monetary fines or other sanctions as provided under relevant federal and state securities laws. Such regulators could also require us to make a rescission offer, which is an offer to repurchase securities offered in the relevant offering. This could also give rise to a private right of action to seek a rescission remedy under Section 12(a)(2) of the Securities Act.

 

We are unable to quantify the extent of any monetary damages that we might incur if monetary fines were imposed, rescission were required or one or more other claims were successful. As of the date of this prospectus, we are not aware of any pending or threatened claims alleging violations of any federal or state securities laws. However, there can be no assurance that any such claim will not be asserted in the future or that the claimant in any such action will not prevail. The possibility that such claims may be asserted in the future will continue until the expiration of the applicable federal and state statutes of limitations, which generally vary from one to three years from the date of sale. If the payment of damages or fines is significant, it could have a material adverse effect on our cash flows, financial condition or prospects.

 

We are required to pay a prior lender interest on our net profit until 2025, which may have a material adverse effect on our results of operations.

 

We previously had a credit facility with BFG Investment Holdings, LLC (“BFG”). Effective July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan. On August 21, 2015, we, through certain of our wholly owned subsidiaries, paid all principal and accrued interest under the Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly owned subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement. However, the Loan Agreement continues in effect and we are subject to a net profit interest under which we are required to pay BFG 20% of the “Net Profit” of our subsidiary, IEC SPV, until 10 years from the date the loan is repaid in full. Net Profit is defined as the gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions paid on the existing credit facility, and (iv) charge-offs to bad debt resulting from consumer loans. The Net Profit arrangement can be terminated by us upon a payment of $3,000,000 to BFG. For the years ended December 31, 2016 and 2015, we paid BFG Net Profit interest of $57,094 and $107,340, respectively, and our net income for such years was reduced by those respective amounts. In the future, if we fail to terminate the Net Profit arrangement and are required to pay BFG 20% of our Net Profit, it could have a material adverse effect on our results of operations.

 

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Risks Relating to Our Common Stock

 

Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock.

 

Our common stock is quoted on the OTCQB tier of the OTC Markets. Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ or the New York Stock Exchange. These factors may result in investors having difficulty reselling any shares of our common stock.

 

Our common stock price is likely to be highly volatile because of several factors, including a limited public float.

 

The market price of our common stock has been volatile in the past. For example, as of May 18, 2017, our common stock has had a 52-week high sale price of $30.90 and a low sale price of $0.90. The market price of our common stock is likely to be highly volatile in the future, as well. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.

 

Other factors that could cause such volatility may include, among other things:

 

  actual or anticipated fluctuations in our operating results;
     
  the absence of securities analysts covering us and distributing research and recommendations about us;
     
  we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;
     
  overall stock market fluctuations;
     
  announcements concerning our business or those of our competitors;
     
  actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;
     
  conditions or trends in the industry;
     
  litigation;
     
  changes in market valuations of other similar companies;
     
  future sales of common stock;
     
  departure of key personnel or failure to hire key personnel; and
     
  general market conditions.

 

Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

 

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Because Mr. Mathieson, our Chief Executive Officer and sole director, will make all management decisions, you should only invest in IEG Holdings shares if you are comfortable entrusting Mr. Mathieson to make all decisions.

 

As sole officer and director, Mr. Mathieson will have the right to make all decisions with respect to our management. Investors will not have an opportunity to evaluate the specific projects that will be financed with future operating income. Our stockholders should be willing to entrust all aspects of our management to Mr. Mathieson.

 

We face corporate governance risks and negative investor perceptions because we have only one officer and director and have not adopted a written policy for the review, approval or ratification of transactions with related parties or conflicted parties.

 

Mr. Mathieson is our sole officer and director. As such, he has significant control over our business direction. Additionally, because he is our sole director, there are no other board members available to second and/or approve related party transactions involving Mr. Mathieson, including the compensation Mr. Mathieson may be paid and any consulting or other agreements we may enter into with Mr. Mathieson. Additionally, there is no segregation of duties between officers because Mr. Mathieson is our sole officer, and as such, he is solely responsible for the oversight of our accounting functions. Because no other directors are approving related party transactions involving Mr. Mathieson and no other officers are approving our financial statements, investors may question the fairness of related party transactions or the accuracy of financial statements. The price of our common stock may be adversely affected and/or devalued compared to similarly sized companies with multiple officers and directors due to the investing public’s perception of limitations facing our Company due to the fact that we only have one officer and director.

 

Although Mr. Mathieson intends to enter into any related party transactions on an arms’ length basis, we do not have a written policy for the review, approval or ratification of transactions with related parties or conflicted parties. As our sole officer and director, Mr. Mathieson makes decisions such as the approval of related party transactions, Mr. Mathieson’s compensation, and oversight of the accounting function. Mr. Mathieson exercises full control over all matters that typically require board approval. Accordingly, Mr. Mathieson’s actions are not subject to the review and approval of a board of directors and, as such, the Company may be at risk for a conflict of interest arising between Mr. Mathieson’s duties in his role as Chief Executive Officer and his own personal financial and business interests in other business ventures distinct and separate from the interests of the Company. His personal interests may not coincide with the interests of the stockholders and, in the absence of the effective segregation of such duties, there is a risk of a conflict of interest.

 

Our common stock is currently, has been in the past, and may be in the future, a “penny stock” under SEC rules. It may be more difficult to resell securities classified as “penny stock.”

 

Our common stock is a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we obtain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

 

Legal remedies available to an investor in “penny stocks” may include the following:

 

  If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.
     
  If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

 

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However, investors who have signed arbitration agreements may have to pursue their claims through arbitration.

 

These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

 

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

 

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance that our common stock will not remain classified as a “penny stock” in the future.

 

If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act and if we fail to continue to comply, our business could be harmed and the price of our securities could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers (but not us) an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.

 

Our Chief Executive Officer has voting control, which will limit your ability to influence the outcome of important transactions, including a change in control.

 

As of May 1, 2017, Mr. Mathieson beneficially owned 6,900,000 shares of our common stock, which represents 71.03% of our outstanding common stock. As a result, Mr. Mathieson controls a majority of our voting power and therefore is able to control all matters submitted to our stockholders for approval. Mr. Mathieson may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated voting power may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale of our company and might ultimately affect the market price of our common stock.

 

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As a board member, Mr. Mathieson owes a fiduciary duty to our stockholders and must act in good faith and in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, Mr. Mathieson is entitled to vote his shares in his own interest, which may not always be in the interests of our stockholders generally.

 

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Of the approximately 9,714,186 shares of our common stock outstanding as of May 1, 2017, approximately 2,759,986 shares are tradable without restriction. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement may adversely affect the market price of our common stock.

 

Provisions of our amended and restated articles of incorporation and amended and restated bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.

 

Provisions of our amended and restated articles of incorporation, as amended, and our amended and restated bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Florida Business Corporations Act also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders. Further, our amended and restated articles of incorporation, as amended, authorize the issuance of up to 50,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors in their sole discretion. Our board of directors may, without stockholder approval, issue series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

 

As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

  have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
     
  comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);
     
  submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and
     
  disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

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In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our securities may be more volatile.

 

ONEMAIN RISK FACTORS

 

The following risk factors were reproduced directly from OneMain’s annual report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on February 21, 2017, as updated by OneMain’s quarterly report on Form 10-Q for the quarter ended March 31, 2017, as filed with the SEC on May 5, 2017.

 

We face a variety of risks that are inherent in our business. Accordingly, you should carefully consider the following discussion of risks in addition to the other information regarding our business provided in this report and in other documents we file with the SEC. These risks are subject to contingencies which may or may not occur, and we are not able to express a view on the likelihood of any such contingency occurring. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. 

 

RISKS RELATED TO OUR BUSINESS

 

Our consolidated results of operations and financial condition and our borrowers’ ability to make payments on their loans have been, and may in the future be, adversely affected by economic conditions and other factors that we cannot control.

 

Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and a general decline in the value of real property, historically have created a difficult operating environment for our businesses and other companies in our industries. Many factors, including factors that are beyond our control, may impact our consolidated results of operations or financial condition and/or affect our borrowers’ willingness or capacity to make payments on their loans. These factors include: unemployment levels, housing markets, energy costs and interest rates; events such as natural disasters, acts of war, terrorism, catastrophes, major medical expenses, divorce or death that affect our borrowers; and the quality of the collateral underlying our receivables. If we experience an economic downturn or if the U.S. economy is unable to continue or sustain its recovery from the most recent economic downturn, or if we become affected by other events beyond our control, we may experience a significant reduction in revenues, earnings and cash flows, difficulties accessing capital and a deterioration in the value of our investments. We may also become exposed to increased credit risk from our customers and third parties who have obligations to us.

 

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Moreover, our customers are primarily non-prime borrowers. Accordingly, such borrowers have historically been, and may in the future become, more likely to be affected, or more severely affected, by adverse macroeconomic conditions. If our borrowers default under a finance receivable held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral, if any, and the outstanding principal and accrued but unpaid interest of the finance receivable, which could adversely affect our cash flow from operations. In addition, foreclosure of a real estate loan (part of our legacy real estate loan portfolio) is an expensive and lengthy process that can negatively affect our anticipated return on the foreclosed loan. The cost to service our loans may also increase without a corresponding increase in our finance charge income.

 

Also, certain geographic concentrations of our loan portfolio may occur or increase as we adjust our risk and loss tolerance and strategy to achieve our profitability goals. Any geographic concentration may expose us to an increased risk of loss if that geographic region experiences higher unemployment rates than average, natural disasters, weak economic conditions, or other adverse economic factors that disproportionately affect that region. See Note 5 of the Notes to Consolidated Financial Statements in Part II - Item 8 of this report for quantification of our largest concentrations of net finance receivables.

 

If aspects of our business, including the quality of our finance receivables portfolio or our borrowers, are significantly affected by economic changes or any other conditions in the future, we cannot be certain that our policies and procedures for underwriting, processing and servicing loans will adequately adapt to such changes. If we fail to adapt to changing economic conditions or other factors, or if such changes affect our borrowers’ willingness or capacity to repay their loans, our results of operations, financial condition and liquidity would be materially adversely affected.

 

There are risks associated with the acquisition or sale of assets or businesses or the formation, termination or operation of joint ventures or other strategic alliances or arrangements, including the possibility of increased delinquencies and losses, difficulties with integrating loans into our servicing platform and disruption to our ongoing business, which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

In the future, we may acquire assets or businesses, including large portfolios of finance receivables, either through the direct purchase of such assets or the purchase of the equity of a company with such a portfolio. Since we will not have originated or serviced the loans we acquire, we may not be aware of legal or other deficiencies related to origination or servicing, and our review of the portfolio prior to purchase may not uncover those deficiencies. Further, we may have limited recourse against the seller of the portfolio.

 

The ability to integrate and successfully service newly acquired loan portfolios will depend in large part on the success of our development and integration of expanded servicing capabilities, including additional personnel. We may fail to realize some or all of the anticipated benefits of the transaction if the integration process takes longer, or is more costly, than expected. Our failure to meet the challenges involved in successfully integrating the acquired portfolios with our current business or otherwise to realize any of the anticipated benefits of the transaction could impair our operations. In addition, the integration of future large portfolio or other asset or business acquisitions and the formation, termination or operation of joint ventures or other strategic alliances or arrangements are complex, time-consuming and expensive processes that, without proper planning and effective and timely implementation, could significantly disrupt our business.

 

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Potential difficulties we may encounter in connection with these transactions and arrangements include, but are not limited to, the following:

 

the integration of the assets or business into our information technology platforms and servicing systems;
   
the quality of servicing during any interim servicing period after we purchase a portfolio but before we assume servicing obligations from the seller or its agents;
   
the disruption to our ongoing businesses and distraction of our management teams from ongoing business concerns;
   
incomplete or inaccurate files and records;
   
the retention of existing customers;
   
the creation of uniform standards, controls, procedures, policies and information systems;
   
the occurrence of unanticipated expenses; and
   
potential unknown liabilities associated with the transactions, including legal liability related to origination and servicing prior to the acquisition.

 

For example, in some cases loan files and other information (including servicing records) may be incomplete or inaccurate. If our employees are unable to access customer information easily, or if we are unable to produce originals or copies of documents or accurate information about the loans, collections could be affected significantly, and we may not be able to enforce our right to collect in some cases. Similarly, collections could be affected by any changes to our collection practices, the restructuring of any key servicing functions, transfer of files and other changes that would result from our assumption of the servicing of the acquired portfolios.

 

The anticipated benefits and synergies of our future acquisitions will assume a successful integration, and will be based on projections, which are inherently uncertain, as well as other assumptions. Even if integration is successful, anticipated benefits and synergies may not be achieved.

 

There are risks associated with our ability to expand our centralized loan servicing capabilities through integration of the Springleaf and OneMain servicing facilities, which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

A key part of our efforts to expand our centralized loan servicing capacity will depend in large part on the success of management’s efforts to integrate the Springleaf and OneMain servicing facilities. We may fail to realize some or all of the anticipated benefits of these facilities if the integration process takes longer, or is more costly, than expected. Our failure to meet the challenges involved in successfully integrating these facilities with our current business or to realize other anticipated benefits could impair our operations. In addition, the integration is a complex, time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt our business. Potential difficulties we may encounter during the integration process may include, but are not limited to, the following:

 

the integration of the personnel with certain of our management teams, strategies, operations, products and services;
   
the integration of the physical facilities with our information technology platforms and servicing systems; and
   
the disruption to our ongoing businesses and distraction of our management teams from ongoing business concerns.

 

Our recent underwriting changes and strategy of increasing the proportion of secured loan originations within our loan portfolio may lead to declines in, or slower growth than anticipated of, our personal loan net finance receivables and yield, which could have a material adverse effect on our business, results of operations and growth prospects.

 

During the third quarter of 2016, in response to an increase in unsecured credit availability for our target customer base from online lenders and various other unsecured credit providers, as well as an increase in our early stage 30-89 day delinquencies for loans originated in 2016, we tightened our underwriting criteria for unsecured personal loans to lower credit tier customers. As a result of these changes to our underwriting criteria, we are generally not underwriting new personal loans to this segment of our customer base absent collateral. We have also continued to execute on our strategy of increasing the proportion of our loan originations that are secured loans, particularly within the former OneMain branches where secured loan originations have historically represented a smaller proportion of total loan originations than those of the former Springleaf branches. Secured loans typically carry lower yields relative to unsecured personal loans. If we are unable to successfully convert lower credit tier customers to our secured loan products or otherwise increase new originations of secured personal loans, this will adversely affect our ability to grow personal loan net finance receivables. In addition, as secured loans continue to represent a larger proportion of our loan portfolio, our yields may be lower than our historical yields in prior periods.

 

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If our estimates of finance receivable losses are not adequate to absorb actual losses, our provision for finance receivable losses would increase, which would adversely affect our results of operations.

 

We maintain an allowance for finance receivable losses. To estimate the appropriate level of allowance for finance receivable losses, we consider known and relevant internal and external factors that affect finance receivable collectability, including the total amount of finance receivables outstanding, historical finance receivable charge-offs, our current collection patterns, and economic trends. Our methodology for establishing our allowance for finance receivable losses is based on the guidance in Accounting Standards Codification 450, Contingencies, and, in part, on our historic loss experience. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect our allowance for finance receivable losses, our provision may be inadequate. Our allowance for finance receivable losses is an estimate, and if actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for finance receivable losses.

 

In June of 2016, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. It is anticipated that the expected credit loss model may require earlier recognition of credit losses than the incurred loss approach. This ASU will become effective for the Company for fiscal years beginning January 1, 2020. Early adoption is permitted for fiscal years beginning January 1, 2019. We believe the adoption of this ASU will have a material effect on our consolidated financial statements. See Note 4 of the Notes to Consolidated Financial Statements in Part II - Item 8 of this report for more information on this new accounting standard.

 

Our risk management efforts may not be effective.

 

We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational risks related to our business, assets and liabilities. To the extent our models used to assess the creditworthiness of potential borrowers do not adequately identify potential risks, the valuations produced would not adequately represent the risk profile of the borrower and could result in a riskier finance receivable profile than originally identified. Our risk management policies, procedures, and techniques, including our scoring technology, may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify concentrations of risk or additional risks to which we may become subject in the future.

 

Our branch loan approval process is decentralized, which may result in variability of loan structures, and could adversely affect our results of operations, financial condition and liquidity.

 

Our branch finance receivable origination process is decentralized. We train our employees individually on-site in the branch to make loans that conform to our underwriting standards. Such training includes critical aspects of state and federal regulatory compliance, cash handling, account management and customer relations. In certain circumstances, subject to approval by district managers and/or directors of operations in certain cases, our branch officers have the authority to approve and structure loans within broadly written underwriting guidelines rather than having all loan terms approved centrally. As a result, there may be variability in finance receivable structure (e.g., whether or not collateral is taken for the loan) and loan portfolios among branch offices or regions, even when underwriting policies are followed. Moreover, we cannot be certain that every loan is made in accordance with our underwriting standards and rules, and we have in the past experienced some instances of loans extended that varied from our underwriting standards. The nature of our approval process could adversely affect our operating results and variances in underwriting standards and lack of supervision could expose us to greater delinquencies and charge-offs than we have historically experienced, which could adversely affect our results of operations, financial condition and liquidity.

 

Changes in market conditions, including rising interest rates, could adversely affect the rate at which our borrowers prepay their loans and the value of our finance receivables portfolio, as well as increase our financing cost, which could negatively affect our results of operations, financial condition and liquidity.

 

Changing market conditions, including but not limited to, changes in interest rates, the availability of credit, the relative economic vitality of the area in which our borrowers and their assets are located, changes in tax laws, other opportunities for investment available to our customers, homeowner mobility, and other economic, social, geographic, demographic, and legal factors beyond our control, may affect the rates at which our borrowers prepay their loans. Generally, in situations where prepayment rates have slowed, the weighted-average life of our finance receivables has increased. Any increase in interest rates may further slow the rate of prepayment for our finance receivables, which could adversely affect our liquidity by reducing the cash flows from, and the value of, the finance receivables we hold for sale or utilize as collateral in our secured funding transactions.

 

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Moreover, the vast majority of our finance receivables are fixed-rate finance receivables, which generally decline in value if interest rates increase. As such, if changing market conditions cause interest rates to increase substantially, the value of our fixed-rate finance receivables could decline. Recent increases in market interest rates have negatively impacted our net interest income and further increases in market interest rates could continue to negatively impact such net interest income, as well as our cash flow from operations and results of operations. Our consumer loans generally bear interest at a fixed rate and, accordingly, we are generally unable to increase the interest rate on such loans to offset any increases in our cost of funds as market interest rates increase. Additionally, because we are subject to applicable legal and regulatory restrictions in certain jurisdictions that limit the maximum interest rate that we may charge on certain of our consumer loans, our yield, as well as our cash flows from operations and results of operations, could be materially and adversely affected if we are unable to increase the interest rates charged on newly originated loans to offset any increases in our cost of funds as market interest rates increase. Accordingly, any increase in interest rates could negatively affect our results of operations, financial condition and liquidity.

 

We may be required to indemnify, or repurchase finance receivables from, purchasers of finance receivables that we have sold or securitized, or which we will sell or securitize in the future, if our finance receivables fail to meet certain criteria or characteristics or under other circumstances, which could adversely affect our results of operations, financial condition and liquidity.

 

In 2016, we sold $1.6 billion of our interests in the SpringCastle Portfolio as a result of the SpringCastle Interests Sale, $602 million of personal loans in connection with the Lendmark Sale (as defined in “Recent Developments and Outlook” in Part II - Item 7 of this report), and $308 million of our legacy real estate loan portfolio. We securitized $9.5 billion of our consumer loan portfolio as of December 31, 2016. In addition, we sold $6.4 billion of our legacy real estate loan portfolio in 2014. The documents governing our finance receivable sales and securitizations contain provisions that require us to indemnify the purchasers of securitized finance receivables, or to repurchase the affected finance receivables, under certain circumstances. While our sale and securitization documents vary, they generally contain customary provisions that may require us to repurchase finance receivables if:

 

our representations and warranties concerning the quality and characteristics of the finance receivable are inaccurate;
   
there is borrower fraud; or
   
we fail to comply, at the individual finance receivable level or otherwise, with regulatory requirements in connection with the origination and servicing of the finance receivables.

 

As a result of the current market environment, we believe that many purchasers of real estate loans (including through securitizations) are particularly aware of the conditions under which originators must indemnify purchasers or repurchase finance receivables, and would benefit from enforcing any repurchase remedies that they may have. At its extreme, our exposure to repurchases or our indemnification obligations under our representations and warranties could include the current unpaid balance of all finance receivables that we have sold or securitized and which are not subject to settlement agreements with purchasers.

 

The risk of loss on the finance receivables that we have securitized is recognized in our allowance for finance receivable losses since all of our consumer loan securitizations are recorded on-balance sheet. If we are required to indemnify purchasers or repurchase finance receivables that we sell that result in losses that exceed our reserve for sales recourse, or recognize losses on securitized finance receivables that exceed our recorded allowance for finance receivable losses associated with our securitizations, this could adversely affect our results of operations, financial condition and liquidity.

 

Our insurance operations are subject to a number of risks and uncertainties, including claims, catastrophic events, underwriting risks and dependence on a primary distribution channel.

 

Insurance claims and policyholder liabilities are difficult to predict and may exceed the related reserves set aside for claims (losses) and associated expenses for claims adjudication (loss adjustment expenses). Additionally, events such as hurricanes, tornados, earthquakes, pandemic disease, cyber security breaches and other types of catastrophes, and prolonged economic downturns, could adversely affect our financial condition or results of operations. Other risks relating to our insurance operations include changes to laws and regulations applicable to us, as well as changes to the regulatory environment. Examples include changes to laws or regulations affecting capital and reserve requirements; frequency and type of regulatory monitoring and reporting; consumer privacy, use of customer data and data security; benefits or loss ratio requirements; insurance producer licensing or appointment requirements; required disclosures to consumers; and collateral protection insurance (i.e., insurance some of our lender companies purchase, at the customer’s expense, on that customer’s loan collateral for the periods of time the customer fails to adequately, as required by his loan, insure his collateral). Because our customers do not affirmatively consent to collateral protection insurance at the time it is purchased, and hence do not directly agree to the amount charged for it, regulators may in the future prohibit our insurance companies from providing this insurance to our lending operations. Moreover, our insurance companies are predominately dependent on our lending operations as the primary source of business and product distribution. If our lending operations discontinue offering insurance products, including as a result of regulatory requirements, our insurance operations would basically have no method of distribution for their products.

 

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We are a party to various lawsuits and proceedings and may become a party to various lawsuits and proceedings in the future which, if resolved in a manner adverse to us, could materially adversely affect our results of operations, financial condition and liquidity.

 

In the normal course of business, from time to time, we have been named and may be named in the future as a defendant in various legal actions, including governmental investigations, examinations or other proceedings, arbitrations, class actions and other litigation, arising in connection with our business activities. Certain of the legal actions include claims for substantial compensatory and/or punitive damages, or claims for indeterminate amounts of damages. Some of these proceedings are pending in jurisdictions that permit damage awards disproportionate to the actual economic damages alleged to have been incurred. The continued occurrences of large damage awards in general in the United States, including large punitive damage awards in certain jurisdictions that bear little or no relation to actual economic damages incurred by plaintiffs, create the potential for an unpredictable result in any given proceeding. A large judgment that is adverse to us could cause our reputation to suffer, encourage additional lawsuits against us and have a material adverse effect on our results of operations, financial condition and liquidity. For additional information regarding pending legal proceedings and other contingencies, see Notes 19 and 24 of the Notes to Consolidated Financial Statements in Part II - Item 8 of this report.

 

If we lose the services of any of our key management personnel, our business could suffer.

 

Our future success significantly depends on the continued service and performance of our key management personnel. Competition for these employees is intense and we may not be able to attract and retain key personnel. We do not maintain any “key man” or other related insurance. The loss of the service of members of our senior management or key team members, or the inability to attract additional qualified personnel as needed, could materially harm our business.

 

Employee misconduct could harm us by subjecting us to monetary loss, significant legal liability, regulatory scrutiny and reputational harm.

 

Our reputation is critical to maintaining and developing relationships with our existing and potential customers and third parties with whom we do business. There is a risk that our employees could engage in misconduct that adversely affects our business. For example, if an employee were to engage-or be accused of engaging-in illegal or suspicious activities including fraud or theft, we could suffer direct losses from the activity, and in addition we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, customer relationships, and ability to attract future customers or employees. Employee misconduct could prompt regulators to allege or to determine based upon such misconduct that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect and deter violations of such rules. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on our reputation and our business.

 

Current and proposed regulations relating to consumer privacy, data protection and information security could increase our costs.

 

We are subject to a number of federal and state consumer privacy, data protection, and information security laws and regulations. For example, we are subject to the federal Gramm-Leach-Bliley Act, which governs the use of personal financial information by financial institutions. Moreover, various federal and state regulatory agencies require us to notify customers in the event of a security breach. Federal and state legislators and regulators are increasingly pursuing new guidance, laws, and regulation. Compliance with current or future customer privacy, data protection, and information security laws and regulations could result in higher compliance, technology or other operating costs. Any violations of these laws and regulations may require us to change our business practices or operational structure, and could subject us to legal claims, monetary penalties, sanctions, and the obligation to indemnify and/or notify customers or take other remedial actions.

 

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Significant disruptions in the operation of our information systems could have a material adverse effect on our business.

 

Our business relies heavily on information systems to deliver products and services to our customers, and to manage our ongoing operations. These systems may encounter service disruptions due to system, network or software failure, security breaches, computer viruses, natural disasters or other reasons. There can be no assurance that our policies and procedures addressing these issues will adequately address the disruption. A disruption could impair our ability to offer and process consumer loans, provide customer service, perform collections activities or perform other necessary business activities, which could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.

 

Security breaches in our information systems, in the information systems of third parties or in our branches, central servicing facilities, or our internet lending platform could adversely affect our reputation and could subject us to significant costs and regulatory penalties.

 

Our operations rely heavily on the secure processing, storage and transmission of confidential customer and other information in our computer systems and networks. Our branch offices and centralized servicing centers, as well as our administrative and executive offices, are part of an electronic information network that is designed to permit us to originate and track finance receivables and collections, and perform several other tasks that are part of our everyday operations. Our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code that could result in disruption to our business, or the loss or theft of confidential information, including customer information. Any failure, interruption, or breach in our cyber security, including through employee misconduct or any failure of our back-up systems or failure to maintain adequate security surrounding customer information, could result in reputational harm, disruption in the management of our customer relationships, or the inability to originate, process and service our finance receivable products. Further, any of these cyber security and operational risks could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to lawsuits by customers for identity theft or other damages resulting from the misuse of their personal information and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, regulators may impose penalties or require remedial action if they identify weaknesses in our security systems, and we may be required to incur significant costs to increase our cyber security to address any vulnerabilities that may be discovered or to remediate the harm caused by any security breaches. As part of our business, we may share confidential customer information and proprietary information with clients, vendors, service providers, and business partners. The information systems of these third parties may be vulnerable to security breaches and we may not be able to ensure that these third parties have appropriate security controls in place to protect the information we share with them. If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. Although we have insurance that is intended to cover certain losses from such events, there can be no assurance that such insurance will be adequate or available.

 

Our branch offices and centralized servicing centers have physical customer records necessary for day-to-day operations that contain extensive confidential information about our customers, including financial and personally identifiable information. We also retain physical records in various storage locations outside of these locations. The loss or theft of customer information and data from our branch offices, central servicing facilities, or other storage locations could subject us to additional regulatory scrutiny and penalties, and could expose us to civil litigation and possible financial liability, which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, if we cannot locate original documents (or copies, in some cases), we may not be able to collect on the finance receivables for which we do not have documents.

 

We may not be able to make technological improvements as quickly as some of our competitors, which could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition and liquidity.

 

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our future success and, in particular, the success of our centralized operations, will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition and liquidity.

 

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We could face environmental liability and costs for damage caused by hazardous waste (including the cost of cleaning up contaminated property) if we foreclose upon or otherwise take title to real estate pledged as collateral.

 

If a real estate loan goes into default, we may start foreclosure proceedings in appropriate circumstances, which could result in our taking title to the mortgaged real estate. We also consider alternatives to foreclosure, such as “short sales,” where we do not take title to mortgaged real estate. There is a risk that toxic or hazardous substances could be found on property after we take title. In addition, we own certain properties through which we operate our business, such as the buildings at our headquarters and certain servicing facilities. As the owner of any property where hazardous waste is present, we could be held liable for clean-up and remediation costs, as well as damages for any personal injuries or property damage caused by the condition of the property. We may also be responsible for these costs if we are in the chain of title for the property, even if we were not responsible for the contamination and even if the contamination is not discovered until after we have sold the property. Costs related to these activities and damages could be substantial. Although we have policies and procedures in place to investigate properties for potential hazardous substances before taking title to properties, these reviews may not always uncover potential environmental hazards.

 

We ceased real estate lending and the purchase of retail finance contracts in 2012 and are in the process of liquidating these portfolios, which subjects us to certain risks which could adversely affect our results of operations, financial condition and liquidity if we do not effectively manage such risks.

 

In connection with our plan for strategic growth and new focus on consumer lending, we have engaged in a number of restructuring initiatives, including, but not limited to, ceasing real estate lending, ceasing purchasing retail sales contracts and revolving retail accounts from the sale of consumer goods and services by retail merchants, closing certain of our branches and reducing our workforce.

 

Since terminating our real estate lending business at the beginning of 2012, which historically accounted for in excess of 50% of the interest income of our business, and ceasing retail sales purchases, we have been liquidating these legacy portfolios. In 2014, we entered into a series of transactions relating to the sales of our beneficial interests in our non-core real estate loans, the related servicing of these loans, and the sales of certain performing and non-performing real estate loans, which substantially completed our plan to liquidate our non-core real estate loans. Consequently, as of December 31, 2016, our real estate loans held for investment and held for sale totaled $144 million and $153 million, respectively. Due to the fact that we are no longer able to offer our remaining legacy real estate lending customers the same range of loan restructuring alternatives in delinquency situations that we may historically have extended to them, such customers may be less able, and less likely, to repay their loans.

 

Moreover, if we fail to realize the anticipated benefits of the restructuring of our business and associated liquidation of our legacy portfolios, we may experience an adverse effect on our results of operations, financial condition and liquidity.

 

As part of our growth strategy, we have committed to building our consumer lending business. If we are unable to successfully implement our growth strategy, our results of operations, financial condition and liquidity may be materially adversely affected.

 

We believe that our future success depends on our ability to implement our growth strategy, the key feature of which has been to shift our primary focus to originating consumer loans as well as acquiring portfolios of consumer loans, pursuing acquisitions of companies, and/or establishing joint ventures or other strategic alliances or arrangements. We have also recently expanded into internet lending through our centralized operations.

 

We may not be able to implement our new strategy successfully, and our success depends on a number of factors, including, but not limited to, our ability to:

 

  address the risks associated with our focus on personal loans (including direct auto loans), including, but not limited to consumer demand for finance receivables, and changes in economic conditions and interest rates;
   
address the risks associated with the new centralized method of originating and servicing our internet loans through our centralized operations, which represents a departure from our traditional high-touch branch-based servicing function and includes the potential for higher default and delinquency rates;

 

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integrate, and develop the expertise required to capitalize on, our centralized operations;
   
obtain regulatory approval in connection with our internet lending;
   
obtain regulatory approval in connection with the acquisition of consumer loan portfolios and/or companies in the business of selling consumer loans or related products;
   
comply with regulations in connection with doing business and offering loan products over the Internet, including various state and federal e-signature rules mandating that certain disclosures be made and certain steps be followed in order to obtain and authenticate e-signatures, with which we have limited experience;
   
finance future growth;
   
successfully source, underwrite and integrate new acquisitions of loan portfolios and other businesses; and
   
successfully integrate Springleaf and OneMain.

 

In order for us to realize the benefits associated with our new focus on originating and servicing consumer loans and grow our business, we must implement our strategic objectives in a timely and cost-effective manner as well as anticipate and address any risks to which we may become subject. In any event, we may not realize these benefits for many years, or our competitors may introduce more compelling products, services or enhancements. If we are not able to realize the benefits, or if we do not do so in a timely manner, our results of operations, financial condition and liquidity could be negatively affected which would have a material adverse effect on business.

 

RISKS RELATED TO OUR INDUSTRY AND REGULATION

 

We operate in a highly competitive market, and we cannot ensure that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.

 

The consumer finance industry is highly competitive. Our profitability depends, in large part, on our ability to originate finance receivables. We compete with other consumer finance companies as well as other types of financial institutions that offer similar products and services in originating finance receivables. Some of these competitors may have greater financial, technical and marketing resources than we possess. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us. While banks and credit card companies have decreased their lending to non-prime customers in recent years, there is no assurance that such lenders will not resume those lending activities. Further, because of increased regulatory pressure on payday lenders, many of those lenders are starting to make more traditional installment consumer loans in order to reduce regulatory scrutiny of their practices, which could increase competition in markets in which we operate. In addition, in July 2013, the Dodd-Frank Act’s three-year moratorium on banks affiliated with non-financial businesses expired. When the Dodd-Frank Act was enacted in 2010, a moratorium was imposed that prohibited the Federal Deposit Insurance Corporation from approving deposit insurance for certain banks controlled by non-financial commercial enterprises. The expiration of the moratorium could result in an increase of traditionally non-financial enterprises entering the banking space, which could increase the number of our competitors. There can be no assurance that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.

 

Our businesses are subject to regulation in the jurisdictions in which we conduct our business.

 

Our businesses are subject to numerous federal, state and local laws and regulations, and various state authorities regulate and supervise our insurance operations. The laws under which a substantial amount of our consumer and real estate businesses are conducted generally: provide for state licensing of lenders and, in some cases, licensing of employees involved in real estate loan modifications; impose limits on the term of a finance receivable, amounts, interest rates and charges on the finance receivables; regulate whether and under what circumstances insurance and other ancillary products may be offered to consumers in connection with a lending transaction; regulate the manner in which we use personal data; and provide for other consumer protections. We are also subject to extensive servicing regulations which we must comply with when servicing our legacy real estate loans and the SpringCastle Portfolio, and which we will have to comply with if we acquire loan portfolios in the future and assume the servicing obligations for the acquired loans or other financial assets. The extent of state regulation of our insurance business varies by product and by jurisdiction, but relates primarily to the following: licensing; conduct of business; periodic examination of the affairs of insurers; form and content of required financial reports; standards of solvency; limitations on dividend payments and other related party transactions; types of products offered; approval of policy forms and premium rates; permissible investments; deposits of securities for the benefit of policyholders; reserve requirements for unearned premiums, losses and other purposes; and claims processing.

 

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All of our operations are subject to regular examination by state and federal regulators, and as a whole, our entities are subject to several hundred regulatory examinations in a given year. These examinations may result in requirements to change our policies or practices, and in some cases, we are required to pay monetary fines or make reimbursements to customers. Many state regulators and some federal regulators have indicated an intention to pool their resources in order to conduct examinations of licensed entities, including us, at the same time (referred to as a “multi-state” examination). This could result in more in-depth examinations, which could be more costly and lead to more significant enforcement actions.

 

The CFPB has outlined several proposals under consideration for the purpose of requiring lenders to take steps to ensure consumers have the financial ability to repay their loans. The proposals under consideration would require lenders to determine at the outset of each loan whether a consumer can afford to borrow from the lender and would require that lenders comply with various restrictions designed to ensure that consumers can affordably repay their debt to the lender. To date, the proposals under consideration by the CFPB have not been adopted. If adopted, the proposals outlined by the CFPB may require the Company to make significant changes to its lending practices to develop compliant procedures.

 

We are also subject to potential enforcement, supervisions and other actions that may be brought by state attorneys general or other state enforcement authorities and other governmental agencies. Any such actions could subject us to civil money penalties, customer remediation and increased compliance costs, as well as damage our reputation and brand and could limit or prohibit our ability to offer certain products and services or engage in certain business practices.

 

The Department of Defense has made changes to the regulations that have been promulgated as a result of the Military Lending Act. Effective October 3, 2016, we are subject to the limitations of the Military Lending Act, which places a 36% limitation on all fees, charges, interest rate and credit and non-credit insurance premiums for loans made to members of the military or their dependents. We are also no longer able to make non-purchase money loans secured by motor vehicles to service members and their dependents.

 

We are also subject to potential changes in state law, which could lower the interest-rate limit that non-depository financial institutions may charge for consumer loans or could expand the definition of interest under state law to include the cost of ancillary products, such as insurance.

 

We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local regulations, but we may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. In addition, changes in laws or regulations applicable to us could subject us to additional licensing, registration and other regulatory requirements in the future or could adversely affect our ability to operate or the manner in which we conduct business.

 

A material failure to comply with applicable laws and regulations could result in regulatory actions, including substantial fines or penalties, lawsuits and damage to our reputation, which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

For more information with respect to the regulatory framework affecting our businesses, see “Business-Regulation” included in Part I - Item 1 of this report.

 

The enactment of the Dodd-Frank Act and the creation of the CFPB significantly increases our regulatory costs and burdens.

 

The Dodd-Frank Act was adopted in 2010. This law and the related regulations affect our operations in terms of increased oversight of financial services products by the CFPB, and the imposition of restrictions on the allowable terms for certain consumer credit transactions. The CFPB has significant authority to implement and enforce federal consumer finance laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act and new requirements for financial services products provided for in the Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive, or abusive acts and practices. In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations, and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. Further, state attorneys general and state regulators are authorized to bring civil actions to enforce certain consumer protection provisions of the Dodd-Frank Act. The Dodd-Frank Act and accompanying regulations are being phased in over time, and while some regulations have been promulgated, many others have not yet been proposed or finalized. We cannot predict the terms of all of the final regulations, their intended consequences or how such regulations will affect us or our industry.

 

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The CFPB currently has supervisory authority over our real estate servicing activities, and likely will have supervisory authority over our consumer lending business. It also has the authority to bring enforcement actions for violations of laws over which it has jurisdiction regardless of whether it has supervisory authority for a given product or service. Effective in January 2014, the CFPB finalized mortgage servicing regulations, which makes it more difficult and expensive to service mortgages. The Dodd-Frank Act also gives the CFPB supervisory authority over entities that are designated as “larger participants” in certain financial services markets, including consumer installment loans and related products. The CFPB has not yet promulgated regulations that designate “larger participants” for consumer finance companies. If we are designated as a “larger participant” for this market, we also will be subject to supervision and examination by the CFPB with respect to our consumer loan business. The CFPB has published regulations for “larger participants” in the market of auto finance, and we have been designated as a larger participant in this market. The CFPB’s broad supervisory and enforcement powers could affect our business and operations significantly in terms of increased operating and regulatory compliance costs, and limits on the types of products we offer and the manner in which they are offered, among other things. See “Business-Regulation” in Part I - Item 1 of this report for further information on the CFPB.

 

The CFPB and certain state regulators have taken action against select lenders regarding the marketing of products offered by the lenders in connection with their loans. The products included debt cancellation/suspension products written by the lenders which forgave a borrower’s debt or monthly minimum payment upon the occurrence of certain events in the life of the borrower (e.g., death, disability, marriage, divorce, birth of a child, etc.). We sell insurance and non-insurance products in connection with our loans. While insurance products are actively regulated by state insurance departments, sales of insurance and non-insurance products could be challenged in a similar manner by the CFPB or state consumer lending regulators.

 

Our use of third-party vendors is subject to increasing regulatory attention.

 

Recently, the CFPB and other regulators have issued regulatory guidance that has focused on the need for financial institutions to perform increased due diligence and ongoing monitoring of third-party vendor relationships, thus increasing the scope of management involvement and decreasing the benefit that we receive from using third-party vendors. Moreover, if our regulators conclude that we have not met the heightened standards for oversight of our third-party vendors, we could be subject to enforcement actions, civil monetary penalties, supervisory orders to cease and desist or other remedial actions, which could have an adverse effect on our business, financial condition and operating results.

 

U.S. tax code reform proposals, if enacted into law, could have a material adverse impact on our financial position, results of operations and cash flows.

 

The new presidential administration and several members of the U.S. Congress have indicated significant reform of various aspects of the U.S. tax code as a top legislative priority. A number of proposals for tax reform, including significant changes to corporate tax provisions, are currently under consideration. Such changes could have a material adverse impact on our deferred tax assets and liabilities and our consolidated financial position, results of operations and cash flows, depending on the nature and extent of any changes to the U.S. tax code that are ultimately enacted into law. Additionally, changes to the U.S. tax code could more broadly impact the U.S. economy, which could potentially result in a material adverse impact on the demand for our products and services and the ability of our customers to repay their loans. There is a substantial lack of clarity around the likelihood, timing and details of any such tax reform and the impact of any potential tax reform on us or an investment in our securities. We cannot predict if or when any of these proposals to reform the U.S. tax code will be enacted into law and, accordingly, no assurance can be given as to whether or to what extent any changes to the U.S. tax code will impact us or our customers or our financial position, results of operations or cash flows.

 

We purchase and sell finance receivables, including charged off receivables and receivables where the borrower is in default. This practice could subject us to heightened regulatory scrutiny, which may expose us to legal action, cause us to incur losses and/or limit or impede our collection activity.

 

As part of our business model, we purchase and sell finance receivables. Although the borrowers for some of these finance receivables are current on their payments, other borrowers may be in default (including in bankruptcy) or the debt may have been charged off as uncollectible. The CFPB and other regulators have recently significantly increased their scrutiny of the purchase and sale of debt, and collections practices undertaken by purchasers of debt, especially delinquent and charged off debt. The CFPB has scrutinized sellers of debt for not maintaining sufficient documentation to support and verify the validity or amount of the debt. It has also scrutinized debt collectors for, among other things, their collection tactics, attempting to collect debts that no longer are valid, misrepresenting the amount of the debt and not having sufficient documentation to verify the validity or amount of the debt. Our purchases or sales of receivables could expose us to lawsuits or fines by regulators if we do not have sufficient documentation to support and verify the validity and amount of the finance receivables underlying these transactions, or if we or purchasers of our finance receivables use collection methods that are viewed as unfair or abusive. In addition, our collections could suffer and we may incur additional expenses if we are required to change collection practices or stop collecting on certain debts as a result of a lawsuit or action on the part of regulators.

 

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The Dodd-Frank Act also may adversely affect the securitization market because it requires, among other things, that a securitizer must retain at least a 5% economic interest in the credit risk of the securitized assets. Furthermore, sponsors are prohibited from diluting the required risk retention by dividing the economic interest among multiple parties, or hedging or transferring the credit risk the sponsor is required to maintain. Moreover, the SEC’s significant changes to Regulation AB could result in sweeping changes to the commercial and residential mortgage loan securitization markets, as well as to the market for the re-securitization of mortgage-backed securities.

 

Rules relating to securitizations rated by nationally-recognized statistical rating agencies require that the findings of any third-party due diligence service providers be made publicly available at least five (5) business days prior to the first sale of securities, which may lead us to incur additional costs in connection with each securitization.

 

On September 19, 2011, the SEC issued a notice of proposed rulemaking intended to implement the prohibition regarding material conflicts of interest relating to certain securitizations pursuant to Section 621 of the Dodd-Frank Act. At this time, we cannot predict what form the final rules and any related interpretive guidance from the SEC will take, or whether such rules would materially impact our business.

 

A certain amount of the rule-making under the Dodd-Frank Act remains to be done. As a result, the complete impact of the Dodd-Frank Act remains uncertain. It is not clear what form some of these remaining regulations will ultimately take, or how our business will be affected. No assurance can be given that the Dodd-Frank Act and related regulations or any other new legislative changes enacted will not have a significant impact on our business.

 

For more information with respect to the regulatory framework affecting our businesses, see “Business-Regulation” included in Part I - Item 1 of this report.

 

Investment Company Act considerations could affect our method of doing business.

 

We intend to continue conducting our business operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”). We are a holding company that conducts its businesses primarily through wholly owned subsidiaries and are not an investment company because our subsidiaries are primarily engaged in the non-investment company business of consumer finance. Certain of our subsidiaries rely on exemptions from registration as an investment company, including pursuant to Sections 3(c)(4) and 3(c)(5) of the Investment Company Act. We rely on guidance published by the SEC staff or on our analyses of such guidance to determine our subsidiaries’ qualification under these and other exemptions. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our business operations accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could inhibit our ability to conduct our business operations. There can be no assurance that the laws and regulations governing the Investment Company Act status of real estate or real estate related assets or SEC guidance regarding Investment Company Act exemptions for real estate assets will not change in a manner that adversely affects our operations. If we fail to qualify for an exemption or exception from the Investment Company Act in the future, we could be required to restructure our activities or the activities of our subsidiaries, which could negatively affect us. In addition, if we or one or more of our subsidiaries fail to maintain compliance with the applicable exemptions or exceptions and we do not have another basis available to us on which we may avoid registration, and we were therefore required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure, management, operations, transactions with affiliated persons, holdings, and other matters, which could have an adverse effect on us.

 

Real estate loan servicing and loan modifications have come under increasing scrutiny from government officials and others, which could make servicing our legacy real estate loan portfolio more costly and difficult.

 

Real estate loan servicers have recently come under increasing scrutiny. In addition, some states and municipalities have passed laws that impose additional duties on foreclosing lenders and real estate loan servicers, such as mandatory mediation or extensive requirements for maintenance of vacant properties, which, in some cases, begin even before a lender has taken title to property. These additional requirements can delay foreclosures, make it uneconomical to foreclose on mortgaged real estate or result in significant additional costs, which could materially adversely affect the value of our portfolio. The CFPB finalized mortgage servicing regulations that became effective in January 2014, which makes it more difficult and expensive to service real estate loans.

 

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The U.S. Government has implemented a number of federal programs to assist homeowners, including the Home Affordable Modification Program (“HAMP”), which expired on December 31, 2016. Loans subserviced for us by Nationstar Mortgage LLC and Select Portfolio Servicing, Inc. were subject to HAMP and were eligible for modification pursuant to HAMP guidelines. We have also implemented proprietary real estate loan modification programs in order to help real estate secured customers remain current on their loans. HAMP, our proprietary loan modification programs and other existing or future legislative or regulatory actions which result in the modification of outstanding real estate loans, may adversely affect the value of, and the returns on, our existing portfolio.

 

RISKS RELATED TO THE ONEMAIN ACQUISITION AND THE LENDMARK SALE

 

We have incurred substantial transaction fees and costs in connection with the OneMain Acquisition and integration.

 

We have incurred a significant amount of costs in connection with the OneMain Acquisition and integration, including legal, accounting and other expenses. Additional unanticipated costs may be incurred in the course of the integration of the businesses of Springleaf and OneMain. We cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.

 

The OneMain Acquisition may not achieve its intended results, and we may be unable to successfully integrate Springleaf’s and OneMain’s operations.

 

We acquired OneMain with the expectation that the OneMain Acquisition will result in various benefits, including, among other things, cost savings and operating efficiencies. Achieving the anticipated benefits of the OneMain Acquisition is subject to a number of uncertainties (many of which are outside our control), including whether our business and the business of OneMain can be integrated in an efficient and effective manner.

 

The integration of OneMain is a complex, costly and time-consuming process, and the significant size and scale of OneMain increases the risks to which we are subject relative to other acquired businesses. Such risks include the following, any of which could adversely affect our business, financial condition or results of operations or our ability to achieve the anticipated benefits of the OneMain Acquisition:

 

  The integration process could take longer than anticipated and result in the loss of valuable employees, additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements.
   
There may be increased risk due to integrating financial reporting and internal control systems.
   
Difficulties in combining operations of Springleaf and OneMain could also result in the loss of contract counterparties or other persons with whom Springleaf or OneMain conduct business and potential disputes or litigation with contract counterparties or other persons with whom Springleaf or OneMain conduct business.
   
The integration process could result in the diversion of management and employee attention and resources or other disruptions that may adversely affect our ability to grow our business, pursue loan monitoring and collection activities, or achieve the anticipated benefits of the OneMain Acquisition.

 

If we experience difficulties or delays with the OneMain integration process, or if our assumptions underlying expectations regarding the OneMain Acquisition prove to be inaccurate, the anticipated benefits, expense savings and synergies may not be realized fully or at all, or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, increased credit losses or decreases in the amount of expected revenues, any of which could adversely affect our future business, financial condition, operating results and prospects. Our results of operations following the OneMain Acquisition could also be adversely affected by any issues attributable to either Springleaf’s or OneMain’s operations that arise or are based on events or actions that occurred prior to the closing of the OneMain Acquisition.

 

Additionally, since the closing of the OneMain Acquisition, we remain reliant on Citigroup, the former parent company of OMFH, to provide certain operational services and support to OneMain, and a failure by Citigroup to perform such services could materially increase our costs or disrupt our business, which could adversely affect our financial condition and results of operations.

 

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If the goodwill and other intangible assets that we recorded in connection with the OneMain Acquisition becomes impaired, it could have a negative impact on our profitability.

 

Goodwill represents the amount of acquisition cost over the fair value of net assets we acquired in connection with the OneMain Acquisition. If the carrying amount of goodwill and other intangible assets exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which the impairments become known. At December 31, 2016, our goodwill and other intangible assets totaled $1.4 billion and $492 million, respectively. While we have recorded no impairment charges on our goodwill and other intangible assets during 2016 and 2015, there can be no assurance that our future evaluations of goodwill and other intangible assets will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

 

RISKS RELATED TO OUR INDEBTEDNESS

 

An inability to access adequate sources of liquidity may adversely affect our ability to fund operational requirements and satisfy financial obligations.

 

Our ability to access capital and credit was significantly affected by the substantial disruption in the U.S. credit markets and the associated credit rating downgrades on our debt. In addition, the risk of volatility surrounding the global economic system and uncertainty surrounding regulatory reforms, such as the Dodd-Frank Act, continue to create uncertainty around access to the capital markets. Historically, we funded our operations and repaid our debt and other obligations using funds collected from our finance receivable portfolio and new debt issuances. Although market conditions have improved since the financial crisis, our traditional borrowing sources, including our ability to cost-effectively issue large amounts of unsecured debt in the capital markets, particularly issuances of commercial paper, have generally not been available to us. Instead we have primarily raised capital through securitization transactions and, although there can be no assurances that we will be able to complete additional securitizations, we currently expect our near-term sources of capital markets funding to continue to derive from securitization transactions and unsecured debt offerings.

 

If we are unable to complete additional securitization transactions on a timely basis or upon terms acceptable to us or otherwise access adequate sources of liquidity, our ability to fund our own operational requirements and satisfy financial obligations may be adversely affected.

 

Our indebtedness is significant, which could affect our ability to meet our obligations under our debt instruments and could materially and adversely affect our business and ability to react to changes in the economy or our industry.

 

We currently have a significant amount of indebtedness. As of December 31, 2016, we had $14.0 billion of indebtedness outstanding. Interest expense on our indebtedness totaled $856 million in 2016.

 

The amount of indebtedness could have important consequences, including the following:

 

it may require us to dedicate a significant portion of our cash flow from operations to the payment of the principal of, and interest on, our indebtedness, which reduces the funds available for other purposes, including finance receivable originations;

 

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it could limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing regulatory, business and economic conditions;
   
it may limit our ability to incur additional borrowings or securitizations for working capital, capital expenditures, business development, debt service requirements, acquisitions or general corporate or other purposes, or to refinance our indebtedness;
   
it may require us to seek to change the maturity, interest rate and other terms of our existing debt;
   
it may place us at a competitive disadvantage to competitors that are proportionately not as highly leveraged;
   
it may cause a downgrade of our debt and long-term corporate ratings; and
   
it may cause us to be more vulnerable to periods of negative or slow growth in the general economy or in our business.

 

In addition, meeting our anticipated liquidity requirements is contingent upon our continued compliance with our existing debt agreements. An event of default or declaration of acceleration under one of our existing debt agreements could also result in an event of default and declaration of acceleration under certain of our other existing debt agreements. Such an acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern. If our debt obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional indebtedness, the consequences described above could be magnified.

 

There can be no assurance that we will be able to repay or refinance our debt in the future.

 

Certain of our outstanding notes contain covenants that restrict our operations and may inhibit our ability to grow our business and increase revenues.

 

SFC’s indenture and certain of SFC’s notes contain a covenant that limits SFC’s and its subsidiaries’ ability to create or incur liens. These restrictions do not apply to OMFH and its other subsidiaries, although OMFH and its other subsidiaries are subject to similar restrictions under their debt covenants as described below. The restrictions may interfere with our ability to obtain new or additional financing or may affect the manner in which we structure such new or additional financing or engage in other business activities, which may significantly limit or harm our results of operations, financial condition and liquidity. A default and resulting acceleration of obligations could also result in an event of default and declaration of acceleration under certain of our other existing debt agreements. Such an acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern. A default could also significantly limit our alternatives to refinance both the debt under which the default occurred and other indebtedness. This limitation may significantly restrict our financing options during times of either market distress or our financial distress, which are precisely the times when having financing options is most important.

 

The indenture governing OneMain’s unsecured debt (the “OMFH Indenture”) contains a number of restrictive covenants that impose significant operating and financial restrictions on OneMain and may limit our ability to integrate OneMain’s operations, including, but not limited to, restrictions on OMFH’s and its restricted subsidiaries’ ability to:

 

incur or guarantee additional indebtedness or issue certain preferred stock;
   
make dividend payments or distributions on or purchases of OMFH’s equity interests;
   
make other restricted payments or investments;
   
create or permit to exist certain liens;
   
make certain dispositions of assets;
   
engage in certain transactions with affiliates;
   
sell certain securities of our subsidiaries;

 

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  in the case of such restricted subsidiaries, incur limitations on the ability to pay dividends or make other payments; and
 
merge, consolidate or sell all or substantially all of OneMain’s properties and assets.

 

In addition, the OMFH Indenture includes a change of control repurchase provision which could require us to offer to repurchase all of the outstanding existing notes of OMFH issued thereunder if a change of control occurs and a corporate rating of OMFH is downgraded by both Standard & Poor’s Ratings Services (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”) as a result of such change of control. Although we believe that a repurchase event is unlikely to occur, there can be no assurance that a repurchase event will not occur as a result of the SoftBank-Fortress transaction.

 

The assessment of our liquidity is based upon significant judgments and estimates that could prove to be materially incorrect.

 

In assessing our current financial position and developing operating plans for the future, management has made significant judgments and estimates with respect to our liquidity, including but not limited to:

 

our ability to generate sufficient cash to service all of our outstanding debt;
   
our continued ability to access debt and securitization markets and other sources of funding on favorable terms;
   
our ability to complete on favorable terms, as needed, additional borrowings, securitizations, finance receivable portfolio sales, or other transactions to support liquidity, and the costs associated with these funding sources, including sales at less than carrying value and limits on the types of assets that can be securitized or sold, which would affect profitability;
   
the potential for downgrade of our debt by rating agencies, which would have a negative impact on our cost of, and access to, capital;
   
our ability to comply with our debt covenants;
   
the amount of cash expected to be received from our finance receivable portfolio through collections (including prepayments) and receipt of finance charges, which could be materially different than our estimates;
   
the potential for declining financial flexibility and reduced income should we use more of our assets for securitizations and finance receivable portfolio sales; and
   
the potential for reduced income due to the possible deterioration of the credit quality of our finance receivable portfolios.

 

Additionally, there are numerous risks to our financial results, liquidity, and capital raising and debt refinancing plans that are not quantified in our current liquidity forecasts. These risks include, but are not limited, to the following:

 

our inability to grow our personal loan portfolio with adequate profitability to fund operations, loan losses, and other expenses;
   
our inability to monetize assets including, but not limited to, our access to debt and securitization markets;
   
our inability to obtain the additional necessary funding to finance our operations;
   
the effect of federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Act (which, among other things, established the CFPB with broad authority to regulate and examine financial institutions), on our ability to conduct business or the manner in which we conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry;
   
potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans, if it is determined that there was a non-curable breach of a warranty made in connection with the transaction;

 

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  the potential for increasing costs and difficulty in servicing our loan portfolio as a result of heightened nationwide regulatory scrutiny of loan servicing and foreclosure practices in the industry generally, and related costs that could be passed on to us in connection with the subservicing of our real estate loans that were originated or acquired centrally;
   
reduced cash receipts as a result of the liquidation of our real estate loan portfolio;
   
the potential for additional unforeseen cash demands or accelerations of obligations;
   
reduced income due to loan modifications where the borrower’s interest rate is reduced, principal payments are deferred, or other concessions are made;
   
the potential for declines or volatility in bond and equity markets; and
   
the potential effect on us if the capital levels of our regulated and unregulated subsidiaries prove inadequate to support current business plans.

 

We intend to repay indebtedness with one or more of the following activities, among others: finance receivable collections, cash on hand, additional debt financings (particularly new securitizations and possible new issuances and/or debt refinancing transactions), finance receivable portfolio sales, or a combination of the foregoing. There can be no assurance that we will be successful in undertaking any of these activities to support our operations and repay our obligations.

 

However, the actual outcome of one or more of our plans could be materially different than expected or one or more of our significant judgments or estimates about the potential effects of these risks and uncertainties could prove to be materially incorrect. In the event of such an occurrence, if third-party financing is not available, our liquidity could be substantially and materially affected, and as a result, substantial doubt could exist about our ability to continue as a going concern.

 

Current ratings could adversely affect our ability to raise capital in the debt markets at attractive rates, which could negatively affect our results of operations, financial condition and liquidity.

 

Each of S&P, Moody’s, and Fitch, Inc. (“Fitch”) rates SFC’s and OMFH’s debt. As of December 31, 2016, SFC’s long term corporate debt rating was rated B with a stable outlook by S&P, B- with a positive outlook by Fitch and B3 with a positive outlook by Moody’s. As of December 31, 2016, OMFH’s long term corporate debt rating was rated B with a stable outlook by S&P, B with a positive outlook by Fitch and B2 with a positive outlook by Moody’s. Currently, no other OneMain or Springleaf entity has a corporate debt rating, though they may be rated in the future. Ratings reflect the rating agencies’ opinions of a company’s financial strength, operating performance, strategic position and ability to meet our obligations. Agency ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.

 

If SFC’s or OMFH’s current ratings continue in effect or our ratings are downgraded, it will likely increase the interest rate that we would have to pay to raise money in the capital markets, making it more expensive for us to borrow money and adversely impacting our access to capital. As a result, our ratings could negatively impact our results of operations, financial condition and liquidity.

 

Our securitizations may expose us to financing and other risks, and there can be no assurance that we will be able to access the securitization market in the future, which may require us to seek more costly financing.

 

We have securitized, and may in the future securitize, certain of our finance receivables to generate cash to originate or purchase new finance receivables or pay our outstanding indebtedness. In such transactions, we typically convey a pool of finance receivables to a special purpose entity (“SPE”), which, in turn, conveys the finance receivables to a trust (the issuing entity). Concurrently, the trust typically issues non-recourse notes or certificates pursuant to the terms of an indenture or pooling and servicing agreement, which then are transferred to the SPE in exchange for the finance receivables. The securities issued by the trust are secured by the pool of finance receivables. In exchange for the transfer of finance receivables to the issuing entity, we typically receive the cash proceeds from the sale of the trust securities, all residual interests, if any, in the cash flows from the finance receivables after payment of the trust securities, and a 100% beneficial interest in the issuing entity.

 

Although we have successfully completed a number of securitizations since 2012, we can give no assurances that we will be able to complete additional securitizations if the securitization markets become constrained. In addition, the value of any subordinated securities that we may retain in our securitizations might be reduced or, in some cases, eliminated as a result of an adverse change in economic conditions.

 

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SFC and OneMain Financial Group, LLC (“OMFG”) currently act as the servicers with respect to the consumer loan securitization trusts and related series of asset-backed securities. If SFC or OMFG defaults in its servicing obligations, an early amortization event could occur with respect to the relevant asset-backed securities and SFC or OMFG could be replaced as servicer. Servicer defaults include, for example, the failure of the servicer to make any payment, transfer or deposit in accordance with the securitization documents, a breach of representations, warranties or agreements made by the servicer under the securitization documents and the occurrence of certain insolvency events with respect to the servicer. Such an early amortization event could have materially adverse consequences on our liquidity and cost of funds.

 

Rating agencies may also affect our ability to execute a securitization transaction, or increase the costs we expect to incur from executing securitization transactions, not only by deciding not to issue ratings for our securitization transactions, but also by altering the criteria and process they follow in issuing ratings. Rating agencies could alter their ratings processes or criteria after we have accumulated finance receivables for securitization in a manner that effectively reduces the value of those finance receivables by increasing our financing costs or otherwise requiring that we incur additional costs to comply with those processes and criteria. We have no ability to control or predict what actions the rating agencies may take.

 

Further, other matters, such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements applicable to banks and other regulated financial institutions holding residential mortgage-backed securities or other asset-backed securities, could result in decreased investor demand for securities issued through our securitization transactions, or increased competition from other institutions that undertake securitization transactions. In addition, compliance with certain regulatory requirements, including the Dodd-Frank Act and the Investment Company Act, may affect the type of securitizations that we are able to complete.

 

If it is not possible or economical for us to securitize our finance receivables in the future, we would need to seek alternative financing to support our operations and to meet our existing debt obligations, which may be less efficient and more expensive than raising capital via securitizations and may have a material adverse effect on our results of operations, financial condition and liquidity.

 

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

 

If the ownership of our common stock continues to be highly concentrated, it may prevent minority stockholders from influencing significant corporate decisions and may result in conflicts of interest.

 

The Initial Stockholder, which is primarily owned by a private equity fund managed by an affiliate of Fortress, owned approximately 58% of our outstanding common stock as of December 31, 2016. As a result, the Initial Stockholder owns shares sufficient for the majority vote over all matters requiring a stockholder vote, including: the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our restated certificate of incorporation and our amended and restated bylaws; and our winding up and dissolution. This concentration of ownership may delay, deter or prevent acts that would be favored by our other stockholders. The interests of the Initial Stockholder may not always coincide with our interests or the interests of our other stockholders. This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of us. Also, the Initial Stockholder may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other stockholders or adversely affect us or our other stockholders. As a result, the market price of our common stock could decline or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control. In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. On February 14, 2017, SoftBank and Fortress announced that they have entered into a definitive merger agreement under which SoftBank intends to acquire Fortress. There are no assurances that the acquisition of Fortress by SoftBank will not have an impact on us.

 

We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations and to pay dividends.

 

We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries, which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock. Our subsidiaries are legally distinct from us and certain of our subsidiaries are prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. For example, our insurance subsidiaries are subject to regulations that limit their ability to pay dividends or make loans or advances to us, principally to protect policyholders, and certain of our debt agreements limit the ability of certain of our subsidiaries to pay dividends. In addition, OMFH’s debt covenants restrict its ability to pay dividends. If we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends.

 

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We do not anticipate paying any dividends on our common stock in the foreseeable future.

 

We have no plans to pay regular dividends on our common stock, and we anticipate that a significant amount of any free cash flow generated from our operations will be utilized to redeem or prepay outstanding indebtedness, and accordingly would not be available for dividends. Any declaration and payment of future dividends to holders of our common stock will be at the sole discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. Until such time that we pay a dividend, our investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. In addition, the OMFH Indenture contains certain restrictions on OMFH’s and its restricted subsidiaries’ ability to make dividend payments.

 

Certain provisions of a stockholders agreement with our Initial Stockholder (the “Stockholders Agreement”), our restated certificate of incorporation and our amended and restated bylaws could hinder, delay or prevent a change in control of us, which could adversely affect the price of our common stock.

 

Certain provisions of the Stockholders Agreement, our restated certificate of incorporation and our amended and restated bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors or Fortress. These provisions provide for:

 

a classified board of directors with staggered three-year terms;
   
removal of directors only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote (provided, however, that for so long as Fortress and certain of its affiliates and permitted transferees beneficially own, directly or indirectly, at least 30% of our issued and outstanding common stock (including Fortress’ proportionate interest in shares of our common stock held by the Initial Stockholder), directors may be removed with or without cause with the affirmative vote of a majority of the then issued and outstanding voting interest of stockholders entitled to vote);
   
provisions in our restated certificate of incorporation and amended and restated bylaws prevent stockholders from calling special meetings of our stockholders (provided, however, that for so long as Fortress and certain of its affiliates and permitted transferees beneficially own, directly or indirectly, at least 20% of our issued and outstanding common stock (including Fortress’s proportionate interest in shares of our common stock held by the Initial Stockholder), any stockholders that collectively beneficially own at least 20% of our issued and outstanding common stock may call special meetings of our stockholders);
   
advance notice requirements by stockholders with respect to director nominations and actions to be taken at annual meetings;
   
certain rights to Fortress and certain of its affiliates and permitted transferees with respect to the designation of directors for nomination and election to our board of directors, including the ability to appoint a majority of the members of our board of directors, plus one director, for so long as Fortress and certain of its affiliates and permitted transferees continue to beneficially own, directly or indirectly at least 30% of our issued and outstanding common stock (including Fortress’s proportionate interest in shares of our common stock held by the Initial Stockholder);
   
no provision in our restated certificate of incorporation or amended and restated bylaws permits cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election;
   
our restated certificate of incorporation and our amended and restated bylaws only permit action by our stockholders outside a meeting by unanimous written consent, provided, however, that for so long as Fortress and certain of its affiliates and permitted transferees beneficially own, directly or indirectly, at least 20% of our issued and

 

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outstanding common stock (including Fortress’s proportionate interest in shares of our common stock held by the Initial Stockholder), our stockholders may act without a meeting by written consent of a majority of our stockholders; and

 

under our restated certificate of incorporation, our board of directors has authority to cause the issuance of preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders. Nothing in our restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock.

 

In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by Fortress, our management or our board of directors. Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of our common stock and the ability of public stockholders to realize any potential change of control premium.

 

Certain of our stockholders have the right to engage or invest in the same or similar businesses as us.

 

Fortress and its affiliates, including the Initial Stockholder, engage in other investments and business activities in addition to their ownership of us. Under our restated certificate of incorporation, Fortress and its affiliates, including the Initial Stockholder, have the right, and have no duty to abstain from exercising such right, to engage or invest in the same or similar businesses as us, do business with any of our clients, customers or vendors or employ or otherwise engage any of our officers, directors or employees. If Fortress and its affiliates, including the Initial Stockholder, or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our stockholders or our affiliates.

 

In the event that any of our directors and officers who is also a director, officer or employee of any of Fortress or its affiliates, including the Initial Stockholder, acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as our director or officer and such person acts in good faith, then even if Fortress or its affiliates, including the Initial Stockholder, pursues or acquires the corporate opportunity or if Fortress or its affiliates, including the Initial Stockholder, do not present the corporate opportunity to us such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us.

 

Licensing and insurance laws and regulations may delay or impede purchases of our common stock.

 

Certain of the states in which we are licensed to originate loans and the states in which Springleaf and OneMain insurance subsidiaries are domiciled (Indiana and Texas) have laws or regulations which require regulatory approval for the acquisition of “control” of regulated entities. In addition, these Indiana and Texas insurance laws and regulations generally provide that no person may acquire control, directly or indirectly, of a domiciled insurer, unless the person has provided the required information to, and the acquisition is subsequently approved or not disapproved by, the Indiana Department of Insurance and also by the Texas Department of Insurance. Under state insurance laws or regulations, there exists a presumption of “control” when an acquiring party acquires as little as 10% of the voting securities of a regulated entity or of a company which itself controls (directly or indirectly) a regulated entity (the threshold is 10% under the insurance statutes of Indiana and Texas). Therefore, any person acquiring 10% or more of our common stock may need the prior approval of these two state insurance and/or licensing regulators, or a determination from such regulators that “control” has not been acquired, which could significantly delay or otherwise impede their ability to complete such purchase. The acquisition of Fortress by SoftBank may be deemed a change of control for purposes of certain of our state lending and insurance licenses pursuant to which we operate our lending and insurance businesses. Accordingly, we may be required to obtain approvals for the change of control from some state lending or insurance regulators.

 

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RISKS RELATED TO OUR COMMON STOCK

 

The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.

 

The market price of our common stock has been and may continue to be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, public stockholders may be unable to resell their shares at or above their purchase price, if at all. The market price of our common stock may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

 

variations in our quarterly or annual operating results;
   
changes in our earnings estimates (if provided) or differences between our actual financial and operating results and those expected by investors and analysts;
   
the contents of published research reports about us or our industry or the failure of securities analysts to cover our common stock in the future;
   
additions to, or departures of, key management personnel;
   
any increased indebtedness we may incur in the future;
   
announcements by us or others and developments affecting us;
   
actions by institutional stockholders or our Initial Stockholder or Fortress;
   
litigation and governmental investigations;
   
changes in market valuations of similar companies;
   
speculation or reports by the press or investment community with respect to us or our industry in general;
   
increases in market interest rates that may lead purchasers of our shares to demand a higher yield;
   
announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and
   
general market, political and economic conditions, including any such conditions and local conditions in the markets in which our borrowers are located.

 

These broad company, market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.

 

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. In particular, we intend to continue to seek opportunities to acquire consumer finance portfolios and/or businesses that engage in consumer finance loan servicing and/or consumer finance loan originations. Future acquisitions could require substantial additional capital in excess of cash from operations. We would expect to finance the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations.

 

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Issuing additional shares of our common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our stockholders at the time of such issuance or reduce the market price of our common stock or both. Upon liquidation, holders of debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us.

 

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.

 

As of December 31, 2016, approximately 58% of our outstanding common stock is held by the Initial Stockholder and can be resold into the public markets in the future in accordance with the requirements of the Securities Act of 1933, as amended (the “Securities Act”). A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional common stock or other equity securities.

 

The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings.

 

We have an aggregate of 1,864,775,073 shares of common stock authorized but unissued as of February 14, 2017. We may issue all of these shares of common stock without any action or approval by our stockholders, subject to certain exceptions. We also intend to continue to evaluate acquisition opportunities and may issue common stock in connection with these acquisitions. Any common stock issued in connection with our incentive plans, acquisitions, the exercise of outstanding stock options or otherwise would dilute the percentage ownership held by our existing shareholders.

 

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

 

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Effective internal control over financial reporting is necessary for us to provide reliable reports and prevent fraud.

 

We believe that a control system, no matter how well designed and managed, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. We may not be able to identify all significant deficiencies and/or material weaknesses in our internal control in the future, and our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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THE COMPANIES

 

IEG Holdings

 

We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

 

Our strategy is to address the market needs of underbanked consumers that tend to be ignored by mainstream institutional credit providers such as banks and credit unions, and charged excessive fees and interest by fringe lenders such as payday lenders. In the current global environment, we believe there is a substantial need and opportunity for the small personal loans we offer.

 

All of our personal loans are offered at prevailing statutory rates with fixed affordable repayments and no prepayment penalties. We conduct full underwriting on all applications including credit checks and review of bank statements to ensure customers have capacity to repay their loans, and have designed our loans to help customers reach a stronger financial position.

 

We plan to continue expanding our state coverage in 2017 by obtaining state lending licenses in six additional states, increasing our coverage to 25 states and approximately 240 million people. As soon as we receive new state licenses we will add to our existing online marketing and distribution channels which we expect will generate immediate business at a customer acquisition cost within our desired budget.

 

For the years ended December 31, 2016 and 2015, we generated interest income of $2.09 million and $1.79 million, respectively, and had net losses of $4.73 million and $5.70 million, respectively. For the three months ended March 31, 2017 and 2016, we generated interest income of $0.45 million and $0.51 million, respectively, and had net losses of $0.50 million and $0.96 million, respectively.

 

We were organized as a Florida corporation on January 21, 1999, originally under the name Interact Technologies, Inc. In February 2013, we changed our name to IEG Holdings Corporation. We have two wholly-owned subsidiaries, Investment Evolution Corporation (“IEC”), our U.S. operating entity that holds all of our state licenses, leases, employee contracts and other operating and administrative assets, and IEC SPV, LLC (“IEC SPV”), a bankruptcy remote special purpose entity that holds our U.S. loan receivables.

 

Our principal office is located at 6160 West Tropicana Avenue, Suite E-13, Las Vegas, Nevada 89103 and our phone number is (702) 227-5626. Our corporate website address is www.investmentevolution.com. Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this document.

 

OneMain

 

OneMain is a financial services holding company whose principal subsidiaries are Springleaf Finance, Inc. (“SFI”) and Independence Holdings, LLC (“Independence”). SFI’s principal subsidiary is Springleaf Finance Corporation (“SFC”), and Independence’s principal subsidiary is OneMain Financial Holdings, LLC (“OMFH”). SFC and OMFH are financial services holding companies with subsidiaries engaged in the consumer finance and insurance businesses. At March 31, 2017, Springleaf Financial Holdings, LLC (the “Initial Stockholder”) owned approximately 57% of OneMain’s common stock. The Initial Stockholder is owned primarily by a private equity fund managed by an affiliate of Fortress Investment Group LLC. As of March 31, 2017, OneMain had nearly 1,700 branch offices in 44 states. As of December 31, 2016, OneMain had over 10,100 employees. OneMain maintains an online consumer loan origination business. Although many new customer applications are sourced online, most online applications are closed in a branch.

 

For the years ended December 31, 2016 and 2015, OneMain generated interest income of $3,110 million and $1,930 million, respectively, and had net income (loss) of $243 million and $(93) million, respectively. For the three months ended March 31, 2017 and 2016, OneMain generated interest income of $759 million and $831 million, respectively, and had net income of $33 million and $165 million, respectively.

 

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OneMain’s principal office is located at 601 N.W. Second Street, Evansville, Indiana 47708 and its phone number is (812) 424-8031. OneMain’s corporate website address is www.onemainfinancial.com. Information contained on, or accessible through, OneMain’s website is not a part of, and is not incorporated by reference into, this document.

 

THE OFFER

 

General

 

IEG Holdings is offering to exchange 20 shares of IEG Holdings’ common stock for each share of common stock of OneMain, up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017, validly tendered and not properly withdrawn in the offer, on the terms and conditions of the offer, including the proration provisions. See “The Offer—Conditions of the Offer” and “The Offer—Proration.” On May 18, 2017, the closing price of a share of IEG Holdings common stock on the OTCQB was $2.48, and the closing price of a share of OneMain common stock on the NYSE was $22.38. Accordingly, the offer of 20 IEG Holdings shares for each share OneMain share represents a premium of approximately 121.6%.

 

Background of the Offer and the Acquisition

 

Over time, Mr. Mathieson, IEG Holdings’ President and Chief Executive Officer, has reviewed and discussed with the Board business, operational and strategic plans to enhance and complement IEG Holdings’ business, including a variety of strategic acquisition alternatives.

 

On May 23, 2016, Mr. Mathieson discussed informally a handful of strategic acquisition alternatives with IEG Holdings’ Board, including a potential tender offer for shares of OneMain’s common stock at end of 2016, as well as acquisition of certain unlisted lending phone application companies or Lending Club. The focus narrowed to OneMain as it appeared to be the best value for the best potential upside due to the substantial redundant cost structure as IEG Holdings already had the experience of moving from brick and mortar to online only. The acquisition would provide the largest increase in net assets for IEG Holdings shareholders. The Board indicated that additional research should be conducted and that IEG Holdings’ strategic alternatives should be explored further.

 

On May 27, 2016, Mr. Mathieson requested that Laura Anthony of Legal & Compliance, LLC, IEG Holdings’ securities counsel, provide certain information regarding historical stock-for-stock tender offers. Mr. Mathieson discussed with Ms. Anthony the perceived operational synergies and potential cost savings that could be achieved by converting OneMain’s brick-and-mortar business model to an online-only model, as well as the possible increase in profit and market capitalization of a possible business combination between IEG Holdings and OneMain company.

 

On May 27, 2016, Mr. Mathieson also informed the Board and Carla Cholewinski, IEG Holdings’ Chief Operating Officer, of his instructions to Ms. Anthony.

 

On June 3, 2016, Mr. Mathieson received a broad outline of the steps involved in a proposed tender offer for 100% of OneMain’s outstanding common stock, as well as certain concerns, including but not limited to, OneMain’s staggered board of directors, the difficulty involved in removing OneMain directors, and the existence of a OneMain majority stockholder. Mr. Mathieson provided the outline to IEG Holdings’ Board members and to Ms. Cholewinski. As part of his general review of strategic opportunities, Mr. Mathieson continued to review numerous transaction alternatives with various consumer finance businesses and assets (including peer-to-peer lenders) and OneMain.

 

On June 19, 2016, Mr. Mathieson conducted an analysis of large investor transactions in OneMain common stock, as well as potential synergies between IEG Holdings and OneMain.

 

On July 19, 2016, Mr. Mathieson informally discussed with the Board the possibility of launching a stock-for-stock tender offer for 100% of the outstanding shares of OneMain common stock at a discount to market in light of the relative small size of IEG Holdings, what Mr. Mathieson believed to be significant synergies and potential cost savings that could be achieved if the two companies were combined. The discount to market was based on an initial lower ratio offer of one share of IEG Holdings Common stock for each OneMain share, at a time when IEG Holdings stock was trading at approximately $18 per share and OneMain stock was trading at approximately $27 per share. Management’s plan was to adjust the offer at the time of launch to be a substantial discount of approximately 50% to see the market’s reaction and then make any appropriate adjustment decisions.

 

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On September 26, 2016, Mr. Mathieson requested that Ms. Anthony begin drafting board resolutions relating to a tender offer by IEG Holdings for 100% of the outstanding shares of OneMain common stock.

 

From October 12, 2016 to October 28, 2016, Mr. Mathieson held detailed but informal discussions with all Board members regarding a possible OneMain tender offer. Such discussions included the factors, uncertainties and risks set forth below under “—IEG Holdings’ Reasons for the Offer and the Acquisition.” The analysis of the value of IEG Holdings was limited to its then-current market capitalization and share price. The exchange rate was calculated on an approximate 50% discount to take into account the significant expected cost savings and value that could be added to the combined group by utilizing IEG Holdings’ online model. The financial performance and assets were not considered as management believed that the OneMain stockholders would look to the share price as it reflects and takes into account the financial performance and assets of the relevant business. Management believed that when comparing the two companies, IEG Holdings’ negative earnings per share was at a level very similar to OneMain for the full year ended December 31, 2015.

 

On October 28, 2016, the Board, which at that time consisted of Messrs. Harold Hansen, Matthew Banks and Paul Mathieson, approved unanimous written consent a stock-for-stock tender offer for 100% of OneMain’s outstanding common stock.

 

Effective November 3, 2016, at the suggestion of Mr. Mathieson, each of Matthew I. Banks and Harold A. Hansen resigned as a member of IEG Holdings’ Board. IEG Holdings determined that it would no longer pursue an uplisting to NYSE MKT or The NASDAQ Stock Market in the short term, and that it would move from the OTCQX market tier of the OTC Market Group to the OTCQB market tier in January 2017 in order to cut costs. Due to the move to the OTCQB market tier, IEG Holdings will no longer be required to (i) have at least two independent directors, or (ii) maintain a majority independent audit committee. As a result and in order to cut costs, Messrs. Banks and Hansen resigned as members of IEG Holdings’ Board. Mr. Mathieson remained as sole director. If and when IEG Holdings is able to uplist to a national exchange, IEG Holdings intents to appoint additional directors.

 

On November 7, 2016, OneMain’s closing stock price on the NYSE was $27.57. After the market closed on November 7, 2016, OneMain issued its earnings release relating to its third quarter 2016 results of operations. Ms. Cholewinski provided Mr. Mathieson with the earnings release. Mr. Mathieson and Ms. Cholewinski reviewed and analyzed the results. On November 8, 2016, OneMain’s closing stock price dropped to $16.90, representing a 38.7% decrease from the prior trading day’s closing price and a 65.6% decrease from the 52-week high closing price of $49.14 on November 27, 2015. On November 9, 2016, Mr. Mathieson, as sole director of IEG Holdings, decided to proceed with the tender offer for 100% of OneMain’s outstanding common shares. On March 23, 2017, OneMain’s closing stock price was $25.44, representing a 21.1% decrease from its 52-week high closing price of $32.26 on April 27, 2016, and a 52.7% decrease from its all-time high closing price of $53.83 on March 23, 2015.

 

On December 16, 2016, IEG Holdings delivered a letter to Jay N. Levine, OneMain’s President and Chief Executive Officer, and copied OneMain’s Board of Directors. In the letter, IEG Holdings advised Mr. Levine that IEG Holdings proposed to commence a tender offer for up to 100% of OneMain’s outstanding common stock on the basis of two shares of IEG Holdings common stock for each share of OneMain common stock. IEG Holdings indicated that it believed that a combined IEG Holdings/OneMain company could achieve significant operational synergies and cost savings by converting OneMain’s brick-and-mortar business model to an online-only model. IEG Holdings also identified certain factors which it viewed as supporting its decision to go forward with the tender offer. In the letter, IEG Holdings requested that OneMain provide certain disclosures and an auditors’ consent to be included in IEG Holdings’ SEC filings relating to the tender offer, including the registration statement on Form S-4 of which this document is a part. As of the date of this document, OneMain has not responded to IEG Holdings’ request.

 

IEG Holdings believed that a business combination could result in significant operational synergies and cost savings because IEG Holdings has shown the ability to operate an online only business across 19 states covering approximately 62% of the population with a skeleton staff of only seven people. IEG Holdings originally had four offices in four states with higher cost levels and without the development of its online system it would require a minimum of 19 offices in 19 states with substantially higher overhead costs. Upon developing its online system, IEG Holdings quickly moved to an online only model and has shown to regulators and customers the ability to achieve this transition. IEG Holdings believe d that it could apply the same processes to achieve significant operational synergies to the OneMain business. IEG Holdings believe d that it could remove the unnecessary brick and mortar costs of the OneMain operation and centralize OneMain’s underwriting away from its individual offices to only the head office. IEG Holdings expected that it would remove over 1,700 offices and 10,000 staff from the OneMain operation, resulting in significant cost savings. IEG Holdings believed the significant and main synergy to be between the online IEG Holdings system and the existing customer base of OneMain. IEG Holdings believed there would be significant benefits to the OneMain customers by removing the requirement for them to travel to an office and also significantly decrease the processing time to enable same day funding.

 

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The Board considered the challenges reasonably likely to arise from the process of converting OneMain’s brick-and-mortar business model to an online-only model. The main challenges would be staff morale during the transition phase and customer aversion. IEG Holdings believed that it could carefully and systematically terminate leases and staff utilizing natural staff attrition and expiration of leases wherever possible rather than redundancies, aiming to coincide termination of staff in offices where leases were expiring. IEG Holdings’ initial strategy would have been to cut each individual office to a skeleton customer service staff level so that there would be minimal impact on the collection of debt and customer interaction while encouraging and migrating existing and new customers to the online system for new loans. The value of OneMain’s main asset of its loan book would be expected to be maintained but there would be loss of value of non-loan assets, such as fixtures and fittings and unnecessary computer equipment.

 

In light of the decrease in IEG Holdings’ stock price, the increase in OneMain’s share price and initial small number of tenders, in March 2017, the Board decided to revise the offer to provide a more traditional 50% to 150% premium offer to maximize chance of success, and to reduce the number of shares which IEG Holdings is willing to accept for exchange from up to 100% of the outstanding shares of OneMain common stock to up to an aggregate of 6,747,723 shares of OneMain shares.

 

IEG Holdings’ Reasons for the Offer and the Acquisition

 

The purpose of the offer is for IEG Holdings to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017. IEG Holdings wishes to acquire up to an aggregate of 6,747,723 for several reasons, namely:

 

  IEG Holdings believes that the acquisition of OneMain’s shares is a solid short-term investment for IEG Holdings’ stockholders, significantly increasing IEG Holdings’ net asset value per share.
     
  IEG Holdings intends to use its OneMain stockholdings to become an activist investor, to pressure OneMain’s board to implement changes to its online strategy and execute substantial cost cuts in order to increase the value of IEG Holdings’ OneMain stockholdings.
     
  ●  This tender offer may be the first step in an ongoing attempt by IEG Holdings to obtain control of OneMain, through subsequent tender offers or otherwise.
     
  If IEG Holdings decides not to pursue control of OneMain in the future and if OneMain’s board refuses to (i) appoint an IEG Holdings representative to its board and/or management team, (ii) implement substantial cost cuts, and/or (iii) implement a new and improved online strategy, IEG Holdings likely would seek to liquidate its OneMain shareholdings, which is likely to be a net asset accretive strategy.

 

In reaching its decision to approve the offer and the acquisition of OneMain shares, IEG Holdings’ board of directors consulted with IEG Holdings’ senior management team and considered a number of factors, including the following material factors which it viewed as supporting its decision to approve the offer and the acquisition:

 

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   In its role as activist investor, IEG Holdings intends to encourage OneMain to transform the OneMain “brick and mortar” business model to IEG Holdings’ 100% online-only distribution business model, which IEG Holdings believes could result in estimated cost savings of at least $700 million per year by closing over 1,700 OneMain offices, terminating over 10,000 employees, and achieving substantial cuts in advertising/marketing costs and other significant cost cutting measures, including a significant reduction in aggregate annual executive compensation;
     
  In its role as activist investor, IEG Holdings intends to encourage OneMain to improve its business from termination of low margin OneMain business segments with a new focus on high margin unsecured loans to near prime clients, a focus on refinancing of existing high quality OneMain customers and termination of lending to sub-prime OneMain customers with FICO score of less than 600 to reduce OneMain loss levels; and
     
  Acquisition would be substantially earnings and net asset per share accretive for IEG Holdings stockholders.

   

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The foregoing discussion of the information and factors considered by the IEG Holdings board of directors is not intended to be exhaustive, but includes the material factors considered by the IEG Holdings board of directors. In view of the variety of factors considered in connection with its evaluation of the OneMain tender offer, the IEG Holdings board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, individual directors may have given different weights to different factors. The IEG Holdings board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The IEG Holdings board of directors based its determination on the totality of the information presented.

 

Proration

 

If, upon the expiration of the offer, OneMain stockholders have validly tendered and not validly withdrawn more shares of OneMain common stock than IEG Holdings is able to accept for exchange, IEG Holdings will accept for exchange the shares of OneMain common stock validly tendered and not validly withdrawn by each tendering stockholder on a pro rata basis, based on the proportion that the total number of shares of OneMain common stock to be accepted for exchange bears to the total number of shares of OneMain common stock validly tendered and not validly withdrawn (rounded to the nearest whole number of shares of OneMain common stock).

 

IEG Holdings will announce the preliminary proration factor, if any, by press release by 9:00 a.m., Eastern time, on the business day (currently expected to be June 16, 2017) following the expiration date of the offer (currently expected to be June 15, 2017). Upon determining the number of shares of OneMain common stock validly tendered for exchange, OneMain will announce the final results, including the final proration factor, if any.

 

Any shares of OneMain common stock not accepted for exchange in the exchange offer as a result of proration will be returned to the tendering stockholder promptly after the expiration of the exchange offer in book-entry form to a direct registration account in the name of the registered holder maintained by OneMain’s transfer agent even if tendered in certificated form.

 

Distribution of Offering Materials

 

On or about January 27, 2017, the preliminary prospectus/offer to exchange, the related letter of transmittal and other relevant materials were initially delivered to record holders of shares and to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on OneMain’s stockholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing, so that they can in turn send these materials to beneficial owners of shares.

 

Expiration of the Offer

 

The offer is scheduled to expire at 5:00 p.m., Eastern time, on June 15, 2017, which is the “expiration date,” unless further extended by IEG Holdings. “Expiration date” means June 15, 2017, unless and until IEG Holdings has extended the period during which the offer is open, in which event the term “expiration date” means the latest time and date at which the offer, as so extended by IEG Holdings, will expire.

 

Extension, Termination and Amendment

 

IEG Holdings will effect any extension, termination, amendment or delay by (i) giving oral or written notice to the depository and exchange agent, (ii) making a public announcement promptly thereafter as described under “The Offer—Extension, Termination and Amendment,” (iii) filing with the SEC an amendment to Schedule TO reporting promptly any material changes in the information set forth in the schedule previously filed and including copies of any additional tender offer materials as exhibits, and (iv) as required by Rule 14d-4(d)(2) promulgated under the Exchange Act, keeping the tender offer open from the date that material changes to the tender offer materials are disseminated to securityholders as follows: (a) five business days for a prospectus supplement containing a material change other than price or share levels, (b) 10 business days for a prospectus supplement containing a change in price, the amount of securities sought or other similarly significant change, (c) 10 business days for a prospectus supplement included as part of a post-effective amendment, and (d) 20 business days for a revised prospectus when the initial prospectus was materially deficient.

 

In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the offer be promptly disseminated to stockholders in a manner reasonably designed to inform them of such change) and without limiting the manner in which IEG Holdings may choose to make any public announcement, IEG Holdings assumes no obligation to publish, advertise or otherwise communicate any such public announcement of this type other than by issuing a press release. During any extension, OneMain shares previously tendered and not properly withdrawn will remain subject to the offer, subject to the right of each OneMain stockholder to withdraw previously tendered OneMain shares.

 

No subsequent offering period will be available following the expiration of the offer.

 

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Exchange of Shares; Delivery of Shares of IEG Holdings Common Stock

 

IEG Holdings has retained Computershare as the depositary and exchange agent for the offer (the “depository and exchange agent”) to handle the exchange of shares for the offer consideration.

 

Upon the terms and subject to the satisfaction or waiver of the conditions of the offer (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment), IEG Holdings will accept for exchange, and will exchange, shares validly tendered and not properly withdrawn promptly after the expiration date. In all cases, a OneMain stockholder will receive consideration for tendered OneMain shares only after timely receipt by the depository and exchange agent of certificates for those shares, or a confirmation of a book-entry transfer of those shares into the depository and exchange agent’s account at The Depository Trust Company (“DTC”), a properly completed and duly executed letter of transmittal, or an agent’s message in connection with a book-entry transfer, and any other required documents.

 

For purposes of the offer, IEG Holdings will be deemed to have accepted for exchange shares validly tendered and not properly withdrawn if and when it notifies the depository and exchange agent of its acceptance of those shares pursuant to the offer. The depository and exchange agent will deliver to the applicable OneMain stockholders shares of IEG Holdings common stock issuable in exchange for shares validly tendered and accepted pursuant to the offer promptly after receipt of such notice. The depository and exchange agent will act as the agent for tendering OneMain stockholders for the purpose of receiving shares of IEG Holdings common stock from IEG Holdings and transmitting such stock to the tendering OneMain stockholders.

 

If IEG Holdings does not accept any tendered OneMain shares for exchange pursuant to the terms and conditions of the offer for any reason, or if certificates are submitted representing more shares than are tendered for, IEG Holdings will return certificates for such unexchanged shares without expense to the tendering stockholder or, in the case of shares tendered by book-entry transfer into the depository and exchange agent’s account at DTC pursuant to the procedures set forth below in “—Procedure for Tendering,” the shares to be returned will be credited to an account maintained with DTC promptly following expiration or termination of the offer.

 

Withdrawal Rights

 

OneMain stockholders can withdraw tendered OneMain shares at any time until the expiration date and, if IEG Holdings has not agreed to accept the shares for exchange on or prior to June 15, 2017, OneMain stockholders can thereafter withdraw their shares from tender at any time after such date until IEG Holdings accepts shares for exchange.

 

For the withdrawal of shares to be effective, the depository and exchange agent must receive a written notice of withdrawal from the OneMain stockholder at one of the addresses set forth on the back cover of this document, prior to the expiration date. The notice must include the OneMain stockholder’s name, address, social security number, the certificate number(s), the number of shares to be withdrawn and the name of the registered holder, if it is different from that of the person who tendered those shares, and any other information required pursuant to the offer or the procedures of DTC, if applicable.

 

A financial institution must guarantee all signatures on the notice of withdrawal, unless the shares to be withdrawn were tendered for the account of an eligible institution. Most banks, savings and loan associations and brokerage houses are able to provide signature guarantees. An “eligible institution” is a financial institution that is a participant in the Securities Transfer Agents Medallion Program.

 

If shares have been tendered pursuant to the procedures for book-entry transfer discussed under the section entitled “—Procedure for Tendering,” any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn shares and must otherwise comply with DTC’s procedures. If certificates have been delivered or otherwise identified to the depository and exchange agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the shares withdrawn must also be furnished to the depository and exchange agent, as stated above, prior to the physical release of such certificates.

 

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IEG Holdings will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal in its sole discretion. None of IEG Holdings, the depository and exchange agent, the information agent or any other person is under any duty to give notification of any defects or irregularities in any tender or notice of withdrawal or will incur any liability for failure to give any such notification. Any shares properly withdrawn will be deemed not to have been validly tendered for purposes of the offer. However, a OneMain stockholder may re-tender withdrawn shares by following the applicable procedures discussed under the section “—Procedure for Tendering” at any time prior to the expiration date.

 

Procedure for Tendering

 

For a OneMain stockholder to validly tender OneMain shares pursuant to the offer:

 

  a properly completed and duly executed letter of transmittal, along with any required signature guarantees and any other documents required by the letter of transmittal, and certificates for tendered OneMain shares held in certificate form must be received by the depository and exchange agent at one of its addresses set forth on the back cover of this document before the expiration date; or
     
  an agent’s message in connection with a book-entry transfer, and any other required documents, must be received by the depository and exchange agent at one of its addresses set forth on the back cover of this document, and the shares must be tendered into the depository and exchange agent’s account at DTC pursuant to the procedures for book-entry tender set forth below (and a confirmation of receipt of such tender, referred to as a “book-entry confirmation” must be received), in each case before the expiration date.

 

The term “agent’s message” means a message transmitted by DTC to, and received by, the depository and exchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the DTC participant tendering the shares that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the letter of transmittal and that IEG Holdings may enforce that agreement against such participant.

 

The depository and exchange agent has established an account with respect to the shares at DTC in connection with the offer, and any financial institution that is a participant in DTC may make book-entry delivery of shares by causing DTC to transfer such shares prior to the expiration date into the depository and exchange agent’s account in accordance with DTC’s procedure for such transfer. However, although delivery of shares may be effected through book-entry transfer at DTC, the letter of transmittal with any required signature guarantees, or an agent’s message, along with any other required documents, must, in any case, be received by the depository and exchange agent at one of its addresses set forth on the back cover of this document prior to the expiration date. IEG Holdings cannot assure OneMain stockholders that book-entry delivery of shares will be available. If book-entry delivery is not available, OneMain stockholders must tender shares by means of delivery of OneMain share certificates. We are not providing for guaranteed delivery procedures and therefore you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to the expiration date. Tenders received by the depository and exchange agent after the expiration date will be disregarded and of no effect.

 

Signatures on all letters of election and transmittal must be guaranteed by an eligible institution, except in cases in which shares are tendered either by a registered holder of shares who has not completed the box entitled “Special Issuance Instructions” or the box entitled “Special Delivery Instructions” on the letter of transmittal or for the account of an eligible institution.

 

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If the certificates for shares are registered in the name of a person other than the person who signs the letter of transmittal, or if certificates for unexchanged shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature(s) on the certificates or stock powers guaranteed by an eligible institution.

 

The method of delivery of OneMain share certificates and all other required documents, including delivery through DTC, is at the option and risk of the tendering OneMain stockholder, and delivery will be deemed made only when actually received by the depository and exchange agent. If delivery is by mail, IEG Holdings recommends registered mail with return receipt requested and properly insured. In all cases, OneMain stockholders should allow sufficient time to ensure timely delivery.

 

To prevent U.S. federal income tax backup withholding, each OneMain stockholder, other than a stockholder exempt from backup withholding as described below, must provide the depository and exchange agent with its correct taxpayer identification number and certify that it is not subject to backup withholding of U.S. federal income tax by completing the IRS Form W-9 included in the letter of transmittal. Certain stockholders (including, among others, certain foreign persons) are not subject to these backup withholding and reporting requirements. In order for a foreign person to qualify as an exempt recipient, the stockholder must submit an IRS Form W-8BEN, or other applicable IRS Form W-8, signed under penalties of perjury, attesting to such person’s exempt status.

 

The tender of shares pursuant to any of the procedures described above will constitute a binding agreement between IEG Holdings and the tendering OneMain stockholder upon the terms and subject to the satisfaction or waiver of the conditions of the offer.

 

No Guaranteed Delivery

 

We are not providing for guaranteed delivery procedures and therefore OneMain stockholders must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to the expiration date. OneMain stockholders must tender their OneMain shares in accordance with the procedures set forth in this document. In all cases, IEG Holdings will exchange shares tendered and accepted for exchange pursuant to the offer only after timely receipt by the depository and exchange agent of certificates for shares (or timely confirmation of a book-entry transfer of such shares into the depository and exchange agent’s account at DTC as described above), a properly completed and duly executed letter of transmittal (or an agent’s message in connection with a book-entry transfer) and any other required documents.

 

Grant of Proxy

 

By executing a letter of transmittal as set forth above, a OneMain stockholder irrevocably appoints IEG Holdings’ designees as such OneMain stockholder’s attorneys-in-fact and proxies, each with full power of substitution, to the full extent of such stockholder’s rights with respect to its shares tendered and accepted for exchange by IEG Holdings and with respect to any and all other shares and other securities issued or issuable in respect of those shares on or after the expiration date. That appointment is effective, and voting rights will be affected, when and only to the extent that IEG Holdings accepts tendered OneMain shares for exchange pursuant to the offer and deposits with the depository and exchange agent the shares of IEG Holdings common stock consideration for such shares. All such proxies will be considered coupled with an interest in the tendered OneMain shares and therefore will not be revocable. Upon the effectiveness of such appointment, all prior proxies that the OneMain stockholder has given will be revoked, and such stockholder may not give any subsequent proxies (and, if given, they will not be deemed effective). IEG Holdings’ designees will, with respect to the shares for which the appointment is effective, be empowered, among other things, to exercise all of such stockholder’s voting and other rights as they, in their sole discretion, deem proper at any annual, special or adjourned meeting of the OneMain’s stockholders or otherwise. IEG Holdings reserves the right to require that, in order for shares to be deemed validly tendered, immediately upon the exchange of such shares, IEG Holdings must be able to exercise full voting rights with respect to such shares. However, prior to acceptance for exchange by IEG Holdings in accordance with terms of the offer, the appointment will not be effective, and IEG Holdings will have no voting rights as a result of the tender of shares.

 

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Fees and Commissions

 

Tendering registered OneMain stockholders who tender shares directly to the depository and exchange agent will not be obligated to pay any charges or expenses of the depository and exchange agent or any brokerage commissions. Tendering OneMain stockholders who hold OneMain shares through a broker or bank should consult that institution as to whether or not such institution will charge the stockholder any service fees in connection with tendering shares pursuant to the offer. Except as set forth in the instructions to the letter of transmittal, transfer taxes on the exchange of shares pursuant to the offer will be paid by IEG Holdings.

 

Matters Concerning Validity and Eligibility

 

IEG Holdings will determine questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of shares, in its sole discretion. IEG Holdings reserves the absolute right to reject any and all tenders of shares that it determines are not in the proper form or the acceptance of or exchange for which may be unlawful. IEG Holdings also reserves the absolute right to waive any defect or irregularity in the tender of any shares. No tender of shares will be deemed to have been validly made until all defects and irregularities in tenders of such shares have been cured or waived. None of IEG Holdings, the depository and exchange agent, the information agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any shares or will incur any liability for failure to give any such notification.

 

OneMain stockholders who have any questions about the procedure for tendering shares in the offer should contact the information agent as set forth below.

 

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, NY 10104

 

Banks, Brokers and Shareholders

Call Toll-Free (800) 279-6913

Or Contact via E-mail at:

IEGH@georgeson.com

 

Announcement of Results of the Offer

 

IEG Holdings will announce the final results of the offer, including whether all of the conditions to the offer have been satisfied or waived and whether IEG Holdings will accept the tendered OneMain shares for exchange, promptly following the expiration date. The announcement will be made by a press release and IEG Holdings will file with the SEC a final amendment to Schedule TO reporting promptly the results of the tender offer.

 

Ownership of IEG Holdings After the Offer and the Acquisition of Tendered Shares

 

Assuming that:

 

  6,747,723 of OneMain’s outstanding shares are exchanged in the offer; and
     
  9,714,186 shares of IEG Holdings common stock are outstanding immediately prior to expiration of the offer;

 

former OneMain stockholders would own in the aggregate 93.3% of the outstanding shares of IEG Holdings common stock after completion of the offer.

 

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Purpose of the Offer; Dissenters’ Rights

 

Purpose of the Offer

 

The purpose of the offer is for IEG Holdings to acquire up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017. IEG Holdings wishes to acquire up to an aggregate of 6,747,723 for several reasons, namely:

 

  IEG Holdings believes that the acquisition of OneMain’s shares is a solid short-term investment for IEG Holdings’ stockholders, significantly increasing IEG Holdings’ net asset value per share.
     
  IEG Holdings intends to use its OneMain stockholdings to become an activist investor, to pressure OneMain’s board to implement changes to its online strategy and execute substantial cost cuts in order to increase the value of IEG Holdings’ OneMain stockholdings.
     
  This tender offer may be the first step in an ongoing attempt by IEG Holdings to obtain control of OneMain, through subsequent tender offers or otherwise.
     
  If IEG Holdings decides not to pursue control of OneMain in the future and if OneMain’s board refuses to (i) appoint an IEG Holdings representative to its board and/or management team, (ii) implement substantial cost cuts, and/or (iii) implement a new and improved online strategy, IEG Holdings likely would seek to liquidate its OneMain shareholdings, which is likely to be a net asset accretive strategy.

 

Dissenters’ Rights

 

No appraisal rights are available to the holders of OneMain shares in connection with the offer.

  

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Conditions of the Offer

 

IEG Holdings will not accept for exchange or exchange any OneMain shares, may postpone the acceptance for exchange, or the exchange, of tendered OneMain shares, if at the expiration date any of the following conditions is not satisfied or validly waived:

 

Certain Other Conditions

 

The other conditions to the offer are as follows:

 

  the registration statement, of which this document is a part, must have become effective under the Securities Act, and must not be the subject of any stop order or proceeding seeking a stop order; and
     
  no law, order, or injunction restraining or enjoining or otherwise prohibiting the consummation of the offer must have been issued by a governmental entity of competent jurisdiction;

 

Certain Legal Matters; Regulatory Approvals

 

General

 

IEG Holdings is not aware of any governmental license or regulatory permit that appears to be material to OneMain’s business that might be adversely affected by IEG Holdings’ acquisition of OneMain shares pursuant to the offer or, of any approval or other action by any government or governmental administrative or regulatory authority or agency, domestic or foreign, that would be required for IEG Holdings’ acquisition or ownership of OneMain shares pursuant to the offer.

 

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Antitrust

 

In connection with the offer, IEG Holdings does not believe that any Notification and Report Form filing with the Federal Trade Commission and the Department of Justice is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

Interests of Certain Persons in the Offer

 

OneMain’s directors and executive officers may have interests in the offer that are different from, or in addition to, the interests of the OneMain stockholders generally. These interests may create potential conflicts of interest. On January 9, 2017, OneMain’s board of directors unanimously recommended that OneMain stockholders reject the OneMain tender offer and not tender their shares pursuant to the offer.

 

Effect of the Offer on OneMain Shares and Equity Awards

 

Consideration for OneMain Shares

 

If OneMain’s directors and executive officers were to tender any OneMain shares they own for purchase pursuant to the offer, they would receive the same consideration on the same terms and conditions as the other stockholders of OneMain. As of March 31, 2017 (the most recent date for which such information is publicly available), OneMain’s directors and executive officers (and affiliates) owned 78,106,482 OneMain shares in the aggregate. If the directors and executive officers (and affiliates) were to validly tender and not properly withdraw their outstanding OneMain shares pursuant to the offer, up to the aggregate offering amount of 6,747,723 OneMain shares, and those OneMain shares were accepted for exchange by IEG Holdings, the directors and executive officers (and affiliates) would receive shares of IEG Holdings common stock having an aggregate value of approximately $334.7 million, based on the last sale price of IEG Holdings common stock on the OTCQB on May 18, 2017.

 

No Consideration for Restricted Stock Units or Other Convertible Securities

 

IEG Holdings will not provide any consideration for outstanding OneMain restricted stock units or other convertible securities.

 

Certain Relationships With OneMain

 

As of the date of this document, IEG Holdings does not own any OneMain shares. IEG Holdings has not effected any transaction in securities of OneMain in the past 60 days. To the best of IEG Holdings’ knowledge, after reasonable inquiry, none of the persons listed in the section entitled “Management,” nor any of their respective associates or majority-owned subsidiaries, beneficially owns or has the right to acquire any securities of OneMain or has effected any transaction in securities of OneMain during the past 60 days.

 

Source and Amount of Funds

 

The offer is not conditioned upon any financing arrangements or contingencies.

 

Fees and Expenses

 

IEG Holdings has retained Georgeson LLC as information agent in connection with the offer. The information agent may contact holders of shares by mail, email, telephone, facsimile and personal interview and may request brokers, dealers and other nominee stockholders to forward material relating to the offer to beneficial owners of shares. IEG Holdings will pay the information agent reasonable and customary compensation for these services in addition to reimbursing the information agent for its reasonable out-of-pocket expenses. IEG Holdings agreed to indemnify the information agent against certain liabilities and expenses in connection with the offer, including certain liabilities under the U.S. federal securities laws.

 

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In addition, IEG Holdings has retained Computershare as depository and exchange agent in connection with the offer. IEG Holdings will pay the depository and exchange agent reasonable and customary compensation for its services in connection with the offer, will reimburse the depository and exchange agent for its reasonable out-of-pocket expenses and will indemnify the depository and exchange agent against certain liabilities and expenses, including certain liabilities under the U.S. federal securities laws.

 

IEG Holdings will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to their customers. Except as set forth above, IEG Holdings will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of shares pursuant to the offer.

 

Accounting Treatment

 

In accordance with accounting principles generally accepted in the United States, IEG Holdings will account for the acquisition of shares as an available-for-sale investment.

 

Resale of IEG Holdings Common Stock

 

All IEG Holdings common stock received by OneMain stockholders as consideration in the offer will be freely tradable for purposes of the Securities Act, except for IEG Holdings common stock received by any person who is deemed an “affiliate” of IEG Holdings at the time of the closing. IEG Holdings common stock held by an affiliate of IEG Holdings may be resold or otherwise transferred without registration in compliance with the volume limitations, manner of sale requirements, notice requirements and other requirements under Rule 144 or as otherwise permitted under the Securities Act. This document does not cover resales of IEG Holdings common stock by any person, and no person is authorized to make any use of this document in connection with any resale.

 

COMPARATIVE MARKET PRICE AND DIVIDEND MATTERS

 

Market Price History

 

In 2016, IEG Holdings’ common stock was quoted on the OTCQX market tier of the OTC Markets Group under the symbol “IEGH.” Beginning in January 2017, IEG Holdings’ common stock is quoted on the OTCQB. OneMain shares are listed on the NYSE under the symbol “OMF.” The following table sets forth, for the periods indicated, as reported by the OTCQX with respect to IEG Holdings and NYSE with respect to OneMain, the per share high and low sales prices of each company’s common stock.

 

    IEG Common Stock   OneMain Common Stock 
    High   Low   High   Low 
2014                     
Quarter Ended March 31, 2014   $100.00   $100.00   $28.56   $23.43 
Quarter Ended June 30, 2014    120.00    100.00    27.35    22.35 
Quarter Ended September 30, 2014    450.00    100.00    34.74    25.28 
Quarter Ended December 31, 2014    1,000.00    100.00    39.86    32.04 
                      
2015                     
Quarter Ended March 31, 2015   $510.00   $387.50   $54.34   $31.35 
Quarter Ended June 30, 2015    550.00    250.00    53.80    44.67 
Quarter Ended September 30, 2015    275.00    80.00    52.00    41.00 
Quarter Ended December 31, 2015    100.00    74.90    51.39    39.24 
                      
2016                     
Quarter Ended March 31, 2016   $99.00   $49.50    40.72    18.95 
Quarter Ended June 30, 2016    65.00    17.50    32.26    21.20 
Quarter Ended September 30, 2016    24.00    16.60    31.37    21.27 
Quarter Ended December 31, 2016    7.50    2.01    31.47    16.90 

 

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On January 4, 2017, the trading day prior to the filing of IEG Holdings’ registration statement on Form S-4, of which this document forms a part, the closing price per OneMain share on the NYSE and the closing price per share of IEG Holdings common stock as quoted on the OTCQB was as follows:

 

IEG Holdings   OneMain 
        
$5.45   $23.90 

 

On May 18, 2017, the closing price of a share of IEG Holdings common stock on the OTCQB was $2.48, and the closing price of a share of OneMain common stock on the NYSE was $22.38. OneMain stockholders should obtain current market quotations for OneMain shares and shares of IEG Holdings common stock before deciding whether to tender their OneMain shares in the offer. IEG Holdings’ common stock is quoted on the OTCQB tier of the OTC Markets. Trading in IEG Holdings common stock is thin and sporadic, and the price of IEG Holdings common stock has been in the past, and likely will be in the future, very volatile because of several factors, including a limited public float. See “Risk Factors—IEG Holdings Risk Factors—Risks Relating to Our Common Stock—Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock” and “Risk Factors—IEG Holdings Risk Factors—Risks Relating to Our Common Stock—Our common stock price is likely to be highly volatile because of several factors, including a limited public float.”

 

Dividends

 

Historically, we have not paid any cash dividends on our common stock. In May 2017, we announced the declaration of a cash dividend of $0.005 per common share for the first quarter of 2017. The dividend is payable on August 21, 2017 to stockholders of record at the close of business on June 5, 2017. We expect to pay ongoing quarterly dividends. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We may determine to retain future earnings, if any, for reinvestment in the development and expansion of our business.

 

INFORMATION ABOUT IEG HOLDINGS

 

DESCRIPTION OF IEG HOLDINGS’ BUSINESS

 

Business Overview

 

We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

 

Our strategy is to address the market needs of underbanked consumers that tend to be ignored by mainstream institutional credit providers such as banks and credit unions, and charged excessive fees and interest by fringe lenders such as payday lenders. In the current global environment, we believe there is a substantial need and opportunity for the small personal loans we offer.

 

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All of our personal loans are offered at prevailing statutory rates with fixed affordable repayments and no prepayment penalties. We conduct full underwriting on all applications including credit checks and review of bank statements to ensure customers have capacity to repay their loans, and have designed our loans to help customers reach a stronger financial position.

 

We plan to continue expanding our state coverage in 2017 by obtaining state lending licenses in six additional states, increasing our coverage to 25 states and approximately 240 million people. As soon as we receive new state licenses we will add to our existing online marketing and distribution channels which we expect will generate immediate business at a customer acquisition cost within our desired budget.

 

Recent Developments

 

On January 5, 2017, we commenced a tender offer to purchase up to all of OneMain’s outstanding shares provided, however, that we were willing to accept any number of shares of OneMain common stock, even if such shares, in the aggregate, constitute less than a majority of OneMain’s outstanding common stock. The OneMain tender offer was scheduled to expire at 12:00 a.m., Eastern time, on February 6, 2017, unless extended. On February 7, 2017, we extended the OneMain tender offer such that it was to expire at 5:00 p.m., Eastern time, on March 27, 2017, unless extended or earlier terminated. On March 27, 2017, we extended the OneMain tender offer such that it will expire at 5:00 p.m., Eastern time, on Friday, May 5, 2017, unless extended or earlier terminated. In addition, we revised the offer such that we are offering to exchange 20 shares of our common stock for each share of OneMain’s common stock, up to an aggregate of 6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of May 1, 2017, validly tendered and not properly withdrawn in the offer. On May 5, 2017, we extended the OneMain tender offer such that it will expire at 5:00 p.m., Eastern time, on Thursday, June 15, 2017, unless extended or earlier terminated. Complete terms and conditions of the OneMain tender offer are set forth in the Tender Offer Statement on Schedule TO and in the registration statement on Form S-4, each of which we originally filed with the SEC on January 5, 2017, and each of which as may be amended.

 

In January 2017, our Board of Directors approved a stock repurchase program authorizing the open market repurchase of up to $2,000,000 of our common stock for the following reasons:

 

  ●  The stock repurchase program permits the Company to purchase shares of its common stock from time to time at prices that are below what the Board believes to be the true value of the shares.
     
  The Company’s common stock is trading at close to record low prices.
     
  The stock repurchase program reflects the commitment of our Board of Directors to enhance stockholder value and its confidence in our long-term growth prospects.
     
  The Board believes the stock repurchase program is a strategic investment and an appropriate use of corporate funds.
     
  Any repurchases will only be effected to the extent that they do not impair the Company’s capital or the Company’s ability to pay its debts.
     
  The Company has available liquidity from existing customer loan repayments to be able to both reinvest in new customer loans and also to strategically invest back into our company via stock repurchases.
     
  The stock repurchase program will assist in improving stock liquidity and ensuring a more orderly and less volatile market for a relatively small outlay of cash.
     
  No purchases are required and the $2,000,000 cap on the stock repurchase program is relatively low.
     
  Management has no intention to repurchase a significant number of shares unless additional capital has been secured.

 

Purchases under the program are authorized through December 31, 2017. No shares will be repurchased under the program until the OneMain Tender Offer has closed or has been terminated. 

 

In December 2016, we launched a private offering of up to $10 million aggregate principal amount of our 12% senior unsecured notes due December 31, 2026 (the “Notes”), on a self-underwritten basis. The Notes offering was terminated in May 2017. No Notes were sold in the offering.

 

Market

 

We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

 

Our strategy is to address the funding needs of “under-banked” consumers that tend to be ignored by mainstream institutional credit providers such as traditional banks and credit unions, and charged high advanced fees and interest by fringe lenders such as payday lenders. In the current economic environment, we believe there is a substantial need for the small personal loans that we offer.

 

All of our personal loans are offered at less than prevailing maximum statutory rates with fixed repayments and no prepayment penalties. We conduct full underwriting on all applications, including credit checks and review of bank statements to ensure customers have the capacity to repay their loans.

 

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We plan to continue expanding our state coverage by obtaining state lending licenses in an additional six states, increasing our coverage to 25 states in 2017. As soon as we receive new state licenses, we are prepared to re-focus our existing online marketing and distribution channel resources to those states, which we expect will continue to lower our average customer acquisition cost.

 

We have a history of reporting recurring losses and have not generated positive net cash flows from operations. For the years ended December 31, 2016 and 2015, we generated revenue of $2,135,046 and $1,835,165, respectively, and had net losses of $4,728,869 and $5,698,198, respectively. For the three months ended March 31, 2017 and 2016, we generated revenue of $467,383 and $524,972, respectively, and had net losses of $503,939 and $956,679, respectively.

 

We were organized as a Florida corporation on January 21, 1999, originally under the name Interact Technologies, Inc. In February 2013, we changed our name to IEG Holdings Corporation. We have two wholly-owned subsidiaries, IEC, our U.S. operating entity that holds all of our state licenses, leases, employee contracts and other operating and administrative assets, and IEC SPV, a bankruptcy remote special purpose entity that holds our U.S. loan receivables.

 

Market

 

We operate in the consumer finance industry serving the large and growing population of consumers who have limited access to credit from banks, credit card companies and other lenders. According to the Federal Deposit Insurance Corporation, 7.7% (1 in 13) of households in the United States were unbanked in 2013. This proportion represented nearly 9.6 million households. According to the Center for Financial Services December 2015 report, the rapid rise of short term credit, which grew 37% from 2012 to 2014, while single payment credit grew only 0.1% over the same period, is starkly apparent. With anticipated regulatory changes likely to alter the feasibility of offering loans due in one lump sum, many companies are investing more heavily in installment-based credit products, while new players are seeking to upend the economics of small-dollar loans through online channels and alternative underwriting. The strong marketing and new account approval rates of subprime credit cards have also provided consumers with increased access to funds available on a short-term basis. Together, these shifts in the consumer lending industry suggest that total revenue for short term credit products, sized at $29 billion in 2014, will soon outpace that of single payment credit products, sized at $38 billion for the same year. In fact, short term credit products already generate nearly twice as much annual revenue as single payment credit products.

 

Installment lending to non-prime consumers is one of the most highly fragmented sectors of the consumer finance industry. We are a state-licensed Internet-based personal loan company serving in the consumer installment lending industry. Our online lending platform provides the distribution network to efficiently address this growing market of consumers without the significant costs and overhead associated with an extensive branch network. We believe we are well positioned to capitalize on the significant growth and expansion opportunity created by the continued shift of consumers to online services, such as online banking and in our case online personal loans.

 

We are currently licensed and providing loans online to residents of Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia, with plans to continue to expand across the United States by acquiring additional state lending licenses. The following is a breakdown of our cumulative loan origination amounts in each licensed state for our current active loan portfolio as at December 31, 2016:

 

State 

Origination

Volume ($)

  

Current

Principal ($)

   Number of
Loans
 
Alabama   115,000    89,203    18 
Arizona   807,000    307,766    99 
California   995,000    779,210    163 
Florida   2,260,000    1,073,758    278 
Georgia   1,433,023    

800,394

    177 
Illinois   1,761,000    936,025    212 
Kentucky   15,000    14,426    3 
Louisiana   15,000    12,839    3 
Maryland (1)   0    0    0 
Missouri   413,000    254,103    59 
Nevada   1,708,000    663,594    175 
New Jersey   1,607,000    843,708    196 
New Mexico   35,000    27,056    6 
Ohio (2)   0    0    0 
Oregon   290,000    163,429    37 
Pennsylvania   810,000    

562,074

    117 
Texas   740,000    

347,539

    91 
Utah   75,000    49,829    11 
Virginia   1,030,000    599,398    137 

 

  (1) Maryland was added as a licensed state in October 2016.
  (2) Ohio was added as a licensed state in December 2016.

 

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Business Strategy

 

Our business strategy is to lower the cost of providing consumer loans by leveraging our online lending platform and distribution network, while continuing to obtain additional state licenses to enable further loan book growth and portfolio diversification. Our strategy includes a number of key elements:

 

  State-Licensed Model: Our state-licensed business model is a key element of our business strategy. We are currently licensed in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia and plan to continue expanding across the United States by acquiring additional state lending licenses.
     
  Online Distribution: We launched online lending in March 2013 and commenced online advertising in July 2013. Upon fulfillment of state regulatory requirements, we received approval from regulators in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia to operate solely online in these states. This allows us to fully service all 19 states from our centralized Las Vegas headquarters, which we believe is a key competitive advantage over brick and mortar lenders.
     
  Cost-Effective Customer Acquisition: Our customer acquisition costs have been reduced since we launched online lending and marketing.
     
  Continue to Grow Loan Book: Total cumulative loan originations as of March 31, 2017 have increased 157% to $14,249,023 since our January 1, 2015 total of $5,549,023. This growth in lending is attributable to launching online lending and joint venturing with a number of new marketing partners, however, such past growth is not necessarily indicative or predictive of our future results of operation. We also plan to obtain an additional six state lending licenses in 2017.
     
  Strategic Acquisitions: We have reviewed, and continue to review, opportunities to expand our business through acquisition or merger in the consumer finance sector. We are pursuing opportunities that provide synergies with our existing business and specifically target potential acquisitions that are significantly accretive to net asset value and/or provide significant revenue growth opportunities via a minority or majority shareholding.

 

Competitive Strengths

 

We believe our competitive strengths are:

 

  Large Market and Scope for Growth: Large personal and payday loan market in the United States presents opportunity for significant growth and expansion.
     
  Regulation: We are materially compliant with state lending licenses in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia, and are well positioned for current and future regulatory changes due to ongoing compliance and conservative business model.
     
  Customer Proposition: Our unsecured $5,000 and $10,000 installment loans are all offered over five years and feature affordable weekly repayments. Rates range from 19.9% - 29.9% APR which make us a low cost alternative to payday loans which have an average APR of over 400%.

 

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  Online Distribution: Special approval has been granted by the Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia regulators to operate our business without a physical office location in each state. As a result, we have closed offices in Arizona, Illinois and Florida and moved to full online loan distribution, enabling us to offer loans to residents in all 19 of our licensed states from our Las Vegas headquarters. We plan to apply for the same regulatory approval for six additional states in 2017.
     
  Customer Acquisition: We launched online advertising in July 2013 with positive results from search engine cost per click advertising and online lead generation. In addition, we engaged a number of new marketing partners in 2014, 2015 and 2016, including online lead generators and direct mail. All of these avenues provide opportunities for strong growth at low customer acquisition costs.
     
  Barriers to Entry: We believe that state licensure acts as a barrier to entry into our segment of the consumer loan market. We are strongly positioned with approval to operate under 19 state licenses from one centralized head office.

 

Products

 

We currently provide $5,000 and $10,000 online consumer loans unsecured over a five-year term with rates ranging from 19.9% to 29.9% annual percentage rate. Our current loan portfolio also includes loans remaining from our previous product offerings which were $2,000 to $10,000 loans unsecured over a three- to five-year term at 18.0% to 29.9%.

 

Our personal loan products are fully amortizing, fixed rate, unsecured installment loans and all loans are offered at prevailing statutory rates, with our standard loan product being a 29.9% interest rate and annual percentage rate, fully amortizing, five-year unsecured personal loan. The variations from this standard loan product in certain states is due to individual state requirements and to comply with our state lending licenses; for example, Florida requires a blended rate which caps the maximum rate on a $5,000 loan at 24%.

 

The following is a breakdown of loan terms and interest rates for each currently licensed state:

 

State  IEG Holdings’ APR for $5,000
Loans
   Maximum Permitted Rate for $5,000 Loans   IEG Holdings’ APR for $10,000 Loans   Maximum Permitted Rate for $10,000 Loans 
Alabama   29.90%   36.00%(1)   29.90%   36.00%(1)
Arizona   24.90%   24.90%   23.90%   23.90%
California   29.90%   36.00%   29.90%   36.00%
Florida   23.90%   24.00%   19.90%   21.00%
Georgia   29.90%   30.00%   29.90%   30.00%
Illinois   29.90%   36.00%   29.90%   36.00%
Kentucky   29.90%   30.00%   29.90%   30.00%
Louisiana   28.90%   28.90%   25.50%   25.50%
Maryland   24.00%   24.00%   24.00%   24.00%
Missouri   29.90%   30.00%   29.90%   29.90%
Nevada   29.90%   36.00%(1)   29.90%   36.00%(1)
New Jersey   29.90%   30.00%   29.90%   30.00%
New Mexico   29.90%   36.00%(1)   29.90%   36.00%(1)
Ohio   25.00%   25.00%   (2)   (2)
Oregon   29.90%   36.00%   29.90%   36.00%
Pennsylvania   29.90%   30.00%   29.90%   30.00%
Texas   28.86%   28.86%   25.84%   25.84%
Utah   29.90%   36.00%(1)   29.90%   36.00%(1)
Virginia   29.90%   30.00%   29.90%   30.00%

 

  (1) There is no rate limit in this jurisdiction. However, in order to comply with the Servicemembers Civil Relief Act, the maximum APR is 36.0%.
  (2) We do not offer $10,000 loans in Ohio.

 

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The following is an illustrative profile of our personal loans:

 

  Loan Product - $5,000 and $10,000 loans
    - 5 years
    - 28.9% average APR
    - Fixed rate, fully amortizing
    - No hidden or additional fees
    - No prepayment penalties

 

  Loan Purpose Loans available for any purpose. Common uses include:

 

    - Debt consolidation
    - Medical expenses
    - Home improvements
    -