-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLU5jt1VOnMLEWwsLHotJj9Ky2hr6MsBzCXnmcfBcZQTVpSObsqDMB30i481BJrW VgnS6eMT0X+ayiJHBYo3jA== 0000950134-98-002694.txt : 19980401 0000950134-98-002694.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950134-98-002694 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASH AMERICA INTERNATIONAL INC CENTRAL INDEX KEY: 0000807884 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 752018239 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09733 FILM NUMBER: 98580067 BUSINESS ADDRESS: STREET 1: 1600 W 7TH ST CITY: FT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173351100 MAIL ADDRESS: STREET 1: 1600 WEST 7TH STREET CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: CASH AMERICA INVESTMENTS INC /TX/ DATE OF NAME CHANGE: 19920520 10-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9733 CASH AMERICA INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) TEXAS 75-2018239 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1600 WEST 7TH STREET FORT WORTH, TEXAS 76102-2599 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 335-1100 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $.10 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of 23,755,626 shares of the registrant's common stock held by non-affiliates on March 3, 1998 was approximately $293,975,870. At March 3, 1998 there were 24,445,218 shares of the registrant's Common Stock, $.10 par value, issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Annual Report to Shareholders for the year ended December 31, 1997 and the definitive Proxy Statement pertaining to the 1998 Annual Meeting of Shareholders are incorporated herein by reference into Parts II and IV, and Part III, respectively. ================================================================================ 2 CASH AMERICA INTERNATIONAL, INC. YEAR ENDED DECEMBER 31, 1997 INDEX TO FORM 10-K PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 15 PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . 16 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . 16 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 16 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 17 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 17 PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . 17
SIGNATURES 3 INTRODUCTION Cash America International, Inc. (the "Company") was incorporated in Texas on October 4, 1984, to succeed to the business, assets and liabilities of a predecessor corporation formed one year earlier to engage in the pawnshop business. As of December 31, 1997, the Company owns pawnshops through wholly-owned subsidiaries in fifteen states and the United Kingdom and Sweden. The Company also provides check cashing services in twenty-one states through its wholly-owned subsidiary Mr. Payroll Corporation. The Company's principal executive offices are located at 1600 West Seventh Street, Fort Worth, Texas 76102, and its telephone number is (817) 335-1100. As used herein, the "Company" includes Cash America International, Inc. and its subsidiaries. PART I ITEM 1. BUSINESS GENERAL The Company is a specialty financial services enterprise principally engaged in acquiring, establishing and operating pawnshops which advance money on the security of pledged tangible personal property. Pawnshops function as convenient sources of consumer loans and as sellers primarily of previously-owned merchandise acquired when customers do not redeem their pawned goods. One convenient aspect of a pawn transaction is that the customer has no legal obligation to repay the amount advanced. Instead, the Company relies on the value of the pawned property as security. As a result, the creditworthiness of the customer is not a factor, and a decision not to redeem pawned property has no effect on the customer's personal credit status. (Although pawn transactions can take the form of an advance of funds secured by the pledge of property or a "buy-sell agreement" involving the actual sale of the property with an option to repurchase it, the transactions are referred to throughout this report as "loans" for convenience.) The Company contracts for a pawn service charge to compensate it for the use of the funds advanced. The pawn service charge is typically calculated as a percentage of the loan amount based on the size and duration of the transaction, in a manner similar to which interest is charged on a loan, and has generally ranged from 12% to 300% annually, as permitted by applicable state pawnshop laws. The pledged property is held through the term of the transaction, which, in the Company's domestic operations, is generally one month with an automatic sixty-day redemption period unless otherwise earlier repaid, renewed or extended. (For pawn service charges and transaction periods applicable to the Company's foreign operations, see "Business--Regulation." ). A majority of the amounts advanced by the Company are paid in full, together with accrued service charges, or are renewed or extended through payment of accrued service charges. For the years 1995, 1996, and 1997, loans repaid or renewed as a percentage of loans made were 71.0%, 68.5%, and 67.2% respectively. In the event that the borrower does not redeem his pawned goods, the unredeemed collateral is forfeited and becomes merchandise available for disposition by the Company. The Company's growth has been the result of its business strategy of acquiring existing pawnshops and establishing new pawnshops that can benefit from the Company's centralized management and standardized operations. The Company intends to continue its business strategy of acquiring and establishing pawnshops, increasing its share of consumer loan business, and concentrating multiple pawnshops in regional and local markets in order to expand market penetration, enhance name recognition and reinforce marketing programs. Studies indicate to the Company that a large portion of its customers consists of individuals who do not regularly transact loan business with banks. (See, for example, John P. Caskey, Fringe Banking - Check 1 4 Cashing Outlets, Pawnshops and the Poor, 1994.) These generally are persons who may not have checking accounts and conduct as many of their transactions as possible on a cash basis. Pursuant to the Company's business expansion strategy, the Company added a net 33 locations in 1995, 9 locations in 1996, and 19 locations in 1997. Of these net 61 locations added, 20 were acquisitions in individual purchase transactions and 53 were start-ups, while 12 locations were either closed or combined. As of December 31, 1997, the Company had 352 domestic and 49 foreign operating locations. The Company plans to continue to expand its operating locations through new start-ups and acquisitions. While the Company's primary business involves the acquisition, establishment and operation of pawnshops, it also provides check cashing services through its wholly-owned subsidiary Mr. Payroll Corporation ("Mr. Payroll"). At December 31, 1997, Mr. Payroll's system of manned check cashing centers consists of 145 units operated by independent franchisees in twenty-one states. Mr. Payroll earns franchise fees from the sale of check cashing franchises and royalties from franchisees based on a percentage of the gross revenue from a franchisee's check cashing business. In addition, Mr. Payroll has recently developed an automated check cashing system, and it deployed its first check cashing machine ("CCM") in June 1997. At December 31, 1997, it had deployed twenty-one CCM's. Mr. Payroll markets and sells CCM's to a variety of end users, including financial institutions and retailers. It contracts with the end user to provide check cashing services and in consideration receives payments from the end user equal to a portion of the fees associated with such activities. Mr. Payroll employs 47 employees as of December 31, 1997. For additional information concerning Mr. Payroll and the relation of its financial condition and results of operations to that of the Company, see Note 4 and Note 14 of Notes to Consolidated Financial Statements in the Annual Report which is incorporated herein by reference. LENDING FUNCTION The Company is engaged primarily in the business of lending money on the security of pledged goods. The pledged goods are generally tangible personal property other than securities or printed evidences of indebtedness and generally consist of jewelry, tools, televisions and stereos, musical instruments, firearms, and other miscellaneous items. (In the Company's foreign operations, the pledged goods predominately consist of jewelry.) The pledged tangible personal property is intended to provide security to the Company for the repayment of the amount advanced plus accrued pawn service charges. Pawn loans are made without personal liability to the borrower. Because the loan is made without the borrower's personal liability, the Company does not investigate the creditworthiness of the borrower, but relies on the pledged personal property, and the possibility of its forfeiture, as a basis for its lending decision. The Company contracts for a pawn service charge as compensation for the use of the funds advanced. Pawn service charges contributed approximately 52% of the Company's net revenues (total revenues less cost of disposed merchandise) in 1995, 57% in 1996 and 59% in 1997. At the time a pawn transaction is entered into, a pawn transaction agreement, commonly referred to as a pawn ticket, is delivered to the borrower (pledgor) that sets forth, among other items, the name and address of the pawnshop and the pledgor, the pledgor's identification number from his or her driver's license or other approved identification, the date, the identification and description of the pledged goods, including applicable serial numbers, the amount financed, the pawn service charge, the maturity date, the total amount that must be paid to redeem the pledged goods on the maturity date and the annual percentage rate. With regard to domestic operations, the amount that the Company is willing to finance is typically based on a percentage of the pledged personal property's estimated disposition value. The sources for the Company's determination of the estimated disposition value are numerous and include catalogues, blue books, newspapers and previous similar pawn loan transactions. These sources, together with the employees' 2 5 experience in disposing of similar items of merchandise in particular pawnshops, influence the determination of the estimated disposition value of such items. The Company does not utilize a standard or mandated percentage of estimated disposition value in determining the amount to be financed. Rather, the employees have the authority to set the percentage for a particular item and determine the ratio of loan amount to estimated disposition value with the expectation that, if the item is forfeited to the pawnshop, its subsequent disposition would yield a gross profit margin consistent with the Company's historical experience. The pledged property is held through the term of the transaction, which generally is one month with an automatic sixty-day redemption period (see "Regulation" for exceptions in certain states), unless earlier repaid, renewed or extended. A majority of the amounts advanced by the Company are paid in full with accrued service charges or are renewed or extended through payment of accrued service charges. In the event the pledgor does not repay, renew or extend his loan, the unredeemed collateral is forfeited to the Company and then becomes merchandise available for disposition. The Company does not record loan losses or charge-offs inasmuch as, if the pledged goods are not redeemed, the amount advanced becomes the carrying cost of the forfeited collateral that is to be recovered through the merchandise disposition function described below. With regard to the Company's foreign operations, the amount that the pawnshop is willing to finance in a pledge of jewelry is typically based on a fixed amount per gram of the gold or silver content of the pledged property plus additional amounts for diamonds and other features which, in the unit management's assessment, enhance the market value of the pledged property. Declines in gold and silver prices historically have resulted in a reduction of the amount that the pawnshop is willing to lend against an item, which reduces the amount of the pawnshop's loan portfolio and related pawn service charge revenue. The pawn loans are made for a term of six months with an approximate annual yield in 1997 of 52%. The collateral is held through the term of the loan, and, in the event that the loan is not repaid or renewed on or before maturity, the unredeemed collateral is disposed of at auction or privately. The recovery of the amount advanced, as well as realization of a profit on disposition of merchandise, is dependent on the Company's initial assessment of the property's estimated disposition value. Improper assessment of the disposition value of the collateral in the lending function can result in reduced marketability of the property and disposition of the merchandise for an amount less than the amount advanced. However, the Company historically has experienced profits from the disposition of such merchandise. Declines in gold and silver prices generally will also reduce the disposition value of jewelry items acquired in pawn transactions and could adversely affect the Company's ability to recover the carrying cost of the acquired collateral. For 1995, 1996 and 1997, the Company experienced gross profit margins on dispositions of such merchandise of 42%, 38%, and 36% respectively. At December 31, 1997, the Company had approximately 1,137,000 outstanding loans totaling $112,240,000, for an average of $99 per loan. Presented below is information with respect to pawn loans made, acquired, repaid and forfeited for the years ended December 31, 1995, 1996 and 1997: 3 6
Year Ended December 31, --------------------------------------- 1995 1996 1997 -------- -------- -------- ($ in thousands) Loans made . . . . . . . . . . . . . . . . . . . . . $319,733 $365,852 $391,216 Loans acquired . . . . . . . . . . . . . . . . . . . 362 1,020 1,520 Loans repaid . . . . . . . . . . . . . . . . . . . . (180,726) (207,297) (227,114) Loans renewed. . . . . . . . . . . . . . . . . . . . (46,130) (43,141) (38,548) Loans forfeited: Available for disposition . . . . . . . . . . . (79,542) (91,501) (109,318) Disposed of at auction . . . . . . . . . . . . . (5,966) (6,402) (8,945) Effect of exchange rate translation . . . . . . . . . 1,956 1,366 (4,250) -------- -------- -------- Net increase in pawn loans outstanding at end of $9,687 $19,897 $4,561 ======== ======= ======== Loans repaid or renewed as a percent of loans made . 71.0% 68.5% 67.2% ======== ======= ========
MERCHANDISE DISPOSITION FUNCTION The Company engages in the disposition of merchandise acquired when a pawn loan is not repaid, when used goods are purchased from the general public and when new merchandise is acquired from vendors. New goods consist primarily of accessory merchandise which enhances the marketability of existing merchandise, such as tools, consumer electronics and new jewelry items purchased during the Christmas selling season. For the year ended December 31, 1997, $129,975,000 of merchandise was added to merchandise held for disposition, of which $109,318,000 was from loans not repaid and $17,870,000 was purchased from vendors, customers and through acquisitions of pawnshops. The Company does not provide its customers with warranties on used merchandise purchased from the Company. The Company permits its customers to purchase merchandise on a layaway plan whereby the customer agrees to purchase an item by making an initial cash deposit representing a small part of the disposition price and making additional, non-interest bearing payments of the balance of the disposition price in accordance with a specified schedule. The Company then segregates the item and holds it until the disposition price is paid in full. Should the customer fail to make a required payment, the item is placed with the other merchandise held for disposition. At December 31, 1997, the Company held approximately $3,740,000 in customer layaway deposits. The Company provides an allowance for shrinkage and valuation of its merchandise based on management's evaluation. Management's evaluation takes into consideration historical shrinkage, the quantity and age of slow-moving merchandise on hand and markdowns necessary to liquidate slow-moving merchandise. At December 31, 1997, total merchandise on hand was $53,468,000, after deducting an allowance for shrinkage and valuation of merchandise of $2,158,000. 4 7 OPERATIONS Unit Management Each location has a unit manager who is responsible for supervising its personnel and assuring that it is managed in accordance with Company guidelines and established policies and procedures. Each unit manager reports to a Market Manager who typically oversees approximately ten unit managers. As of December 31, 1997, the Company has three geographic operating divisions in the United States, each of which is managed by a Division Senior Vice President. Each Market Manager reports to a Division Vice President. The Harvey & Thompson and Svensk Pantbelaning chains follow a similar management organization, with a Managing Director overseeing each of these operations. Trade Name The Company operates its pawnshops under the trade name "Cash America Pawn" in the U.S., "Harvey & Thompson Pawnbrokers" in the U.K., and "Svensk Pantbelaning" in Sweden. The Company has registered the "Cash America" mark and descriptive logos and phrases with the United States Patent and Trademark Office. Personnel The Company employs approximately 2,787 employees as of December 31, 1997. Of the total employees, approximately 233 were in executive, administrative, clerical and accounting functions. The Company has an established training program that provides a combination of classroom instruction, video presentation and on-the-job loan and merchandise disposition experience. The new employee is introduced to the business through an orientation program and through a three-month training program that includes classroom and on-the-job training in loans, layaways, merchandise and general administration of unit operations. The experienced employee receives training and an introduction to the fundamentals of management to acquire the skills necessary to move into management positions within the organization. Manager training involves a twelve month program and includes additional management principles and more extensive training in income maximization, recruitment, merchandise control and cost efficiency. FUTURE EXPANSION The Company's objective is to continue to expand the number of pawnshops it owns and operates through acquisitions and by establishing new units. Management believes that such anticipated expansion will continue to provide economies of scale in supervision, purchasing, administration and marketing by decreasing the overall average cost of such functions per unit owned. The primary pawnshop acquisition criteria include evaluation of the volume of annual loan transactions, outstanding loan balances, merchandise on hand, disposition history, and location and condition of the facility, including lease terms or fair market value of the facility if it is to be purchased. The primary pawnshop start-up criteria include the facility-related items noted above and conditions in the surrounding community indicating a sufficient level of potential customers. The Company's business strategy is to continue expanding its pawnshop business within its existing geographic markets and into other markets which meet the risk/reward considerations of the Company. 5 8 The Company's expansion has not only been in acquiring previously owned pawnshops, but also in establishing new locations. After a suitable location has been found and a lease and license are obtained, the new location can be ready for business within four to six weeks, with completion of counters, vaults and security system and transfer of merchandise from other locations. The approximate start-up costs, defined as the investment in property and equipment, for recently established pawnshops have ranged from $130,000 to $250,000, with an average cost per location of approximately $180,000 in 1997. This amount does not include merchandise transferred from other locations, funds to advance on pawn loans and operating expenses. The Company's expansion program is subject to numerous factors which cannot be predicted, such as the availability of attractive acquisition candidates or sites on suitable terms and general economic conditions. Further, there can be no assurance that future expansion can be continued on a profitable basis. Among other factors, the following factors will impact the Company's future planned expansion. Statutory Requirements. The Company's ability to add newly-established locations in Texas counties having a population of more than 250,000 is limited by a law that became effective September 1, 1991, which requires a finding of public need and probable profitability by the Texas Consumer Credit Commissioner as a condition to the issuance of any new pawnshop license. In addition, the present statutory and regulatory environment of some states renders expansion into those states impractical. See "Business -- Regulation." Competition. The Company faces competition in its expansion program. Several competing pawnshop companies have completed public securities offerings and have announced active expansion and acquisition programs. A number of smaller companies have also entered the market. While the Company believes that it is the largest pawnshop operator in the United States, there can be no assurance that the Company will be more successful than its competitors in pursuing acquisition opportunities and leases for attractive start-up locations. Increased competition could also increase prices for attractive acquisition candidates. Access to Capital. In some states, the Company is required by law to maintain a minimum amount of certain unencumbered net assets (currently $150,000 in Texas) for each pawnshop location. The Company's expansion plans will therefore be limited in these states to the extent the Company is unable to maintain these required levels of unencumbered net assets. These requirements also make it difficult for the Company to rely on secured financing for expansion purposes due to the requirement that expansion capital be unencumbered, which would reduce the availability of capital for expansion purposes. Availability of Qualified Unit Management Personnel. The Company's ability to expand may also be limited by the availability of qualified unit management personnel. While the Company seeks to train its existing personnel to enable those capable of doing so to assume management positions and to create attractive compensation packages to retain existing management personnel, there can be no assurance that sufficient qualified personnel will be available to satisfy the Company's needs with respect to its planned expansion. COMPETITION The Company encounters significant competition in connection with its lending and merchandise disposition operations. Some competitors may have greater financial resources than the Company. Several competing pawnshop companies have completed securities offerings in recent years. See "Business - -- Future Expansion." These competitive conditions may adversely affect the Company's revenues and profitability. The Company, in connection with the lending of money, competes with other pawnshops and other forms of financial institutions such as consumer finance companies, which generally lend on an unsecured as 6 9 well as a secured basis. Other lenders may lend money on terms more favorable than the Company. The pawnshop industry is characterized by a large number of independent owner-operators, some of whom own and operate multiple pawnshops. REGULATION The Company's pawnshop operations are subject to extensive regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations in the sixteen states and two foreign countries in which it operates. (For a geographic breakdown of operating locations, see "Properties.") Set forth below is a summary of the state pawnshop regulations in those states containing a preponderance of the Company's domestic operating locations. Texas Pawnshop Regulations. Pursuant to the terms of the Texas Pawnshop Act, the Texas Consumer Credit Commissioner has primary responsibility for the regulation of pawnshops and enforcement of laws relating to pawnshops in Texas. The Company is required to furnish the Texas Consumer Credit Commissioner with copies of information, documents and reports which are required to be filed by it with the Securities and Exchange Commission. The Texas Pawnshop Act prescribes the stratified loan amounts and the maximum allowable rates of service charge that pawnbrokers in Texas may charge for the lending of money within each stratified range of loan amounts. That is, the Texas law establishes the maximum allowable service charge rates based on the amount financed per pawn loan. The maximum allowable pawn service charges under the Texas Pawnshop Act for the various stratified loan amounts for the fiscal years ended June 30, 1996, 1997 and 1998 are as follows:
Year Ended June 30, 1996 Year Ended June 30, 1997 Year Ended June 30, 1998 - ------------------------------------ ------------------------------------ ---------------------------------------- Maximum Maximum Maximum Amount Allowable Amount Allowable Amount Allowable Financed Annual Financed Annual Financed Annual Per Pawn Percentage Per Pawn Percentage Per Pawn Percentage Loan Rate Loan Rate Loan Rate ---- ---- ---- ---- ---- ---- $ 1 to $ 129 . . . . . 240% $1 to $ 132 . . . . . . 240% $1 to $ 135 . . . . . . 240% 130 to 430 . . . . . 180 133 to 440 . . . . . . 180 136 to 450 . . . . . . 180 431 to 1,290 . . . . . 30 441 to 1,320 . . . . . . 30 451 to 1,350 . . . . . . 30 1,291 to 10,750 . . . . . 12 1,321 to 11,000 . . . . . . 12 1,351 to 11,250 . . . . . . 12
These rates are reviewed and established annually. The maximum allowable service charge rates were established and have not been revised since 1971 when the Texas Pawnshop Act was enacted. Since 1981, the ceiling amounts for stratification of the loan amounts to which these rates apply have been revised each July 1 in relation to the Consumer Price Index. The Texas Pawnshop Act also prescribes the maximum allowable pawn loan. Under current Texas law, a pawn loan may not exceed $11,250. In addition to establishing maximum allowable service charge rates and loan ceilings, the Texas Pawnshop Act also provides for the licensing of pawnshops and pawnshop employees. To be eligible for a pawnshop license in Texas, an applicant must (i) be of good moral character, (ii) have net assets of at least $150,000 readily available for use in conducting the business of each licensed pawnshop, (iii) show that the pawnshop will be operated lawfully and fairly in accordance with the Texas Pawnshop Act, (iv) show that the applicant has the financial responsibility, experience, character, and general fitness to command the confidence of the public in its operations, and (v) 7 10 in the case of a business entity, the good moral character requirement shall apply to each officer, director and holder of 5% or more of the entity's outstanding shares. As part of the license application process, any existing pawnshop licensee who would be affected by the granting of the proposed application may request a public hearing at which to appear and present evidence for or against the application. For an application for a new license in a county with a population of 250,000 or more, the Consumer Credit Commissioner must find not only that the applicant meets the other requirements for a license, but also that (i) there is a public need for the proposed pawnshop and (ii) the volume of business in the community in which the pawnshop will conduct business indicates a profitable operation is probable. The Texas Consumer Credit Commissioner may, after notice and hearing, suspend or revoke any license for a Texas pawnshop upon finding, among other things, that (i) any fees or charges have not been paid; (ii) the licensee violates (whether knowingly or unknowingly without due care) any provisions of the Texas Pawnshop Act or any regulation or order thereunder; or (iii) any fact or condition exists which, if it had existed at the time the original application was filed for a license, would have justified the Commissioner in refusing such license. Under the Texas Pawnshop Act, a pawnbroker may not accept a pledge from a person under the age of 18 years; make any agreement requiring the personal liability of the borrower; accept any waiver of any right or protection accorded to a pledgor under the Texas Pawnshop Act; fail to exercise reasonable care to protect pledged goods from loss or damage; fail to return pledged goods to a pledgor upon payment of the full amount due; make any charge for insurance in connection with a pawn transaction; enter into any pawn transaction that has a maturity date of more than one month; display for disposition in storefront windows or sidewalk display cases, pistols, swords, canes, blackjacks and similar weapons; operate a pawnshop between the hours of 9:00 p.m. and 7:00 a.m.; or purchase used or secondhand personal property or certain building construction materials unless a record is established containing the name, address and identification of the seller, a complete description of the property, including serial number, and a signed statement that the seller has the right to sell the property. Florida Pawnshop Regulations. The Florida Pawnbroking Act, adopted in 1996, provides for the licensing and bonding of pawnbrokers in Florida and for the Department of Agriculture and Consumer Services' Division of Consumer Services to investigate the general fitness of applicants and generally to regulate pawnshops in the state. The statute limits the pawn service charge that a pawnbroker may collect to a maximum of 25% of the amount advanced in the pawn for each 30 day period of the transaction. The law also requires pawnbrokers to maintain detailed records of all transactions and to deliver such records to the appropriate local law enforcement officials. Among other things, the statute prohibits pawnbrokers from falsifying or failing to make entries in pawn transaction forms, refusing to allow appropriate law enforcement officials to inspect their records, failing to maintain records of pawn transactions for at least two years, making any agreement requiring the personal liability of a pledgor, failing to return pledged goods upon payment in full of the amount due (unless the pledged goods had been taken into custody by a court or law enforcement officer or otherwise lost or damaged), or engaging in title loan transactions at licensed pawnshop locations. It also prohibits pawnbrokers from entering into pawn transactions with a person who is under the influence of alcohol or controlled substances, a person who is under the age of eighteen, or a person using a name other than his own name or the registered name of his business. Georgia Pawnshop Regulations. Georgia state law requires pawnbrokers to maintain detailed permanent records concerning pawn transactions and to keep them available for inspection by duly authorized law enforcement authorities. The Georgia statute prohibits pawnbrokers from failing to make entries of 8 11 material matters in the their permanent records; making false entries in their records; falsifying, obliterating, destroying, or removing permanent records from their places of business; refusing to allow duly authorized law enforcement officers to inspect their records; failing to maintain records of each pawn transaction for at least four years; accepting a pledge or purchase from a person under the age of eighteen or who the pawnbroker knows is not the true owner of the property; making any agreement requiring the personal liability of the pledgor or seller or waiving any of the provisions of the Georgia statute; or failing to return or replace pledged goods upon payment of the full amount due (unless the pledged goods have been taken into custody by a court or a law enforcement officer). In the event pledged goods are lost or damaged while in the possession of the pawnbroker, the pawnbroker must replace the lost or damaged goods with like kinds of merchandise. Under Georgia law, total interest and service charges may not, during each thirty-day period of the loan, exceed 25% of the principal amount advanced in the pawn transaction (except that after ninety days from the original date of the loan, the maximum rate declines to 12.5% for each subsequent thirty-day period). The statute provides that municipal authorities may license pawnbrokers, define their powers and privileges by ordinance, impose taxes upon them, revoke their licenses, and exercise such general supervision as will ensure fair dealing between the pawnbroker and his customers. Tennessee Pawnshop Regulations. Tennessee state law provides for the licensing of pawnbrokers in that state. It also (i) requires that pawn transactions be reported to local law enforcement agencies, (ii) requires pawnbrokers to maintain insurance coverage on the property held on pledge for the benefit of the pledgor, (iii) establishes certain hours during which pawnshops may be open for business and (iv) requires that certain bookkeeping records be maintained. Tennessee law prohibits pawnbrokers from selling, redeeming or disposing of any goods pledged or pawned to or with them within 48 hours after making their report to local law enforcement agencies. The Tennessee statute establishes a maximum allowable interest rate of 24% per annum; however, the pawnshop operator may charge an additional fee of up to one-fifth of the amount of the loan per month for investigating the title, storing and insuring the security and various other expenses. Oklahoma Pawnshop Regulations. The Company's Oklahoma operations are subject to the Oklahoma Pawnshop Act. Following substantially the same statutory scheme as the Texas Pawnshop Act, the Oklahoma Pawnshop Act provides for the licensing and bonding of pawnbrokers in Oklahoma and provides for the Oklahoma Administrator of Consumer Credit to investigate the general fitness of the applicant and generally regulate pawnshops in that state. The Administrator has broad rule-making authority with respect to Oklahoma pawnshops. In general, the Oklahoma Pawnshop Act prescribes the stratified loan amounts and the maximum rates of service charges which pawnbrokers in Oklahoma may charge for lending money in Oklahoma within each stratified range of loan amounts. The regulations provide for a graduated rate structure similar to that utilized in federal income tax computations. For example, under this method of calculation a $500 pawn loan earns interest as follows: (a) the first $150 at 240%, annually, (b) the next $100 at 180%, annually and (c) the remaining $250 at 120%, annually. The maximum allowable pawn service charges for the various stratified loan amounts under the Oklahoma statute are as follows: 9 12
Maximum Amount Allowable Financed Annual Per Pawn Percentage Loan Rate --------------- ------------- $ 1 to $ 150 ............... 240% 151 to 250 ............... 180 251 to 500 ............... 120 501 to 1,000 ............... 60 1,001 to 25,000 ............... 36
A pawn loan in Oklahoma may not exceed $25,000. Louisiana Pawnshop Regulations. Louisiana law provides for the licensing and bonding of pawnbrokers in that state. In addition, the act requires that pawn transactions be reported to local law enforcement agencies, establishes hours during which pawnbrokers may be open for business and requires certain bookkeeping practices. Under the Louisiana statute, no pawnbroker may sell any jewelry pledged as collateral until the lapse of six months from the time the loan was made or extended by payment of accrued interest. All other unredeemed collateral from loans can be sold after the lapse of three months. Louisiana state law establishes maximum allowable rates of interest on pawn loans of 10% per month. In addition, Louisiana law provides that the pawnbroker may also charge a one-time fee not to exceed 10% for all other services. Various municipalities and parishes in the state of Louisiana have promulgated additional ordinances and regulations pertaining to pawnshops. Although pawnshop regulations vary from state to state to a considerable degree, the regulations summarized above are representative of the regulatory frameworks affecting the Company in the various states in which its operating units are located. United Kingdom Regulations. Pawnshops in the United Kingdom conduct pawn operations in a manner that is similar to the Company's domestic operations, except that pawnshops generally lend money only on the security of jewelry and gold and silver items. The Consumer Credit Act 1974 in the United Kingdom requires that the pawnbroker notify the customer following the expiration of the six month loan term and before the pledged items are sold by the pawnbroker. Unredeemed items are generally sold at auction nine months after the initial pledge date. For loans exceeding L.25, any amounts received on the auction sale in excess of the principal amount of the loan, accrued pawn service charge and disposition expenses must be held by the pawnbroker to be reclaimed by the customer. If the pawnbroker is the highest bidder at the auction, it reclaims the merchandise for later disposition from its pawnshop premises and may realize gross profit on resale. For loans of L.25 or less, unredeemed merchandise is automatically forfeited to the pawnbroker, and the pawnbroker may dispose of such merchandise to the public from the pawnshop premises. Pawnbrokers in the United Kingdom are licensed and regulated by the Office of Fair Trading (the "OFT") pursuant to the Consumer Credit Act 1974. Licenses are valid for five years, subject to possible revocation, suspension, or variance by the OFT. Unlike most state statutes in the United States governing pawnbrokers, the Consumer Credit Act 1974 and the regulations promulgated thereunder do not specify a maximum allowable interest rate chargeable by pawnbrokers in the United Kingdom. Rather, the statute prohibits pawnbrokers from entering into "extortionate credit bargains" with customers. Currently, the Company typically charges a rate of six percent (6%) per month. Sweden Regulations. The regulatory environment for pawnshops in Sweden is very similar to that in the United Kingdom. Sweden's 1949 statute governing pawnbroking was repealed and replaced with a new 10 13 pawnbroking act effective January 1, 1996. The new act provides that the loan term may not exceed one year, that the pawnbroker is entitled to default interest on arrears for a maximum of four months from the due date, and that the pawnbroker may not dispose of unredeemed merchandise less than two months after the due date. The disposition must take place at a public auction, and the original customer is entitled to any excess disposition proceeds. Like Sweden's previous pawnbroking statute, the new act provides for licensing and supervision of pawnshops by the local County Administrative Boards. The act does not specify a maximum allowable interest rate for pawn loans, and, unlike the previous statute, it does not authorize the local County Administrative Boards to regulate the rates that pawnbrokers may charge. Also, the act grants Swedish pawnbrokers the new authority to purchase unredeemed merchandise at the public auction and then dispose of the merchandise to the public from the pawnshop premises. Other Regulatory Matters, Etc. With respect to firearm sales, each of the pawnshops must comply with the Brady Handgun Violence Prevention Act (the "Brady Act"), which took effect on February 28, 1994. The Brady Act imposes a waiting period/background check requirement in connection with the disposition of handguns by federally licensed firearms dealers. In addition, the Company must continue to comply with the longstanding regulations promulgated by the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms which require each pawnshop dealing in guns to maintain a permanent written record of all receipts and dispositions of firearms. In addition to the state statutes and regulations described above, many of the Company's pawnshops are subject to municipal ordinances, which may require, for example, local licenses or permits and specified recordkeeping procedures, among other things. Each of the Company's pawnshops voluntarily or pursuant to municipal ordinance provides to the police department having jurisdiction copies of all daily transactions involving pawn loans and over-the-counter purchases. These daily transaction reports are designed to provide the local police with a detailed description of the goods involved including serial numbers, if any, and the name and address of the owner obtained from a valid identification card. A copy of the transaction ticket is provided to local law enforcement agencies for processing by the National Crime Investigative Computer to determine rightful ownership. Goods held to secure pawn loans or goods purchased which are determined to belong to an owner other than the borrower or seller are subject to recovery by the rightful owner. However, the Company historically has not experienced a material number of claims of this sort, and the claims experienced have not had a material adverse effect on the Company's results of operations. Casualty insurance, including burglary coverage, is maintained for each of the Company's pawnshops, and fidelity coverage is maintained on each of the Company's employees. Management of the Company believes its operations are conducted in material compliance with all federal, state and local laws and ordinances applicable to its business. 11 14 EXECUTIVE OFFICERS The following sets forth, as of February 23, 1998, certain data concerning the executive officers of the Company, all of whom are elected on an annual basis. There is no family relationship between any of the executive officers.
Name Age Position ----------------------- --- ----------------------------------------------------------- Jack R. Daugherty 50 Chairman of the Board and Chief Executive Officer Daniel R. Feehan 47 President, Chief Operating Officer and Director James H. Kauffman 53 President - Cash America Pawn Michael C. Stinson 51 President - Mr. Payroll Corporation Robert D. Brockman 43 Executive Vice President - Administration Michael D. Gaston 53 Executive Vice President - Business Development Thomas A. Bessant, Jr. 39 Senior Vice President - Chief Financial Officer and Treasurer William R. Horne 54 Senior Vice President - Information Technology Hugh A. Simpson 38 Senior Vice President - General Counsel and Secretary William J. White 57 Senior Vice President - Public and Governmental Relations
Jack R. Daugherty has been Chairman of the Board and Chief Executive Officer of the Company since its founding in 1984. Mr. Daugherty has owned and operated pawnshops since 1971. Daniel R. Feehan has been President and Chief Operating Officer since January 1990. James H. Kauffman joined the Company in July 1996 as Executive Vice President - Chief Financial Officer and has served as President-Cash America Pawn since July 1997. Prior to that, he served as President of Keystone Steel & Wire Company, a wire products manufacturer, from July 1991 to June 1996. Michael C. Stinson has served as President of Mr. Payroll Corporation since 1990. Mr. Payroll Corporation became a wholly-owned subsidiary of the Company effective December 31, 1996, and Mr. Stinson became an executive officer of the Company in July 1997. Robert D. Brockman joined the Company in July 1995 as Executive Vice President-Administration. Prior to that, he served as Vice President - Human Resources of THORN Americas, Inc., the operator of the Rent-A-Center chain of rent- to-own stores, from December 1986 to June 1995. Michael D. Gaston joined the Company in April 1997 as Executive Vice President-Business Development. Prior to joining the Company, Mr. Gaston served as President of the Gaston Corporation, a private consulting firm, from 1984 to April 1997, and Executive Vice President of Barclay & Evergreen, an advertising and consulting agency, from 1991 to April 1997. Thomas A. Bessant, Jr. joined the Company in May 1993 as Vice President-Finance and Treasurer and has served as Senior Vice President, Chief Financial Officer and Treasurer since July 1997. Prior to joining the Company, Mr. Bessant was a Senior Manager in the Corporate Finance Consulting Services Group of Arthur Andersen & Co., S. C. in Dallas, Texas from June 1989. Prior to that time, Mr. Bessant was Vice President in the Corporate Banking Division of NCNB Texas, N.A., and its predecessor banking corporations, beginning in 1981. William R. Horne joined the Company in February 1991 as Vice President-MIS and has served as Senior Vice President-Information Technology since July 1997. 12 15 Hugh A. Simpson joined the Company in December 1990 as Vice President and General Counsel. In April 1991, Mr. Simpson was elected Vice President - General Counsel and Secretary, and he has served as Senior Vice President, General Counsel and Secretary since July 1997. William J. White joined the Company in March 1988. In April 1993, Mr. White was elected Vice President-Public and Governmental Relations and he has served as Senior Vice President, Public and Governmental Relations since July 1997. ITEM 2. PROPERTIES As of March 10, 1998 the Company owns the real estate and buildings for 16 of its pawnshop locations. Since May 1992, the Company's headquarters have been located in a nine-story building adjacent to downtown Fort Worth, Texas. The Company purchased the building in January 1992. All of the Company's other locations are leased from unaffiliated parties under non-cancelable operating leases. The following table sets forth, as of March 10, 1998, the geographic markets served by the Company and the number of locations in such markets in which it presently operates.
Number of Locations in Area ------------------------------ TEXAS: Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Central/South Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Rio Grande Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ---- Total Texas . . . . . . . . . . . . . . . . . . . . . . . . . . 146 --- FLORIDA: Tampa/St. Petersburg . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Orlando . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Jacksonville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 --- Total Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 --- GEORGIA: Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Savannah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 --- Total Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 --- TENNESSEE: Memphis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Nashville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 --- Total Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 --
13 16 OKLAHOMA: Oklahoma City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Tulsa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --- Total Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 --- LOUISIANA: New Orleans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Baton Rouge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 --- Total Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 --- INDIANA: Indianapolis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Fort Wayne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --- Total Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 --- MISSOURI: Kansas City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 St. Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 --- Total Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 --- KENTUCKY: Louisville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 --- ALABAMA: Mobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Birmingham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --- Total Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 --- NORTH CAROLINA: Charlotte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Greensboro/Winston Salem . . . . . . . . . . . . . . . . . . . . . . . . . 4 --- Total North Carolina . . . . . . . . . . . . . . . . . . . . . . . . 10 ---- SOUTH CAROLINA: Charleston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Greenville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 --- Total South Carolina . . . . . . . . . . . . . . . . . . . . . . . . 7 --- COLORADO: Denver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --- OHIO: Cincinnati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ---
14 17 UTAH: Salt Lake City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 --- ILLINOIS: Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 --- Total United States . . . . . . . . . . . . . . . . . . . . . . . . . 365 --- UNITED KINGDOM: London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 --- Total United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . 40 --- SWEDEN: Stockholm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 --- Total Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 --- GRAND TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 ===
The Company considers its equipment, furniture and fixtures and owned buildings to be in good condition. The Company has its own construction supervisors who engage local contractors to selectively remodel and upgrade its domestic pawnshop facilities throughout the year. The Company's leases typically require the Company to pay all maintenance costs, insurance costs and property taxes. For additional information concerning the Company's leases see Note 15 of Notes to Consolidated Financial Statements in the Annual Report which is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in certain lawsuits encountered in the ordinary course of its business. Certain of these matters are covered to an extent by insurance. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to the Company's security holders during the fourth quarter ended December 31, 1997. 15 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information contained under the caption "Common Stock Data" in the Annual Report is incorporated herein by reference in response to this Item 5. ITEM 6. SELECTED FINANCIAL DATA Information contained under the caption "Six Year Summary of Selected Financial Data" in the Annual Report is incorporated herein by reference in response to this Item 6. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Information contained under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Annual Report is incorporated herein by reference in response to this Item 7. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements including Notes To Consolidated Financial Statements and Income Statement Quarterly Data for the Company are contained in the Annual Report and are incorporated herein by reference in response to this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company had no disagreements on accounting or financial disclosure matters with its independent public accountants to report under this Item 9. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information contained under the caption "Election of Directors" in the Company's Proxy Statement is incorporated herein by reference in response to this Item 10. See Item 1, "Executive Officers" for information concerning executive officers. ITEM 11. EXECUTIVE COMPENSATION Information contained under the caption "Executive Compensation" in the Company's Proxy Statement is incorporated herein by reference in response to this Item 11. 16 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement is incorporated herein by reference in response to this Item 12. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information contained under the caption "Executive Compensation" in the Company's Proxy Statement is incorporated herein by reference in response to this Item 13. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (1) The following financial statements of the Company and Report of Independent Accountants are contained in the Annual Report and are incorporated herein by reference. CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT ACCOUNTANTS (2) The following financial statement schedule of the Company, as listed below, is included herein. Schedule II -- Allowance for Valuation of Inventory. Report of Independent Accountants on Financial Statement Schedule. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included elsewhere in the financial statements. (3) The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index on pages 22 through 24. (4) During the fourth quarter ended December 31, 1997, the Company did not file any reports on Form 8-K. 17 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 27, 1998. CASH AMERICA INTERNATIONAL, INC. By: /s/ JACK R. DAUGHERTY ------------------------------------------ Jack R. Daugherty Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on March 27, 1998 on behalf of the registrant and in the capacities indicated.
Signature Title Date --------- ----- ---- /s/ JACK R. DAUGHERTY Chairman of the Board and March 27, 1998 - ------------------------------------------- Jack R. Daugherty Chief Executive Officer (Principal Executive Officer) /s/ DANIEL R. FEEHAN President, Chief Operating March 27, 1998 - --------------------------------------------- Daniel R. Feehan Officer and Director /s/ THOMAS A. BESSANT, JR. Senior Vice President - March 27, 1998 - ------------------------------------------- Thomas A. Bessant, Jr. Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ A. R. DIKE Director March 27, 1998 - -------------------------------------------- A. R. Dike
18 21 /s/ JAMES H. GRAVES Director March 27, 1998 - -------------------------------------------- James H. Graves /s/ B. D. HUNTER Director March 27, 1998 - --------------------------------------------------- B. D. Hunter /s/TIMOTHY J. McKIBBEN Director March 27, 1998 - ---------------------------------------- Timothy J. McKibben /s/ ALFRED M. MICALLEF Director March 27, 1998 - ------------------------------------- Alfred M. Micallef /s/ CARL P. MOTHERAL Director March 27, 1998 - ------------------------------------------- Carl P. Motheral /s/ SAMUEL W. RIZZO Director March 27, 1998 - --------------------------------------------- Samuel W. Rizzo /s/ ROSALIN ROGERS Director March 27, 1998 - -------------------------------------------- Rosalin Rogers
19 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Cash America International, Inc. Our report on the consolidated financial statements of Cash America International, Inc. and Subsidiaries, which includes an explanatory paragraph related to a change in accounting principle, has been incorporated by reference in this Form 10-K from page 30 of the 1997 Annual Report to Stockholders of Cash America International, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Fort Worth, Texas January 20, 1998 20 23 CASH AMERICA INTERNATIONAL, INC. SCHEDULE II--ALLOWANCE FOR VALUATION OF INVENTORY For the Three Years Ended December 31, 1997
Additions ------------------------------ Balance Balance at Charged Charged at End Beginning to to of Description of Period Expense Other Deductions(a) Period ----------- --------- ------- ----- ------------- ------ ($ in thousands) Year Ended: December 31, 1997........................ $2,078 $1,359 $ -0- $1,279 $ 2,158 ====== ====== ===== ====== ======= December 31, 1996........................ $2,372 $1,701 $ -0- $1,995 $ 2,078 ====== ====== ===== ====== ======= December 31, 1995........................ $2,514 $1,394 $ -0- $1,536 $ 2,372 ====== ====== ===== ====== =======
_______________________________ (a) Deducted from allowance for write-off or other disposition of inventory. 21 24 EXHIBIT INDEX The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted.
EXHIBIT - ------- DESCRIPTION ----------- 3.1 --Articles of Incorporation of Cash America Investments, Inc. filed in the office of the Secretary of State of Texas on October 4, 1984.(a) (Exhibit 3.1) 3.2 --Articles of Amendment to the Articles of Incorporation of Cash America Investments, Inc. filed in the office of the Secretary of State of Texas on October 26, 1984.(a) (Exhibits 3.2) 3.3 --Articles of Amendment to the Articles of Incorporation of Cash America Investments, Inc. filed in the office of the Secretary of State of Texas on September 24, 1986.(a) (Exhibit 3.3) 3.4 --Articles of Amendment to the Articles of Incorporation of Cash America Investments, Inc. filed in the office of the Secretary of State of Texas on September 30, 1987.(b) (Exhibit 3.4) 3.5 --Articles of Amendment to the Articles of Incorporation of Cash America Investments, Inc. filed in the office of the Secretary of State of Texas on April 23, 1992 to change the Company's name to "Cash America International, Inc." (c) (Exhibit 3.5) 3.6 --Articles of Amendment to the Articles of Incorporation of Cash America International, Inc. filed in Office of the Secretary of State of Texas on May 21, 1993. (d) (Exhibit 3.6) 3.7 --Bylaws of Cash America International, Inc.(e) (Exhibit 3.5) 3.8 --Amendment to Bylaws of Cash America International, Inc. dated effective September 26, 1990.(f) (Exhibit 3.6) 3.9 --Amendment to Bylaws of Cash America International, Inc. dated effective April 22, 1992.(c) (Exhibit 3.8) 4.1 --Form of Stock Certificate.(a) (Exhibit 4.1) 4.1a --Form of Stock Certificate.(f) (Exhibit 4.1a) 4.1b --Form of Stock Certificate.(c) (Exhibit 4.1b) 10.1 --1987 Stock Option Plan (with Stock Appreciation Rights) for Cash America International, Inc.(g) (Exhibit 4.1) 10.2 --Amendment to 1987 Stock Option Plan (with Stock Appreciation Rights) dated February 27, 1997.(h) (Exhibit 10.2) 10.3 --Amendment to 1987 Stock Option Plan (with Stock Appreciation Rights) dated April 22, 1997. (i) (Exhibit 10.1) 10.4 --1989 Non-Employee Director Stock Option Plan.(j) (Exhibit 10.47)
22 25 10.5 --Amendment to 1989 Non-Employee Director Stock Option Plan dated April 24, 1996. (h) (Exhibit 10.4) 10.6 --1989 Key Employee Stock Option Plan.(j) (Exhibit 10.48) 10.7 --Amendment to 1989 Key Employee Stock Option Plan dated January 21, 1997. (h) (Exhibit 10.6) 10.8 --1994 Long-Term Incentive Plan.(k) (Exhibit 10.5) 10.9 --Amendment to 1994 Long-Term Incentive Plan dated July 22, 1997. (l) (Exhibit 10.1) 10.10 --Amended and Restated Executive Employment Agreements between the Company and Messrs. Daugherty and Feehan, each dated as of August 1, 1997. (l) (Exhibit 10.2) 10.11 --Consultation Agreements between the Company and Messrs. Dike, Hunter, Motheral, and Rizzo, each dated April 25, 1990.(m) (Exhibit 10.49) 10.12 --Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of May 6, 1993.(n) (Exhibit 10.1) 10.13 --First Supplement to Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of September 20, 1994.(k) (Exhibit 10.11) 10.14 --Second Supplement (May 12, 1995), Third Supplement (July 7, 1995), and Fourth Supplement (November 10, 1995) to 1993 Note Agreement between the Company and Teachers Insurance and Annuity Association of America.(o) (Exhibit 10.1) 10.15 --Fifth Supplement (December 30, 1996) to 1993 Note Agreement between the Company and Teachers Insurance and Annuity Association of America. (h) (Exhibit 10.13) 10.16 --Sixth Supplement (December 30, 1997) to 1993 Note Agreement between the Company and Teachers Insurance and Annuity Association of America. 10.17 --Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of July 7, 1995.(p) (Exhibit 10.1) 10.18 --First Supplement (November 10, 1995) to 1995 Note Agreement between the Company and Teachers Insurance and Annuity Association of America.(o) (Exhibit 10.2) 10.19 --Second Supplement (December 30, 1996) to 1995 Note Agreement between the Company and Teachers Insurance and Annuity Association of America. (h) (Exhibit 10.16) 10.20 --Third Supplement (December 30, 1997) to 1995 Note Agreement between the Company and Teachers Insurance and Annuity Association of America. 10.21 --Amended and Restated Senior Revolving Credit Facility Agreement among the Company, certain lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent dated as of June 19, 1996 (q) (Exhibit 10.1) 10.22 First Amendment (December 11, 1997) to Amended and Restated Senior Revolving Credit Facility Agreement dated as of June 19, 1996.
23 26 10.23 Note Agreement dated as of December 1, 1997 among the Company and the Purchasers named therein for the issuance of the Company's 7.10% Senior Notes due January 2, 2008 in the aggregate principal amount of $30,000,000. 13 --1997 Annual Report to Stockholders of the Company and 1998 Proxy Statement. 21 --Subsidiaries of Cash America International, Inc. 23 --Consent of Coopers & Lybrand L.L.P. 27 --Financial Data Schedule.
________________________ Certain Exhibits are incorporated by reference to the Exhibits shown in parenthesis contained in the Company's following filings with the Securities and Exchange Commission: (a) Registration Statement Form S-1, File No. 33-10752. (b) Amendment No. 1 to its Registration Statement on Form S-4, File No. 33-17275. (c) Annual Report on Form 10-K for the year ended December 31, 1992. (d) Annual Report on Form 10-K for the year ended December 31, 1993. (e) Post-Effective Amendment No. 1 to its Registration Statement on Form S-4, File No. 33-17275. (f) Annual Report on Form 10-K for the year ended December 31, 1990. (g) Registration Statement on Form S-8, File No. 33-29658. (h) Annual Report on Form 10-K for the year ended December 31, 1996. (i) Quarterly Report on Form 10-K for the quarter ended June 30, 1997. (j) Annual Report on Form 10-K for the year ended December 31, 1989. (k) Annual Report on Form 10-K for the year ended December 31, 1994. (l) Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (m) Post-Effective Amendment No. 4 to its Registration Statement on Form S-4, File No. 33-17275. (n) Quarterly Report on Form 10-Q for the quarter ended March 31, 1993. (o) Quarterly Report on Form 10-Q for the quarter ended September 30,1995. (p) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (q) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 24 EX-10.16 2 6TH SUPPLEMENT TO 1993 NOTE AGREEMENT 1 EXHIBIT 10.16 SIXTH SUPPLEMENT TO 1993 NOTE AGREEMENT This Sixth Supplement to 1993 Note Agreement (the "Sixth Supplement") is made and entered into as of the 30th day of December, 1997, by and between Cash America International, Inc. (the "Company") and Teachers Insurance and Annuity Association of America ("Teachers"). RECITALS WHEREAS, the parties hereto have entered into a Note Agreement dated as of May 6, 1993, pursuant to which the Company issued and Teachers purchased $30,000,000 aggregate principal amount of the Company's 8.33% Senior Notes Due May 1, 2003, and the parties have amended said Note Agreement by entering into a First Supplement to Note Agreement dated as of September 20, 1994, a Second Supplement to Note Agreement dated as of May 12, 1995, a Third Supplement to Note Agreement dated as of July 7, 1995, a Fourth Supplement to 1993 Note Agreement dated as of November 10, 1995, and a Fifth Supplement to 1993 Note Agreement dated as of December 30, 1996 (said Note Agreement, as amended, being referred to hereafter as the "Note Agreement"); and WHEREAS, the Company and Teachers desire to amend certain provisions of the Note Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Teachers hereby agree as follows: 1. Amendment to Section 2.01 of the Note Agreement. Section 2.01 of the Note Agreement is hereby amended to add the following defined term used in the Note Agreement: "Harvey & Thompson Indebtedness" means the indebtedness of Harvey & Thompson Limited for borrowed money in an aggregate amount not to exceed 5,000,000 pounds sterling incurred under and pursuant to that certain Loan Agreement dated August 26, 1993 between Harvey & Thompson Limited and Barclays Bank PLC as extended by the renewal agreement dated February 10, 1995. 2. Amendment to Section 9.08 of the Note Agreement. Paragraph (b)(10) of Section 9.08 of the Note Agreement is hereby amended to read in its entirety as follows: (10) (A) in the case of Pantbelaning, the Pantbelaning Indebtedness, (B) in the case of Pantbelaning, Thomas Hjelm, and the Thomas Hjelm Affiliates, Indebtedness for Money Borrowed (not to exceed SEK 55,000,000 in the aggregate at any time outstanding) incurred after the date hereof pursuant to a credit facility to be extended by one or more banks, but only if no Default shall be in existence at the time of the incurrence of such indebtedness, and (C) in the case of Harvey & Thompson Limited, the Harvey & Thompson Indebtedness plus additional Indebtedness for Money Borrowed (not to exceed 5,000,000 pounds sterling in the aggregate at any time outstanding) incurred after the date hereof pursuant to a credit facility 2 to be extended by one or more banks, but only if no Default shall be in existence at the time of the incurrence of such indebtedness; provided that the Indebtedness for Money Borrowed described in clauses (A), (B) and (C) described above may be extended, renewed or refinanced so long as there is no increase in principal amount of such Indebtedness for Money Borrowed and so long as no Default shall be in existence or shall occur upon such extension, renewal or refinancing; and 3. Amendment to Section 9.18 of the Note Agreement. Section 9.18 of the Note Agreement is hereby amended to read in its entirety as follows: SECTION 9.18. Lines of Business. The Company will not, and will not permit any Subsidiary to, engage in any business other than (i) the pawnshop business, (ii) the business of cashing checks and conducting related cash dispensing transactions, (iii) the business of offering tires and wheels on a rent-to-own or comparable basis and performing ancillary automobile-related services, and (iv) activities related to the above. 4. Definitions. All capitalized terms used herein and not otherwise specifically defined shall have the respective meanings set forth in the Note Agreement. 5. Ratification of Note Agreement. Except as specified hereinabove, all other terms of the Note Agreement shall remain unchanged and are hereby ratified and confirmed. All references to "this Agreement" or "the Agreement" appearing in the Note Agreement, and all references to the Note Agreement appearing in any other instrument or document, shall be deemed to refer to the Note Agreement as supplemented and amended by this Sixth Supplement. 6. Counterparts. This Sixth Supplement may be executed in any number of counterparts and by the parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. By signing below where indicated, the undersigned, CASH AMERICA, INC. OF SOUTH CAROLINA, FLORIDA CASH AMERICA, INC., GEORGIA CASH AMERICA, INC., CASH AMERICA, INC. OF LOUISIANA, CASH AMERICA, INC. OF NORTH CAROLINA, CASH AMERICA, INC. OF TENNESSEE, CASH AMERICA, INC. OF OKLAHOMA, CASH AMERICA, INC. OF KENTUCKY, CASH AMERICA PAWN, INC. OF OHIO, CASH AMERICA MANAGEMENT L.P., CASH AMERICA PAWN L.P., CASH AMERICA HOLDING, INC., EXPRESS CASH INTERNATIONAL CORPORATION, CASH AMERICA, INC. OF ALABAMA, CASH AMERICA, INC. OF COLORADO, CASH AMERICA, INC. OF INDIANA, CASH AMERICA, INC., CASH AMERICA OF MISSOURI, INC., VINCENT'S JEWELERS AND LOAN, INC., MR. PAYROLL CORPORATION, CASH AMERICA, INC. OF UTAH and CASH AMERICA FRANCHISING, INC. as Guarantors, do each acknowledge and approve the Note Agreement, as amended by this Sixth Supplement, and the other Loan Documents, and the terms thereof, and specifically agree to comply with all provisions therein and herein which refer to or affect such Guarantors. 2 3 IN WITNESS WHEREOF, the undersigned have executed this Sixth Supplement to 1993 Note Agreement as of the date first written above. CASH AMERICA INTERNATIONAL, INC. By: /s/ THOMAS A. BESSANT, JR. ------------------------------------- Thomas A. Bessant, Jr., Senior Vice President TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ DIANE HOM ------------------------------------ Name: Diane Hom --------------------------------- Title: Director-Private Placements --------------------------------- 3 4 GUARANTORS CASH AMERICA, INC. OF SOUTH CAROLINA FLORIDA CASH AMERICA, INC. GEORGIA CASH AMERICA, INC. CASH AMERICA, INC. OF LOUISIANA CASH AMERICA, INC. OF NORTH CAROLINA CASH AMERICA, INC. OF TENNESSEE CASH AMERICA, INC. OF OKLAHOMA CASH AMERICA, INC. OF KENTUCKY CASH AMERICA PAWN, INC. OF OHIO CASH AMERICA MANAGEMENT L.P., a Delaware limited partnership, by its general partner, Cash America Holding, Inc. CASH AMERICA PAWN L.P., a Delaware limited partnership, by its general partner, Cash America Holding, Inc. CASH AMERICA HOLDING, INC. EXPRESS CASH INTERNATIONAL CORPORATION CASH AMERICA, INC. OF ALABAMA CASH AMERICA, INC. OF COLORADO CASH AMERICA, INC. OF INDIANA CASH AMERICA, INC. CASH AMERICA OF MISSOURI, INC. VINCENT'S JEWELERS AND LOAN, INC. MR. PAYROLL CORPORATION CASH AMERICA, INC. OF UTAH CASH AMERICA FRANCHISING, INC. By: /s/ THOMAS A. BESSANT, JR. --------------------------------------- Thomas A. Bessant, Jr., Vice President for All 4 EX-10.20 3 3RD SUPPLMENT TO 1995 NOTE AGREEMENT 1 EXHIBIT 10.20 THIRD SUPPLEMENT TO 1995 NOTE AGREEMENT This Third Supplement to 1995 Note Agreement (the "Third Supplement") is made and entered into as of the 30th day of December, 1997, by and between Cash America International, Inc. (the "Company") and Teachers Insurance and Annuity Association of America ("Teachers"). RECITALS WHEREAS, the parties hereto have entered into a Note Agreement dated as of July 7, 1995, pursuant to which the Company issued and Teachers purchased $20,000,000 aggregate principal amount of the Company's 8.14% Senior Notes Due July 7, 2007, and the parties have amended said Note Agreement by entering into a First Supplement to 1995 Note Agreement dated as of November 10, 1995 and a Second Supplement to 1995 Note Agreement dated as of December 30, 1996 (said Note Agreement, as amended, being referred to hereafter as the "Note Agreement"); and WHEREAS, the Company and Teachers desire to amend certain provisions of the Note Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Teachers hereby agree as follows: 1. Amendment to Section 9.08 of the Note Agreement. Paragraph (b)(10) of Section 9.08 of the Note Agreement is hereby amended to read in its entirety as follows: (10) (A) in the case of Pantbelaning, the Pantbelaning Indebtedness, (B) in the case of Pantbelaning, Thomas Hjelm, and the Thomas Hjelm Affiliates, Indebtedness for Money Borrowed (not to exceed SEK 55,000,000 in the aggregate at any time outstanding) incurred after the date hereof pursuant to a credit facility to be extended by one or more banks, but only if no Default shall be in existence at the time of the incurrence of such indebtedness, and (C) in the case of Harvey & Thompson Limited, the Harvey & Thompson Indebtedness plus additional Indebtedness for Money Borrowed (not to exceed 5,000,000 pounds sterling in the aggregate at any time outstanding) incurred after the date hereof pursuant to a credit facility to be extended by one or more banks, but only if no Default shall be in existence at the time of the incurrence of such indebtedness; provided that the Indebtedness for Money Borrowed described in clauses (A), (B) and (C) described above may be extended, renewed or refinanced so long as there is no increase in principal amount of such Indebtedness for Money Borrowed and so long as no Default shall be in existence or shall occur upon such extension, renewal or refinancing; and 2. Amendment to Section 9.18 of the Note Agreement. Section 9.18 of the Note Agreement is hereby amended to read in its entirety as follows: SECTION 9.18. Lines of Business. The Company will not, and will not permit any Subsidiary to, engage in any business other than (i) the pawnshop business, (ii) the business 1 2 of cashing checks and conducting related cash dispensing transactions, (iii) the business of offering tires and wheels on a rent-to-own or comparable basis and performing ancillary automobile-related services, and (iv) activities related to the above. 3. Definitions. All capitalized terms used herein and not otherwise specifically defined shall have the respective meanings set forth in the Note Agreement. 4. Ratification of Note Agreement. Except as specified hereinabove, all other terms of the Note Agreement shall remain unchanged and are hereby ratified and confirmed. All references to "this Agreement" or "the Agreement" appearing in the Note Agreement, and all references to the Note Agreement appearing in any other instrument or document, shall be deemed to refer to the Note Agreement as supplemented and amended by this Third Supplement. 5. Counterparts. This Third Supplement may be executed in any number of counterparts and by the parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. By signing below where indicated, the undersigned, CASH AMERICA, INC. OF SOUTH CAROLINA, FLORIDA CASH AMERICA, INC., GEORGIA CASH AMERICA, INC., CASH AMERICA, INC. OF LOUISIANA, CASH AMERICA, INC. OF NORTH CAROLINA, CASH AMERICA, INC. OF TENNESSEE, CASH AMERICA, INC. OF OKLAHOMA, CASH AMERICA, INC. OF KENTUCKY, CASH AMERICA PAWN, INC. OF OHIO, CASH AMERICA MANAGEMENT L.P., CASH AMERICA PAWN L.P., CASH AMERICA HOLDING, INC., EXPRESS CASH INTERNATIONAL CORPORATION, CASH AMERICA, INC. OF ALABAMA, CASH AMERICA, INC. OF COLORADO, CASH AMERICA, INC. OF INDIANA, CASH AMERICA, INC., CASH AMERICA OF MISSOURI, INC., VINCENT'S JEWELERS AND LOAN, INC., MR. PAYROLL CORPORATION, CASH AMERICA, INC. OF UTAH, and CASH AMERICA FRANCHISING, INC., as Guarantors, do each acknowledge and approve the Note Agreement, as amended by this Third Supplement, and the other Loan Documents, and the terms thereof, and specifically agree to comply with all provisions therein and herein which refer to or affect such Guarantors. IN WITNESS WHEREOF, the undersigned have executed this Third Supplement to 1995 Note Agreement as of the date first written above. CASH AMERICA INTERNATIONAL, INC. By: /s/ Thomas A. Bessant, Jr. ---------------------------------------------- Thomas A. Bessant, Jr., Senior Vice President and Chief Financial Officer TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ Diane Hom ---------------------------------------------- Name: Diane Hom -------------------------------------------- Title: Director-Private Placements ------------------------------------------- 2 3 GUARANTORS CASH AMERICA, INC. OF SOUTH CAROLINA FLORIDA CASH AMERICA, INC. GEORGIA CASH AMERICA, INC. CASH AMERICA, INC. OF LOUISIANA CASH AMERICA, INC. OF NORTH CAROLINA CASH AMERICA, INC. OF TENNESSEE CASH AMERICA, INC. OF OKLAHOMA CASH AMERICA, INC. OF KENTUCKY CASH AMERICA PAWN, INC. OF OHIO CASH AMERICA MANAGEMENT L.P., a Delaware limited partnership, by its general partner, Cash America Holding, Inc. CASH AMERICA PAWN L.P., a Delaware limited partnership, by its general partner, Cash America Holding, Inc. CASH AMERICA HOLDING, INC. EXPRESS CASH INTERNATIONAL CORPORATION CASH AMERICA, INC. OF ALABAMA CASH AMERICA, INC. OF COLORADO CASH AMERICA, INC. OF INDIANA CASH AMERICA, INC. CASH AMERICA OF MISSOURI, INC. VINCENT'S JEWELERS AND LOAN, INC. MR. PAYROLL CORPORATION CASH AMERICA, INC. OF UTAH CASH AMERICA FRANCHISING, INC. By: /s/ Thomas A. Bessant, Jr. ---------------------------------------------- Thomas A. Bessant, Jr., Treasurer for All 3 EX-10.22 4 1ST AMEND TO AMENDED/RESTATED SR REVOLVING CREDIT 1 EXHIBIT 10.22 FIRST AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT FACILITY AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT FACILITY AGREEMENT (this "First Amendment"), dated as of December 11, 1997, is entered into among CASH AMERICA INTERNATIONAL, INC., a Texas corporation (the "Borrower"), the lenders listed on the signature pages hereof (the "Lenders"), NATIONSBANK OF TEXAS, N.A., as Administrative Agent (in said capacity, the "Administrative Agent"). BACKGROUND A. The Borrower, the Lenders, and the Administrative Agent are parties to that certain Amended and Restated Senior Revolving Credit Facility Agreement, dated as of June 26, 1996 (the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). B. The Borrower, the Lenders, and the Administrative Agent desire to amend the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders, and the Administrative Agent covenant and agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. Section 6.1 of the Credit Agreement is hereby amended by deleting "$75,000,000" in clause (xvi) thereof and inserting "$105,000,000" in lieu thereof. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the amendment contemplated by the foregoing Section 1: (a) the representations and warranties contained in the Credit Agreement are true and correct on and as of the date hereof as if made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) the Borrower has full power and authority to execute and deliver this First Amendment, and this First Amendment and the Credit Agreement, as amended hereby, 2 constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable debtor relief laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities law; (d) neither the execution, delivery and performance of this First Amendment or the Credit Agreement, as amended hereby, nor the consummation of any transactions contemplated herein or therein, will conflict with any Law to which the Borrower or any Subsidiary is subject, or any indenture, agreement or other instrument to which the Borrower or any Subsidiary or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower), is required for the execution, delivery or performance by the Borrower of this First Amendment or the acknowledgement of this First Amendment by each Guarantor. 3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective as of December 11, 1997, subject to the following: (a) the Administrative Agent shall have received counterparts of this First Amendment executed by the Lenders comprising the Determining Lenders; (b) the Administrative Agent shall have received counterparts of this First Amendment executed by the Borrower and acknowledged by each Guarantor; (c) the representations and warranties set forth in Section 2 of this First Amendment shall be true and correct; and (d) the Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall require. 4. GUARANTORS ACKNOWLEDGEMENT. By signing below, each of the Guarantors (i) acknowledges and consents to the execution, delivery and performance by the Borrower of this First Amendment, (ii) agrees that its obligations in respect of its Guaranty Agreement are not released, modified, impaired or affected in any manner by this First Amendment or any of the provisions contemplated herein, and (iii) acknowledges that it has no claims or offsets against, or defenses or counterclaims to, its Guaranty Agreement. -2- 3 5. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this First Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this First Amendment. (b) The Credit Agreement, as amended by this First Amendment, and all other Loan Papers shall remain in full force and effect and are hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this First Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out of pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under the Credit Agreement, as amended by this First Amendment). 7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 8. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower, each Lender, and the Administrative Agent and their respective successors and assigns. 9. HEADINGS. Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose. 10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK -3- 4 IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. CASH AMERICA INTERNATIONAL, INC. By: /s/ Thomas A. Bessant, Jr. ------------------------------- Thomas A. Bessant, Jr. Senior Vice President and Chief Financial Officer NATIONSBANK OF TEXAS, N.A., as Administrative Agent and as a Lender By: /s/ Todd Shipley ------------------------------- Todd Shipley Senior Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: /s/ Susan B. Sheffield ------------------------------- Name: Susan B. Sheffield ------------------------------- Title: Vice President ------------------------------- BANK ONE, TEXAS, N.A. By: /s/ Barry B. Kromann ------------------------------- Name: Barry B. Kromann ------------------------------- Title: Vice President ------------------------------- -4- 5 THE SUMITOMO BANK, LIMITED By: /s/ Michael R. Pavell --------------------------------- Name: Michael R. Pavell --------------------------------- Title: Assistant Vice President --------------------------------- By: /s/ Julie A. Schell --------------------------------- Name: Vice President --------------------------------- Title: --------------------------------- THE BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ John M. Mearns --------------------------------- Name: John M. Mearns --------------------------------- Title: Vice President and Manager --------------------------------- -5- 6 ACKNOWLEDGED AND AGREED: CASH AMERICA, INC. OF SOUTH CAROLINA FLORIDA CASH AMERICA, INC. GEORGIA CASH AMERICA, INC. CASH AMERICA, INC. OF LOUISIANA CASH AMERICA, INC. OF NORTH CAROLINA CASH AMERICA, INC. OF TENNESSEE CASH AMERICA, INC. OF OKLAHOMA CASH AMERICA, INC. OF KENTUCKY CASH AMERICA PAWN, INC. OF OHIO CASH AMERICA MANAGEMENT L.P., a Delaware limited partnership, by its general partner, Cash America Holding, Inc. CASH AMERICA PAWN L.P., a Delaware limited partnership, by its general partner, Cash America Holding, Inc. CASH AMERICA HOLDING, INC. EXPRESS CASH INTERNATIONAL CORPORATION CASH AMERICA, INC. OF ALABAMA CASH AMERICA, INC. OF COLORADO CASH AMERICA, INC. OF INDIANA CASH AMERICA, INC. CASH AMERICA OF MISSOURI, INC. VINCENT'S JEWELERS AND LOAN, INC. MR. PAYROLL CORPORATION CASH AMERICA, INC. OF UTAH CASH AMERICA FRANCHISING, INC. By: /s/ Thomas A. Bessant, Jr. -------------------------------- Thomas A. Bessant, Jr. Treasurer -6- EX-10.23 5 NOTE AGREEMENT DATED DECEMBER 1, 1997 1 EXHIBIT 10.23 [EXECUTION COPY] ================================================================================ NOTE AGREEMENT Between THE TRAVELERS INSURANCE COMPANY, THE TRAVELERS LIFE AND ANNUITY COMPANY, PRIMERICA LIFE INSURANCE COMPANY, NATIONWIDE LIFE INSURANCE COMPANY, EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU, OHIO NATIONAL LIFE ASSURANCE CORPORATION AND THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY ("Purchasers") and CASH AMERICA INTERNATIONAL, INC. ("Company") Dated as of December 1, 1997 RE: $30,000,000 7.10% SENIOR NOTES DUE 2008 ================================================================================ 2 TABLE OF CONTENTS
SECTION HEADING PAGE ARTICLE I PURCHASE AND SALE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.01. Authorization of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02. Sale and Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.03. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II DEFINITIONS AND INTERPRETATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.02. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE III CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.01. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.02. Performance; No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.03. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.04. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.05. Resolutions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.06. Purchase Permitted by Applicable Laws, Etc . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.07. Payment of Closing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.08. Private Placement Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.09. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.10. Guaranty; Subrogation and Contribution Agreement . . . . . . . . . . . . . . . . . . . 19 Section 3.11. Other Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 3.12. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE IV USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.01. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.02. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE V PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.01. Required Prepayments of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.02. Optional Prepayments of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.03. Notice of Optional Prepayments; Officers' Certificate . . . . . . . . . . . . . . . . . 20 Section 5.04. Allocation of Partial Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.05. Maturity; Surrender, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.06. Retirement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 6.01. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 6.02. Organization, Qualification, Authorization, Etc . . . . . . . . . . . . . . . . . . . . 22 Section 6.03. Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-i- 3 Section 6.04. Changes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.05. Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.06. Indebtedness; Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.07. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.08. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.09. Title to Property, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 6.10. Condition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 6.11. Compliance with Applicable Laws, Permits and Contracts . . . . . . . . . . . . . . . . 25 Section 6.12. Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 6.13. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 6.14. No Governmental Consents Required for Overall Transaction . . . . . . . . . . . . . . . 26 Section 6.15. Offering of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.16. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.17. Foreign Assets Control Regulations, Etc. . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.18. Status Under Certain Federal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.19. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.20. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.21. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.22. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.23. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.24. Patents, Trademarks, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.25. Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.26. Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.27. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.28. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VII PURCHASE FOR INVESTMENT; SOURCE OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 7.01. Representations of the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VIII AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.01. Financial Statements, Reports and Documents . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.02. Payment of Principal, Interest and Premium . . . . . . . . . . . . . . . . . . . . . . 35 Section 8.03. Payment of Taxes, Claims and Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.04. Maintenance of Existence and Rights; Conduct of Business . . . . . . . . . . . . . . . 36 Section 8.05. Compliance with Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.06. Compliance with Contracts and Permits . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.07. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.08. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8.09. Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8.10. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8.11. Authorizations and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.12. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.13. Ownership of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.14. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-ii- 4 ARTICLE IX NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 9.01. Consolidated Indebtedness for Money Borrowed . . . . . . . . . . . . . . . . . . . . . 38 Section 9.02. Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.03. Current Assets to Current Liabilities Ratio . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.04. Current Assets to Total Indebtedness Ratio . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.05. Inventory Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.06. Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.07. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.08. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 9.09. Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 9.10. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 9.11. Limitation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 9.12. Alteration of Contracts, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 9.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 9.14. Limitation on Sale or Issuance of Subsidiary Stock . . . . . . . . . . . . . . . . . . 44 Section 9.15. Limitation on Sale of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9.16. Dissolution; Liquidation; Merger; Consolidation . . . . . . . . . . . . . . . . . . . . 45 Section 9.17. Change of Name, Fiscal Year and Method of Accounting . . . . . . . . . . . . . . . . . 46 Section 9.18. Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 9.19. Amendment of Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 9.20. Limitation on Acquisition of New Subsidiaries . . . . . . . . . . . . . . . . . . . . . 46 Section 9.21. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 9.22. No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 9.23. Incorporation of More Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE X EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10.02. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 11.01. Note Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 11.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 11.03. Consent to Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 11.04. Solicitation of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 11.05. Form, Registration, Transfer and Exchange of Notes; Lost Notes . . . . . . . . . . . . 55 Section 11.06. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 11.07. Reliance on and Survival of Representations and Warranties . . . . . . . . . . . . . . 56 Section 11.08. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 11.09. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 11.10. Substitution of Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 11.11. Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 11.12. Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
-iii- 5 Section 11.13. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.14. Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.15. Notes as Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.16. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.17. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11.18. Representations, Etc. Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.19. Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.20. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.21. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.22. Survival of Indemnities, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 11.23. Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 11.24. Liabilities of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.25. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.26. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.27. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
EXHIBIT A -- Form of Note EXHIBIT B -- Form of Company Counsel Opinion EXHIBIT C -- Form of General Counsel Opinion EXHIBIT D -- Form of Purchasers Counsel Opinion EXHIBIT E -- Form of Guaranty EXHIBIT F -- Form of Subrogation and Contribution Agreement SCHEDULE I -- Purchasers Information SCHEDULE II -- List of Subsidiaries SCHEDULE III -- List of Jurisdictions Where Company is Qualified to Do Business as Foreign Corporation SCHEDULE IV -- Permitted Liens SCHEDULE V -- Material Contracts SCHEDULE VI -- Description of Company Financials SCHEDULE VII -- Description of Projections SCHEDULE VIII -- Indebtedness SCHEDULE IX -- Labor Contracts SCHEDULE X -- Tradenames SCHEDULE XI -- Investments SCHEDULE XII -- Transferee Representations SCHEDULE XIII -- Outstanding Indebtedness for Money Borrowed
-iv- 6 NOTE AGREEMENT CASH AMERICA INTERNATIONAL, INC. As of December 1, 1997 To Each of the Purchasers Listed in the Attached Schedule I Ladies and Gentlemen: Cash America International, Inc. (the "Company"), a Texas corporation, hereby agrees with you as follows: ARTICLE I PURCHASE AND SALE OF NOTES Section 1.01. Authorization of Notes. The Company will duly authorize the issue and sale of a series of its senior notes designated "7.10% Senior Notes Due January 2, 2008" and limited in aggregate original principal amount to $30,000,000 (the "Notes"). The Notes will (a) be issuable as registered notes, without coupons, in denominations permitted by Section 11.05, (b) be dated the date of issue thereof, (c) mature January 2, 2008, (d) bear interest on the unpaid balance thereof from the date thereof to, but excluding, the date the principal thereof shall have become due and payable at the rate of 7.10% per annum, (e) bear interest on overdue principal, premium and (to the extent permitted by law) interest at the Default Rate, (f) be entitled to the benefits of the Guaranty and (g) be in the form of Exhibit A. Section 1.02. Sale and Purchase of Notes. Subject to the terms and conditions of this Agreement, the Company agrees to sell to the Purchasers, and the Purchasers agree to purchase from the Company, the Notes at 100% of the principal amount thereof. Such sale and purchase is sometimes herein referred to as the "Private Placement." Section 1.03. The Closing. The closing of the Private Placement (the "Closing") shall take place at the offices of the Chapman and Cutler, at 10:00 a.m., Chicago, Illinois time, on December 17, 1997 or on such other Business Day as may be agreed upon by the Company and the Purchasers (the "Closing Date"). At the Closing, the Company will deliver the Notes in the form of a single Note (or such greater number of Notes as the Purchasers may request in denominations permitted by Section 11.05) payable to the Purchasers or their registered assigns against payment of the purchase price therefor by electronic funds transfer to NationsBank of Texas, N.A. for credit to such account as the Company may designate in writing delivered to the Purchasers at least three Business Days prior to the Closing Date for use in accordance with Section 4.01. By delivering payment on the Closing Date for the Notes, the Purchasers shall be deemed to have confirmed as of the Closing Date that the representations and warranties made by the Purchasers in Article VII remain accurate as of 7 the Closing Date. If, at the Closing, the Company shall fail to tender the Notes to the Purchasers as provided above, or any of the conditions specified in Article III shall not have been fulfilled to the satisfaction of the Purchasers, the Purchasers shall, at their election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights it may have by reason of such failure or such nonfulfillment. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.01. Definitions. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings: "Affiliate" means (a) when used with reference to any corporation, any Person that, directly or indirectly, owns or controls 5% or more of any class of Voting Stock of such corporation or is a director or officer of such corporation or is a Person in which such corporation has a 5% or greater direct or indirect equity interest, (b) when used with reference to any partnership, any Person that, directly or indirectly, owns or controls 5% or more of either the capital or profit interests of such partnership or is a partner or employee of such partnership or is Person in which such partnership has 5% or greater direct or indirect equity interest, (c) when used with reference to any individual, any Person that is related to such individual by blood or marriage or is a present or former ward, guardian, employer or employee of such individual or is a trust or estate in which such individual owns a 5% or greater beneficial interest or of which such individual serves as trustee, executor or in any similar capacity and (d) when used with reference to a trust or an estate, any Person that is a trustee, executor, administrator or beneficiary thereof. Moreover, the term "Affiliate", when used with reference to any Person, shall also mean any other Person that, directly or indirectly, controls or is controlled by or is under common control with such Person. As used in the preceding sentence, the term "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of the management and policies of the entity referred to, whether through ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controls" shall have meanings correlative to the foregoing. "Agreement" means this Note Agreement, as amended, supplemented or modified from time to time. "Applicable Contract" means any contract or agreement to which the Company or any Subsidiary is a party or by which it or any of its Properties is bound or under or pursuant to which it owns, maintains or operates any of its Properties or conducts business. "Applicable Permit" means any Permit to which the Company or any Subsidiary is a party or by which it or any of its Properties is bound or under or pursuant to which it owns, maintains or operates any of its Properties or conducts business. -2- 8 "Assurance" means, as to any Person, any contract, agreement or understanding to guarantee, or in effect guarantee, any indebtedness (the "Primary Obligation") of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including agreements: (a) to purchase the Primary Obligation or any Property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of the Primary Obligation or (ii) to maintain working capital or other balance sheet conditions, or otherwise to advance or make available funds for the purchase or payment of the Primary Obligation; or (c) to purchase Property, securities or services primarily for the purpose of assuring the holder of the Primary Obligation of the ability of the Primary Obligor to make payment of the Primary Obligation; provided, however, that "Assurance" shall not include the endorsement by any Person, in the ordinary course of business, of negotiable instruments or documents for deposit or collection. The amount of any Assurance shall be deemed to be an amount equal to the stated or determinable amount of the Primary Obligation in respect of which such Assurance is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming the Person giving such Assurance is required to perform in respect thereof) as determined by such Person in good faith. "Bank Loan Agreement" means the Amended and Restated Senior Revolving Credit Facility Agreement dated as of June 19, 1996, among the Company, the banks party thereto and NationsBank of Texas, N.A., as Agent. "Bankruptcy Law" has the meaning specified in Section 10.01(j). "Benefit Arrangement" means an employee benefit plan (within the meaning of Section 3(3) of ERISA) which is not a Plan and with respect to which the Company or a member of the ERISA Group has an obligation or liability, whether or not current or contingent, to make contributions or pay benefits. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banking institutions in New York, New York or Fort Worth, Texas are authorized or required by law, regulation or executive order to be closed. "Called Principal" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 5.02 (any partial prepayment being applied in satisfaction of required payments of principal in inverse order of their scheduled due dates) or is declared to be or becomes immediately due and payable pursuant to Section 10.01, as the context requires. -3- 9 "CERCLA" means the Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended from time to time, together with all regulations and rulings thereunder and all interpretations thereof by the Environmental Protection Agency. "Closing" has the meaning specified in Section 1.03. "Closing Date" has the meaning specified in Section 1.03. "Code" means the Internal Revenue Code of 1986, as amended from time to time, together with all regulations and rulings thereunder and all interpretations thereof by the Internal Revenue Service. "Company" has the meaning specified in the opening paragraph of this Agreement. "Company Financials" has the meaning specified in Section 6.03(a)(8). "Consolidated Adjusted Net Income" means, with respect to any period, consolidated net earnings (after income taxes) of the Company and the Consolidated Subsidiaries for such period, determined in accordance with GAAP, but excluding (a) any gain or loss in excess of $1,000,000 (before income taxes) arising from the sale of capital assets and (b) any other items which would be considered extraordinary items in accordance with GAAP. "Consolidated Current Assets" means, as of any date, the current assets which would be reflected on a consolidated balance sheet of the Company and the Consolidated Subsidiaries prepared as of such date in accordance with GAAP. "Consolidated Current Liabilities" means, as of any date, the current liabilities which would be reflected on a consolidated balance sheet of the Company and the Consolidated Subsidiaries prepared as of such date in accordance with GAAP. "Consolidated Indebtedness for Money Borrowed" means, at any date, the Indebtedness for Money Borrowed of the Company and the Consolidated Subsidiaries consolidated as of such date in accordance with GAAP. "Consolidated Subsidiary" means, at any date, any Subsidiary the accounts of which would, in accordance with GAAP, be consolidated with those of the Company in its consolidated financial statements as of such date. "Consolidated Tangible Net Worth" means, as of any date, the total shareholders' equity which would appear on a consolidated balance sheet of the Company and the Consolidated Subsidiaries prepared as of such date in accordance with GAAP less the sum of (i) the aggregate amount of all currency translation adjustments (gains and losses) shown on such balance sheet and (ii) the net book value -4- 10 of all Intangible Assets shown on such balance sheet. As used in this definition, "Intangible Assets" means those assets (including licenses, patents, copyrights, trademarks, tradenames, franchises, goodwill, experimental expenses and other similar assets) which would be classified as intangible assets for purposes of a balance sheet prepared in accordance with GAAP. "Default" means, with respect to any Loan Document, any event or condition that constitutes, or with the giving of notice or the lapse of time or both would constitute, a default thereunder or breach thereof. Without limitation of the foregoing, "Default" shall include any Event of Default as well as any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Default Rate" means, at any time, a rate of interest per annum equal to the lesser of (a) 2% above the interest rate then payable on the Notes and (b) the Highest Lawful Rate. "Discounted Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a semiannual basis) equal to the Reinvestment Yield with respect to such Called Principal. "Dollars" and the sign "$" means lawful currency of the United States of America. "Environmental Claim" shall mean any investigation, notice, violation, demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding or claim (whether administrative, judicial or private in nature) arising (a) pursuant to, or in connection with an actual or alleged violation of, any Environmental Law, (b) in connection with any Hazardous Material, (c) from any abatement, removal, remedial, corrective or other response action in connection with a Hazardous Material, Environmental Law or other order of a Governmental Authority or (d) from any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means applicable laws (including the common law), regulations or rules, and any applicable judicial or administrative interpretations thereof, as well as any applicable judicial or administrative orders, decrees or judgments, relating to pollution, environmental, health, safety, industrial hygiene or similar matters. "Environmental Permit" means any Permit required under applicable Environmental Laws. -5- 11 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations, rulings and interpretations adopted by the Internal Revenue Service or the Department of Labor thereunder. "ERISA Group" means all corporations, trades or businesses (whether or not incorporated) and other persons or entities which, together with the Company, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Event of Default" has the meaning specified in Section 10.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive Officer" means (a) the chairman of the board, the chief executive officer, the chief operating officer, the chief financial officer, the chief accounting officer or the chief legal officer of the Company or (b) any other officer of the Company who has been elected by the Board of Directors of the Company and designated as an executive officer in any Form 10-K or successor Form filed by the Company with the SEC. "Fiscal Quarter" means a fiscal quarter of the Company. "Fiscal Year" means the fiscal year of the Company. "GAAP" means generally accepted accounting principles as in effect from time to time as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and such other Persons who shall be approved by a significant segment of the accounting profession and concurred in by the Independent Accountants. "Governmental Authority" means any foreign governmental authority, the United States of America, any State of the United States or any political subdivision, agency or instrumentality of any of the foregoing, and any agency, department, commission, board, bureau, court or other tribunal having jurisdiction over any Loan Party, the Purchasers or any other Holder or their respective Property, including the Texas Consumer Credit Commissioner, the United States Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms and the Office of Fair Trading of the United Kingdom and any other governmental authority charged with the enforcement of the Regulatory Acts or otherwise having authority with respect to the regulation, supervision and licensing of pawnshop activities in any jurisdiction in which the Company or any of the Subsidiaries conducts business. "Guarantors" means the Subsidiaries listed in Schedule II (other than Harvey & Thompson Limited, Pantbelaning, Murtrum and the Murtrum Affiliate) and each other Person that becomes bound by the Guaranty as contemplated by Section 9.20(a). -6- 12 "Guaranty" has the meaning specified in Section 3.10. "Harvey & Thompson Indebtedness" means the indebtedness of Harvey & Thompson Limited for borrowed money in an aggregate amount not to exceed 5,000,000 pounds sterling incurred under and pursuant to that certain Loan Agreement, dated August 26, 1993 between Harvey & Thompson Limited and Barclays Bank PLC as extended by the respective renewal agreements dated February 10, 1995, February 26, 1996 and April 12, 1997. "Hazardous Materials" means any hazardous substance, hazardous or toxic waste, pollutant, contaminant, oil, petroleum product or other substance (a) which is listed, regulated or designated as toxic or hazardous (or words of similar meaning and regulatory effect), or with respect to which remedial obligations may be imposed, under any Environmental Laws or (b) exposure to which may pose a health or safety hazard. "Highest Lawful Rate" means the maximum nonusurious rate of interest permitted to be charged by applicable federal or state law (whichever shall permit the higher lawful rate) from time to time in effect. The parties agree that, insofar as the provisions of Chapter One of the Texas Credit Code are at any time applicable to the determination of the Highest Lawful Rate, the Highest Lawful Rate shall be the "interest rate ceiling" (as defined in such Chapter One) from time to time in effect, provided that, to the extent permitted by such Chapter One, each Holder may from time to time by notice to the Company revise the election of such interest rate ceiling as such ceiling affects the then current or future amounts outstanding under the Notes held by such Holder. "Holder" means (a) the Purchasers so long as any such Purchaser is obligated to purchase the Notes hereunder or holds any outstanding Note and (b) any other holder from time to time of any outstanding Note. "Indebtedness for Money Borrowed" means, with respect to any Person and without duplication: (a) the principal amount of all indebtedness of such Person, current or funded, secured or unsecured, incurred in connection with borrowings (including the sale of debt securities), (b) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to any Property acquired by such Person, (c) all indebtedness of such Person issued, incurred or assumed in respect of the purchase price of Property or services except for accounts payable incurred in the ordinary course of business, -7- 13 (d) all obligations of such Person evidenced by a note, bond, debenture or similar instrument, (e) the present value (determined in accordance with GAAP) of all obligations of such Person under leases which shall have been or should be recorded as capitalized leases in accordance with GAAP, (f) all Assurances of such Person in respect of indebtedness of any other Person of any of the types described in the preceding clauses (a) through (e), provided that, when calculating the amount of any Person's Indebtedness for Money Borrowed, no Assurance of such Person of the type described in this clause (f) shall be included in such calculation unless, and then only to the extent that, the indebtedness relating to such Assurance, when aggregated with the total indebtedness relating to all other outstanding Assurances of the Loan Parties of the type described in this clause (f), exceeds $500,000, (g) the amount of all sinking fund payments or other mandatory redemption or payments on any class of capital stock of such Person, (h) the maximum stated amount from time to time available for drawing under any letters of credit issued at the request of such Person, and (i) the amount of any reimbursed drawings under letters of credit issued at the request of such Person. "Indemnitees" means, collectively, the Purchasers, each Transferee and each Holder and their respective successors and assigns, and the officers, trustees, directors and employees of each of the foregoing. "Independent Accountants" means Coopers & Lybrand L.L.P. or another firm of independent public accountants of recognized national standing selected by the Company. "Investment" means, as applied to any Person, (i) any direct or indirect purchase or other acquisition by such Person of stocks, bonds, notes, debentures or other securities of any other Person, (ii) any direct or indirect loan, advance, extension of credit or capital contribution by such Person to any other Person, (iii) any Assurance by such Person of any indebtedness of any other Person, (iv) the subordination by such Person of any claim against any other Person to other indebtedness of such other Person and (v) any other item which would be classified as an "investment" on a balance sheet of such Person prepared in accordance with GAAP, including any direct or indirect contribution by such Person of Property to a joint venture, partnership or other business entity in which such Person retains an interest. "Legal Requirements" means any and all (a) applicable constitutional provisions, laws (statutory, administrative, judicial or otherwise, including those established -8- 14 pursuant to common law or equity), ordinances, treaties, rules, codes, standards and regulations (or any interpretation of any of the foregoing), whether foreign or domestic, (b) judgments, orders, injunctions and decrees, (c) Permits and (d) contracts with Governmental Authorities relating to compliance with the items described in (a), (b) or (c) above. "Lien" means any mortgage, pledge, charge, encumbrance, security interest, collateral assignment, conditional sale or title retention arrangement or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract. "Loan Documents" means, collectively, this Agreement, the Notes, the Guaranty, the Subrogation and Contribution Agreement and all other instruments and documents executed and delivered to the Purchasers by the Loan Parties, or any of them, pursuant to this Agreement. "Loan Parties" means, collectively, the Company and the Guarantors. "Make-Whole Premium" means, with respect to the Called Principal of any Note, a premium equal to the excess, if any, of the Discounted Value of such Called Principal over the sum of (a) such Called Principal plus (b) interest accrued thereon to the Settlement Date with respect to such Called Principal. The Make-Whole Premium shall in no event be less than zero. "Material Adverse Effect" means any circumstance or event of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding) which (a) could reasonably be expected to have a material adverse effect on the financial condition, business, operations or Properties of the Company and the Subsidiaries, taken as a whole, (b) could reasonably be expected to diminish or impair in any material respect the ability of the Company to perform any of its obligations under the Loan Documents to which it is a party, (c) could reasonably be expected to diminish or impair in any material respect the ability of the Purchasers or any other Holder to enforce any of the Obligations or to exercise or enforce any of their rights and remedies under the Loan Documents, (d) causes an Event of Default, (e) causes a Default which could reasonably be expected to become an Event of Default or (f) could reasonably be expected to subject the Purchasers or any other Holder to civil or criminal liability. "Material Contract" means any contract, agreement or instrument to which the Company or any Subsidiary is a party (a) which calls for payments to or from the Company or such Subsidiary of more than $1,000,000 during any 12-month period or (b) pursuant to which the Company or such Subsidiary acquires any right to an interest in Property or a right to obtain services if the Company's or such Subsidiary's inability to obtain such interest or services, as the case may be, could be reasonably be expected to have a Material Adverse Effect, provided that "Material Contract" shall not include any Loan Document. -9- 15 "Murtrum" means Murtrum AB, formerly known as Thomas Hjelm AB, a corporation organized under the laws of Sweden and a Wholly-Owned Subsidiary. "Murtrum Affiliate" means the following corporation which (i) is organized under the laws of Sweden and (ii) is a Wholly-Owned Subsidiary: AB Svensk Pantbelaning. "1993 Guaranty" means that certain Joint and Several Guaranty dated as of May 6, 1993 delivered by the Company and certain of its Subsidiaries in connection with the issuance and sale of the 1993 Notes. "1993 Loan Documents" means the "Loan Documents" as defined in the 1993 Note Agreement. "1993 Note Agreement" means that certain Note Agreement dated as of May 6, 1993 between the Company and Teachers Insurance and Annuity Association of America, as amended. "1993 Notes" means those certain 8.33% Senior Notes due May 1, 2003 issued by the Company under and pursuant to the 1993 Note Agreement. "1995 Guaranty" means that certain Joint and Several Guaranty dated as of July 7, 1995 delivered by the Company and certain of its Subsidiaries in connection with the issuance and sale of the 1995 Notes. "1995 Loan Documents" means the "Loan Documents" as defined in the 1995 Note Agreement. "1995" Note Agreement" means that certain Note Agreement dated as of July 7, 1995 between the Company and Teachers Insurance and Annuity Association of America, as amended. "1995 Notes" means those certain 8.14% Senior Notes due July 7, 2007 issued by the Company under and pursuant to the 1995 Note Agreement. "Notes" has the meaning specified in Section 1.01. "Obligations" means all obligations, liabilities and indebtedness of every nature of the Loan Parties from time to time owing to the Purchasers and the other Holders under the Loan Documents, including, without limitation, (a) all obligations of the Company under the Loan Documents to pay principal, premium and interest in respect of the Notes, (b) all obligations of the Guarantors in respect of the Guaranty, (c) all obligations of the Loan Parties under the Loan Documents to reimburse or indemnify the Purchasers or any other Indemnitee and (d) all obligations of the Loan Parties to pay fees and expenses pursuant to Section 11.02 and similar sections of the other Loan Documents. -10- 16 "Officers' Certificate" means a certificate executed on behalf of the Company by at least two of its Responsible Officers (in their representative capacities and not in their individual capacities). "Organizational Documents" means (i) with reference to any Person that is a corporation, its articles or certificate of incorporation and its bylaws and (ii) with reference to any Person that is a partnership, its partnership agreement and all other instruments relating to its formation, existence or governance. "Overall Transaction" means the Private Placement and the guarantees and other transactions and activities contemplated by the Loan Documents. "Pantbelaning" means CAII Pantbelaning AB, a corporation organized under the laws of Sweden and a Wholly-Owned Subsidiary. "Pantbelaning Indebtedness" means indebtedness of Pantbelaning for borrowed money in the approximate amount of SEK 185,000,000 pursuant to that certain Amended and Restated Loan Agreement, dated as of October 29, 1997, between Pantbelaning and Skandinaviska Enskilda Banken AB (Publ.), New York Branch. "Permits" means any and all permits, authorizations, certificates, approvals, registrations, variances, licenses, franchises, exemptions or orders (a) under any Legal Requirement or (b) granted by any Governmental Authority. "Permitted Liens" means: (a) Liens (if any) granted to the Holders to secure the Obligations; (b) Liens in existence on the date hereof and described in Schedule IV; (c) pledges or deposits made to secure payment of worker's compensation (or to participate in any fund in connection with worker's compensation), unemployment insurance, pensions or social security programs; (d) Liens imposed by mandatory provisions of law such as for materialmen's, mechanics, warehousemen's and other like Liens arising in the ordinary course of business, securing indebtedness whose payment is not yet due, and landlords liens, whether arising through contract or by operation by law, but only if the same are not yet due and payable or if the same are being contested in good faith and the payment of which is not at the time required by Section 8.03, (e) Liens for taxes, assessments and governmental charges or levies imposed upon a Person or upon such Person's income or profits or property, but only if the same are not yet due and payable or if the same are being -11- 17 contested in good faith and the payment of which is not at the time required by Section 8.03; (f) good faith deposits in connection with tenders, leases, real estate bids or contracts (other than contracts involving the borrowing of money), pledges or deposits to secure public or statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to secure the payment of taxes, assessments, customs duties or other similar charges; (g) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such do not materially impair the use of such property for the uses intended, and none of which is violated by existing or proposed structures or land use; (h) Liens on Property of any Consolidated Subsidiary securing obligations of such Consolidated Subsidiary owing to the Company or to any Wholly-Owned Subsidiary; (i) Liens created to secure (A) purchase money indebtedness incurred to finance the purchase price of the Property acquired in the ordinary course of business, but only if each such Lien shall secure only the purchase money indebtedness incurred to purchase the Property so acquired and shall be confined solely to such Property and (B) the indebtedness permitted by Section 9.08(b)(11); provided, however, that the aggregate amount of all indebtedness at any time secured by all Liens referred to in this clause (i) shall not exceed $10,000,000; and (j) Liens on Temporary Cash Investments, but only if (A) such Liens secure short-term indebtedness owed by the Company or a Consolidated Subsidiary to the broker or investment banking firm which is holding such Temporary Cash Investments for the account of the Company or a Consolidated Subsidiary and (B) such indebtedness is to be repaid, in the ordinary course of business, by the collection or liquidation of such Temporary Cash Investments at the maturity of such Temporary Cash Investments. "Person" means and includes an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a Governmental Authority. "Plan" means an employee pension benefit plan (within the meaning of Section 3(3) of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company, any Subsidiary or any Related Person or as to which the Company, any Subsidiary or any Related Person would be treated as a contributing sponsor under Section 4069 of ERISA if such plan were to be terminated. "Private Placement" has the meaning specified in Section 1.02. -12- 18 "Projections" has the meaning specified in Section 6.03(a)(9). "Property" means any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. "Purchasers" has the meaning specified in the opening paragraph of this Agreement. "Regulatory Acts" means (a) the Texas Pawnshop Act, (b) the Consumer Credit Act 1974 enacted in the United Kingdom and (c) all other foreign, Federal or state laws (statutory, administrative, judicial or other otherwise) relating to pawn shops and activities incidental thereto. "Reinvestment Yield" means with respect to the Called Principal of any Note, the sum of 50 basis points plus the yield to maturity implied by (a) the yields reported, as of 10:00 A.M. (New York City time) two Business Days next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page USD" on the Bloomberg Financial Markets Service (or such other display as may replace Page USD on the Bloomberg Financial Markets Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or, if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (b) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (i) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between reported yields. "Related Person" means any trade or business, whether or not incorporated, which, together with the Company, would be treated as a single employer under Section 414 of the Code. "Release" has the meaning specified in CERCLA Sections 101(22) (42 U.S.A. Sections 9601(22)). "Remaining Average Life" means, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (ii) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. -13- 19 "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "Required Holders" means, at any time, the Holder or Holders of at least 51% of the aggregate principal amount of the Notes then outstanding. "Responsible Officer" means, as to any Loan Party, the chairman of the board, the chief executive officer, the president, the chief financial officer, the principal accounting officer, the chief legal officer or the treasurer of such Loan Party. "Restricted Payment" means as specified in Section 9.07(a). "SEC" means the Securities and Exchange Commission. "SEK" means the legal currency of Sweden. "Securities Act" means the Securities Act of 1933, as amended. "Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 5.02 or is declared to be or becomes immediately due and payable pursuant to Article X, as the context requires. "Stock" means (i) in the case of any corporation, capital stock of any class of such corporation (however designated) and warrants or options to purchase such capital stock, (ii) in the case of any partnership, partnership interests of such partnership (however designated) and warrants or options to purchase such partnership interests and (iii) in the case of any other entity, equity interests of such entity (however designated) and warrants or options to purchase such equity interests. "Subrogation and Contribution Agreement" means the Subrogation and Contribution Agreement dated as of December 1, 1997 among the Company and the Guarantors substantially in the form of Exhibit F. "Subsidiary" means, at any time, (a) any corporation 50% or more of the outstanding Voting Stock of which is owned, directly or indirectly, by the Company at such time and (b) any partnership, association, joint venture or other entity in which the Company owns, directly or indirectly, a 50% or greater equity interest (however designated) at such time. "Temporary Cash Investment" mean any of the following investments: (a) Investments in open market commercial paper maturing within 180 days after acquisition thereof and rated at least A-1 (or the equivalent thereof) by Standard & Poor's Ratings Group (or any successor thereto which is a nationally recognized rating -14- 20 agency) or at least P-1 (or the equivalent thereof) by Moody's Investors Service, Inc. (or any successor thereto which is a nationally recognized rating agency), (b) Investments in marketable obligations, maturing within 180 days after acquisition thereof, issued or unconditionally guaranteed by the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America, (c) Investments in money market funds that invest solely in the types of Investments permitted under clauses (a) and (b) above, (d) Investments in repurchase agreements of any financial institution or brokerage firm acceptable to the Required Holders which are fully secured by securities described in clause (b) above, (e) certificates of deposit and time deposits (including Eurodollar deposits), maturing within 180 days from the date of deposit thereof, with a domestic office of (i) any national or state bank or trust company organized under the laws of the United States of America or any state therein and having capital, surplus and undivided profits of at least $100,000,000 or (ii) any other national or state bank so long as all such deposits are federally insured, (f) in the case of Harvey & Thompson Limited, certificates of deposit and other instruments substantially equivalent to a certificate of deposit maturing within 180 days from the date of acquisition and issued by a bank or trust company organized and located in the United Kingdom having capital, surplus and undivided profits of at least 65,000,000 pounds sterling and (g) in the case of Pantbelaning, Murtrum and Murtrum Affiliate, certificates of deposit and other instruments substantially equivalent to a certificate of deposit maturing within 180 days from the date of acquisition and issued by a bank or trust company organized and located in Sweden having capital, surplus and undivided profits of at least SEK 750,000,000. "Transferee" means any direct or indirect transferee of all or any part of any Note purchased by the Purchasers under this Agreement. "Voting Stock" means, when used with respect to any Person, any Stock of such Person having general voting power under ordinary circumstances to elect a majority of the board of directors (or other governing body) of such Person (irrespective of whether at the time any Stock of such Person shall have or might have voting power by reason of the happening of any contingency). "Wholly-Owned Subsidiary" means a Consolidated Subsidiary, all of the outstanding Stock (other than directors' qualifying shares, if required by law) of which are at the time owned directly by the Company or by one or more Wholly-Owned Subsidiaries or by the Company and one or more Wholly-Owned Subsidiaries. Section 2.02. Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (1) the singular number includes the plural number and vice versa; (2) reference to any gender includes each other gender; -15- 21 (3) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (4) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (4) is intended to authorize any assignment not otherwise permitted by this Agreement; (5) reference to any agreement, document, instrument or report means, unless the context otherwise requires, such agreement, document, instrument or report as in effect when delivered to the Purchasers pursuant to this Agreement and as the same may thereafter be amended, supplemented or modified in accordance with the terms thereof and hereof, and reference to any Note includes any note issued pursuant hereto in renewal, rearrangement, reinstatement, enlargement, amendment, modification, extension, substitution or replacement therefor; (6) reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (7) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (8) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; (9) reference to any Legal Requirement means such Legal Requirement as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (10) accounting terms used but not defined herein shall be construed in accordance with GAAP, and whenever the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or accounting computation is required to be made, for purposes hereof, such determination or computation shall be made in accordance with GAAP; (11) the word "knowledge", when used in any representation or warranty of the Company contained herein, means the actual knowledge of any Executive Officer or director of the Company; (12) where any provision of this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person; and -16- 22 (13) if any action or failure to act by the Company violates any covenant or obligation of the Company contained herein, such violation shall not be excused by the fact that such action or failure to act is required or permitted by any other covenant or obligation of the Company contained herein. (b) Should there be a change in GAAP following the date of this Agreement and should either (i) the Company determine (in good faith) that the requirements of one or more of the covenants contained in Article IX are materially increased or made more severe as a result thereof or (ii) the Required Holders determine (in good faith) that the requirements of one or more of the covenants contained in Article IX are materially reduced or relaxed as a result thereof, then the Company and such Required Holders shall enter into good faith negotiations with the desired result being that such covenant(s) shall be amended in such a way that the criteria therein set forth for evaluating the financial condition of the Company and/or the Subsidiaries shall be the same after such amendment as if such change in GAAP had not been made. (c) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. (d) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. ARTICLE III CONDITIONS OF CLOSING The obligation of the Purchasers to purchase and pay for the Notes hereunder is subject to the satisfaction of the following conditions: Section 3.01. Representations and Warranties. The representations and warranties of the Loan Parties contained in the following instruments shall be true and correct at the time of Closing: (i) this Agreement, (ii) the other Loan Documents and (iii) the instruments delivered by one or more of the Loan Parties pursuant to this Article III. Section 3.02. Performance; No Default. The Loan Parties shall have performed and complied with all agreements and conditions contained in this Agreement or in the other Loan Documents required to be performed or complied with by them prior to or at the Closing. At the time of Closing, no Default shall have occurred and be continuing or would result from the consummation of the Overall Transaction. Section 3.03. Compliance Certificate. The Purchasers shall have received an Officers' Certificate, dated the Closing Date and satisfactory in form and substance to the Purchasers, certifying that the conditions specified in Sections 3.01 and 3.02 have been fulfilled. If required by the Purchasers, such Officers' Certificate will also certify as to such matters of fact as the Purchasers may reasonably request to enable the Purchasers to determine compliance with such conditions. -17- 23 Section 3.04. Opinions of Counsel. The Purchasers shall have received (a) a favorable opinion from Jenkens & Gilchrist, a Professional Corporation, counsel for the Company and the Guarantors, in the form of Exhibit B, (b) a favorable opinion of Hugh A. Simpson, General Counsel to the Company and the Guarantors, in the form of Exhibit C and (c) a favorable opinion from Chapman and Cutler, special counsel for the Purchasers, in the form of Exhibit D. Each such opinion shall (i) be addressed to the Purchasers, (ii) be dated the Closing Date and (iii) state that all Transferees are entitled to rely thereon as though it were addressed to them. Section 3.05. Resolutions, Etc. The Purchasers shall have received (a) copies of resolutions of the Board of Directors of each Loan Party, certified as of the Closing Date by the Secretary or an Assistant Secretary of such Loan Party, duly authorizing the Overall Transaction, (b) a certificate as to the incumbency and authority of the Person or Persons executing and delivering Loan Documents on behalf of such Loan Party and (c) such other documents and evidence as the Purchasers or its special counsel may request with respect to any Loan Party or the Overall Transaction, including the taking of all corporate proceedings in connection therewith and compliance with the conditions set forth herein, in each case in form and substance satisfactory to the Purchasers. Section 3.06. Purchase Permitted by Applicable Laws, Etc. The consummation of the Private Placement on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall (i) not violate any Legal Requirement (including, without limitation, section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System), (ii) not subject the Purchasers to any tax (other than routine income taxes), penalty, liability or other onerous condition under or pursuant to any Legal Requirement and (iii) constitute a legal investment under the laws and regulations of each jurisdiction to which the Purchasers are subject, but without resort to provisions (such as Section 1405(a)(8) of the New York Insurance Law) which permit the making of an investment without restriction as to the character of the particular investment being made. If required by the Purchasers, the Purchasers shall have received an Officers' Certificate, dated the Closing Date, certifying as to such matters of fact as the Purchasers may reasonably specify to enable the Purchasers to determine compliance with the conditions set forth in the preceding sentence. Section 3.07. Payment of Closing Fees. The Company shall have paid the fees and disbursements which it is obligated to pay pursuant to Section 11.02 and which have been invoiced to the Company prior to the time of Closing. Section 3.08. Private Placement Number. The CUSIP Service Bureau of Standard & Poor's Information Group shall have issued to the Purchasers a private placement number with respect to the Notes. Section 3.09. Notes. The Purchasers shall have received the Notes complying with the requirements of Section 1.03. -18- 24 Section 3.10. Guaranty; Subrogation and Contribution Agreement. Each Guarantor and the Company shall have duly authorized, executed and delivered to the Purchasers a Joint and Several Guaranty, dated the Closing Date, in the form of Exhibit E (the "Guaranty") and a Subrogation and Contribution Agreement. Section 3.11. Other Loan Documents. Each of the other Loan Documents shall (a) have been duly authorized, executed, acknowledged (if appropriate) and delivered by the respective Loan Parties thereto, (b) be dated as of the Closing Date, (c) be in form and substance satisfactory to the Purchasers and (d) be in full force and effect on the Closing Date without any default existing thereunder. A counterpart of each Loan Document executed by the Loan Parties thereto shall have been delivered to the Purchasers or its special counsel. Each Loan Document shall constitute the valid and binding obligation of each Loan Party thereto, enforceable against such Loan Party in accordance with the terms thereof. Section 3.12. Proceedings. All proceedings taken or to be taken in connection with the Overall Transaction prior to or on the Closing Date (and all documents incident thereto) shall be satisfactory in substance and form to the Purchasers, and the Purchasers and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as the Purchasers may reasonably request. ARTICLE IV USE OF PROCEEDS Section 4.01. Use of Proceeds. The Company will apply the proceeds of the Private Placement solely to pay the costs and expenses described in Section 11.02 and to repay indebtedness of the Company outstanding under the Bank Loan Agreement and for no other purpose. Nothing in this Section 4.01 is intended to prohibit the Company from effecting re-borrowings under the Bank Loan Agreement. Section 4.02. Margin Regulations. The Company will not, directly or indirectly, use any of the proceeds of the Private Placement for the purpose, whether immediate, incidental or ultimate, of buying a "margin stock" or of maintaining, reducing or retiring any indebtedness originally incurred to purchase a stock that is currently a "margin stock", or for any other purpose which might constitute the private placement of a "purpose credit," in each case within the meaning of Regulation G (12 C.F.R. 207, as amended) or Regulation T (12 C.F.R. 220, as amended) of the Board of Governors of the Federal Reserve System, or otherwise take or permit to be taken any action which would involve a violation of such Regulation G or T or of Regulation X (12 C.F.R. 224, as amended) of the Board of Governors of the Federal Reserve System or any other regulation of such Board. -19- 25 ARTICLE V PREPAYMENTS Section 5.01. Required Prepayments of the Notes. (a) Unless the aggregate principal amount of the then outstanding Notes shall have become due and payable pursuant to Section 10.01, the Company shall apply to the prepayment of the Notes, without premium, and there shall become due and payable, the sum of $4,285,714.28 on January 2 in each of the years 2002 through 2007 (or, in the case of any such prepayment, such lesser principal amount of the Notes as shall then be outstanding), leaving $4,285,714.32 principal amount (or such other principal amount thereof as then remains unpaid) of the Notes for payment at their stated maturity on January 2, 2008. Each such prepayment shall be at 100% of the principal amount of the Notes so prepaid, together with all accrued and unpaid interest thereon to the date of prepayment. No partial prepayment of the Notes pursuant to Section 5.02 shall relieve the Company from its obligation to make the required prepayments provided for in this Section 5.01. (b) Whenever any prepayment to be made under this Section 5.01 shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and the amount of such prepayment shall bear interest at the applicable rate during such extension. Section 5.02. Optional Prepayments of the Notes. The Company may, at its option, upon notice as provided in Section 5.03, at any time or from time to time, prepay any part (in a principal amount of at least $1,000,000 or an integral multiple of $100,000 in excess thereof) or all of the Notes at 100% of the principal amount so prepaid, together with all accrued and unpaid interest thereon to the date of prepayment, plus a premium equal to the Make-Whole Premium, if any, on the amount so prepaid, determined as of two Business Days prior to the date of such prepayment pursuant to this Section 5.02. Section 5.03. Notice of Optional Prepayments; Officers' Certificate. The Company shall give each Holder irrevocable written notice of each optional prepayment of Notes made under Section 5.02 not less than 30 nor more than 60 days prior to the date fixed for such prepayment (which shall be a Business Day), in each case specifying (a) such prepayment date, (b) the aggregate principal amount of the Notes to be prepaid, (c) the aggregate principal amount of the Notes held by such Holder to be prepaid, (d) that a Make-Whole Premium may be payable, (e) the date when such Make- Whole Premium will be calculated, (f) the estimated Make-Whole Premium together with a reasonably detailed calculation of such Make-Whole Premium and (g) the accrued interest applicable to the prepayment. The Company will give each Holder, one Business Day prior to the date scheduled for any such prepayment, an Officers' Certificate certifying that the conditions of Section 5.02 have been fulfilled and specifying the particulars of such fulfillment, and, whether or not a Make-Whole Premium is payable in connection with such prepayment, setting forth the calculations used in computing such Make-Whole Premium. Section 5.04. Allocation of Partial Prepayments. Any partial prepayment of the Notes shall be allocated among all Notes at the time outstanding in proportion, as nearly as -20- 26 practicable, to the respective unpaid principal amounts of the Notes so outstanding, with adjustments, to the extent practicable, to compensate for any prior payments not made exactly in such proportion. All partial prepayments shall be applied to the Notes in anticipation and satisfaction of the prepayments required to be made by the provisions of Section 5.01, in inverse order of the maturity thereof. Section 5.05. Maturity; Surrender, Etc. In the case of any prepayment of the Notes pursuant to this Article V, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Premium, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Premium, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall, after such payment or prepayment in full, be surrendered to the Company and be cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. Section 5.06. Retirement of Notes. The Company shall not, and shall not permit any of its Affiliates to, prepay or otherwise retire, in whole or in part, prior to their stated final maturity (other than by prepayment pursuant to this Article V or upon acceleration of such final maturity pursuant to Section 10.01), or purchase or otherwise acquire, directly or indirectly, Notes held by any Holder unless the Company or such Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other Holder at the time outstanding upon the same terms and conditions. Any Notes prepaid pursuant to this Article V or Section 10.01 or otherwise retired or purchased or otherwise acquired by the Company or any of its Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, provided that, with respect to each prepayment pursuant to this Article V, all Notes then held by the Company and its Affiliates shall nonetheless be entitled to participate in such prepayment the same as if such Notes were deemed outstanding. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants that: Section 6.01. Subsidiaries. (a) The Company has no Subsidiaries on the date hereof except those listed in Schedule II, each of which is a Consolidated Subsidiary and a Wholly-Owned Subsidiary. (b) Schedule II sets forth, with respect to each of the Subsidiaries listed therein, (i) whether such Subsidiary is a corporation or partnership, (ii) the jurisdiction of its incorporation or formation (as the case may be) and (iii) each jurisdiction in which it is qualified to do business as a foreign Person. -21- 27 (c) All of the issued and outstanding Stock of each Subsidiary is validly issued, fully-paid and is nonassessable and, except for directors' qualifying shares (if any), is owned (beneficially and of record) by the Company, free and clear of any Lien. (d) No Subsidiary owns any Stock of the Company. Section 6.02. Organization, Qualification, Authorization, Etc. (a) The Company and each Subsidiary (i) is a corporation or partnership (as the case may be) duly organized or formed (as the case may be) and existing in good standing under the laws of the jurisdiction of its organization or formation (as the case may be), (ii) is duly qualified or registered and in good standing as a foreign Person in each jurisdiction in which the nature of such qualification or registration is necessary and in which the failure to so qualify or register could have a Material Adverse Effect and (iii) has the corporate or partnership (as the case may be) power (A) to own its Properties, (B) to carry on its business as now being conducted and (C) to consummate the Overall Transaction. Schedule III sets forth each jurisdiction in which the Company is qualified or registered to do business as a foreign corporation. (b) The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party have been duly authorized by all necessary corporate or partnership (as the case may be) action on the part of such Loan Party. This Agreement constitutes, and the Notes and such other Loan Documents (when executed and delivered as contemplated hereby) will each constitute, a legal, valid and binding obligation of each Loan Party thereto, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. Section 6.03. Disclosure Documents. (a) The Company has heretofore furnished the Purchasers with true, correct and complete copies of the following documents: (1) the Organizational Documents of the Company and each Subsidiary as in effect on the date hereof; (2) the Bank Loan Agreement; (3) each Material Contract described in Schedule V; (4) the Company's Annual Reports to Stockholders for the Fiscal Years ended December 31, 1994 through 1996 (inclusive); (5) the Company's Annual Reports on Form 10-K for the Fiscal Years ended December 31, 1994 through 1996 (inclusive), as filed with the SEC; (6) the Company's Quarterly Reports on Form 10-Q for the Fiscal Quarters ended June 30, 1995 September 30, 1995, March 31, 1996, June 30, 1996, -22- 28 September 30, 1996, March 31, 1997, June 30, 1997 and September 30, 1997 as filed with the SEC; (7) all proxy statements relating to all meetings of the Company's stockholders (whether annual or special) since December 31, 1994; (8) the consolidated financial statements of the Company and the Consolidated Subsidiaries described in Schedule VI (the "Company Financials"); and (9) the projections described in Schedule VII (the "Projections"). (b) The Company Financials (including any related schedules and/or notes) (i) were true and correct in all material respects as at the dates thereof, (ii) were prepared in accordance with GAAP consistently followed throughout the periods involved and (iii) show all liabilities, direct and contingent, of the Company and the Consolidated Subsidiaries required to be shown in accordance with GAAP. The balance sheets included in the Company Financials fairly present the consolidated financial condition of the Company and the Consolidated Subsidiaries as at the dates thereof, and the statements of operations and statements of cash flows included in the Company Financials fairly present the consolidated results of operations and cash flows of the Company and the Consolidated Subsidiaries for the periods indicated. (c) The Projections are based on good faith estimates and assumptions believed by the Company to be reasonable at the time made, it being recognized by the Purchasers that the Projections, insofar as they relate to future events, are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ materially from the projected results. Since the preparation of the Projections, nothing has occurred to cause the Company to believe that the estimates and assumptions on which the Projections are based are no longer reasonable. Section 6.04. Changes, Etc. (a) Since December 31, 1996, (i) neither the Company nor any Subsidiary has entered into any materially adverse transactions not in the ordinary course of business, nor incurred any material liabilities or obligations, direct or contingent, except for the Loan Documents and (ii) no events have occurred which, individually or in the aggregate, have had, or in the future could reasonably be expected to have, a Material Adverse Effect. (b) Neither the business nor the Properties of the Company or any of the Subsidiaries are presently affected by any fire, explosion, accident, labor controversy, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty which could reasonably be expected to have a Material Adverse Effect. Section 6.05. Tax Returns and Payments. (a) The Company and each Subsidiary has filed all tax returns required by law to be filed by it (or obtained extensions with respect thereto) and has paid all taxes, assessments and other governmental charges levied upon it or -23- 29 any of its Properties, income or franchises which are shown to be due and payable on such returns and all other taxes and assessments payable by it, other than (i) those which are not past due, (ii) those which are presently being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall be required by GAAP have been made and (iii) those not reflected on such returns the non- payment of which could not reasonably be expected to have a Material Adverse Effect. No contest referred to in the foregoing clause (ii) could reasonably be expected to have a Material Adverse Effect. (b) After due inquiry, the Company knows of no proposed tax assessment against the Company or any Subsidiary which could reasonably be expected to have a Material Adverse Effect. In the opinion of the Company, all tax liabilities of the Company and the Subsidiaries are adequately provided for on their respective books. The Federal income tax returns of the Company and the Subsidiaries have been audited by the Internal Revenue Service for all Fiscal Years up to and including the Fiscal Year ended December 31, 1992. Section 6.06. Indebtedness; Solvency. (a) The Company and the Subsidiaries have no outstanding Indebtedness for Money Borrowed other than (i) the indebtedness evidenced by the Notes and the Guaranty, (ii) the indebtedness evidenced by the 1993 Notes and the 1993 Guaranty, (iii) the indebtedness evidenced by the 1995 Notes and the 1995 Guaranty, (iv) the indebtedness outstanding under the Bank Loan Agreement, (v) the indebtedness described in Schedule XIII and (vi) other indebtedness permitted under Section 9.08 which indebtedness does not exceed $500,000 in the aggregate. (b) Each of the Loan Parties (i) has, and after giving effect to the Overall Transaction will have, capital sufficient to carry on its business and transactions and all the business and transactions in which it is about to engage, (ii) is, and after giving effect to the Overall Transaction will be, solvent and able to pay its debts as they mature and (iii) owns, and after giving effect to the Overall Transaction will own, Property having a value, both at fair valuation and present fair salable value, greater than the amount required to pay the probable liability on its debts. Section 6.07. Permits. The Company and each Subsidiary possess all Permits that are necessary or desirable in connection with the ownership, use or operation by it of its Properties and the conduct by it, in the ordinary course, of its business as now conducted and as currently proposed to be conducted, except those Permits the absence of which would not have a Material Adverse Effect. None of such Permits impose any material burden or restriction on the Company or any Subsidiary. The Company and the Subsidiaries are in compliance with all terms of such Permits. All such Permits are valid and in full force and effect and, to the Company's knowledge (after due inquiry), none are threatened to be revoked, cancelled, suspended or modified for any reason. Section 6.08. Material Contracts. Schedule V describes all Material Contracts existing on the date hereof. Each of such Material Contracts (a) has been duly executed and delivered by, and constitutes the legal, valid and binding obligation of, each Loan Party thereto, enforceable against each such Loan Party in accordance with its terms, (b) is in full -24- 30 force and effect and (c) except as reflected in Schedule V, has not been amended or modified, nor any provision thereof waived, in any respect. The Company and each Subsidiary has, and, to the Company's knowledge, all other parties to such Material Contracts have, performed and complied in all material respects with all of the terms and conditions set forth therein. No default by the Company any Subsidiary or, to the Company's knowledge, any such other party exists under any such Material Contract. Section 6.09. Title to Property, Etc. (a) The Company and each Subsidiary has good and indefeasible fee simple title to its real property and good and defensible title to all of its other Property, including the Property reflected in the balance sheets included in the Company Financials (other than Properties disposed of in the ordinary course of business), subject to no Lien of any kind except Permitted Liens which do not, individually or in the aggregate, materially affect or interfere with, or if used or availed of will not materially affect or interfere with, the occupancy, use or operation of such item of Property for its intended purpose or the peaceful and quiet use and enjoyment thereof by the Company or such Subsidiary, as the case may be. (b) No lease under which the Company or any Subsidiary is the lessee or is operating contains any provision which individually or in the aggregate interferes with the ordinary conduct of the business of the Company or such Subsidiary or otherwise could reasonably be expected to have a Material Adverse Effect. The Company and each Subsidiary enjoys peaceful and undisturbed possession under all leases under which it is the lessee or is operating, except where the absence of such possession would not have a Material Adverse Effect. All of such leases are valid and subsisting and no default by the Company, such Subsidiary or, to the Company's knowledge, any such other party exists thereunder. Section 6.10. Condition of Property. The facilities of the Company and the Subsidiaries, taken as a whole, are in a condition and state of repair which are sufficient and adequate to operate their respective businesses in a proper and efficient manner. Section 6.11. Compliance with Applicable Laws, Permits and Contracts. (a) Neither the Company nor any Subsidiary is in violation of (i) any provision of its Organizational Documents, (ii) any Applicable Permit or Applicable Contract (including the Bank Loan Agreement and the 1993 Note Agreement and the 1995 Note Agreement) or (iii) any instrument evidencing or otherwise relating to Indebtedness for Money Borrowed (other than, in the case of the foregoing clauses (ii) and (iii), violations which, individually or collectively, could not reasonably be expected to have a Material Adverse Effect), and the execution, delivery and performance of the Loan Documents and the consummation of the Overall Transaction will not result in any violation of or constitute a default under any of the foregoing or result in the creation of (or impose any obligation on the Company or any Subsidiary to create) any Lien upon any Property of the Company or any Subsidiary. (b) Neither the Company nor any Subsidiary is in violation of any Legal Requirement other than violations which, individually or collectively, will not have a Material Adverse Effect, and the execution, delivery and performance of the Loan -25- 31 Documents and the consummation of the Overall Transaction will not result in a violation of any Legal Requirement. (c) Except for this Agreement, the Bank Loan Agreement, the 1993 Note Agreement, the 1995 Note Agreement, the agreement evidencing the Pantbelaning Indebtedness and the agreement evidencing the Harvey & Thompson Indebtedness, neither the Company nor any Subsidiary is a party to or bound by any Permit, agreement or instrument (including its Organizational Documents) which contains any restrictions or limitations on the incurrence by the Company or such Subsidiary of any Indebtedness for Money Borrowed. (d) Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness for Money Borrowed of the Company or such Subsidiary. Section 6.12. Litigation, Etc. No action, suit, investigation or proceeding is pending or, to the knowledge of the Company (after due inquiry), threatened against or affecting the Company or any Subsidiary or any Property of the Company or any Subsidiary which (a) individually or collectively, could reasonably be expected to have a Material Adverse Effect or (b) questions the validity of any Loan Document or any action taken or to be taken pursuant thereto. Section 6.13. ERISA. Neither the Company nor any member of its ERISA Group has ever maintained or contributed to, or had an obligation or liability to contribute to, any Plan. Each Benefit Arrangement is (and has been) maintained and operated in compliance in all material respects with the applicable provisions of ERISA, the Code and other Legal Requirements. Neither the Company nor any member of the ERISA Group has failed to timely make any required contribution or payment to or in respect of any Benefit Arrangement. No Benefit Arrangement provides post employment health benefits except as required by Part 6 of Subtitle B of ERISA. No litigation, investigation or claim (other than a routine, undisputed claim for benefits) is pending or, to the knowledge of the Company (after due inquiry), threatened or anticipated concerning any Benefit Arrangement. The Company and/or the members of its ERISA Group may at any time unilaterally, without the consent of any Person, terminate any and/or all Benefit Arrangement(s) without incurring any material liability. The execution and delivery of this Agreement and the other Loan Documents and the issue and sale of the Notes will not involve any transaction which is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of the representation of the Purchasers in Article VII as to the source of the funds to be used to pay the purchase price of the Notes. Section 6.14. No Governmental Consents Required for Overall Transaction. Neither the nature of the Company nor any Subsidiary, nor the business or Properties of the Company or any Subsidiary, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or -26- 32 delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any Governmental Authority in connection with the execution and delivery of this Agreement, the other Loan Documents or the consummation of the Overall Transaction other than routine SEC filings by the Company under the Exchange Act. Section 6.15. Offering of Notes. Neither the Company nor its Affiliates nor anyone acting on its or their behalf has, directly or indirectly, (a) offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than the Purchasers and not more than 45 other institutional investors, each of which has been offered the Notes at a private sale for investment or (b) taken or will take any action which would require the issuance or sale of the Notes to be registered pursuant to the provisions of section 5 of the Securities Act or pursuant to the provisions of any securities or Blue Sky law of any jurisdiction. Section 6.16. Use of Proceeds. The Company will apply the proceeds of the sale of the Notes in accordance with Article IV. No indebtedness being reduced or retired, directly or indirectly, out of the proceeds of the sale of the Notes was incurred for the purpose of purchasing or carrying any stock which is currently a "margin stock" (as defined in Section 4.02), and the Company neither owns nor has any present intention of acquiring any amount of "margin stock." None of the proceeds of the sale of the Notes will be used to acquire any security in any transaction which is subject to section 13 or 14 of the Exchange Act, including particularly sections 13(d) and 14(d) thereof. Section 6.17. Foreign Assets Control Regulations, Etc. Neither the issue and sale of the Notes by the Company nor its use of the proceeds thereof as contemplated by this Agreement will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Section 6.18. Status Under Certain Federal Statutes. No Loan Party is (a) an "investment company" or a Person "controlled" by or acting on behalf of an "investment company," in each case within the meaning of the Investment Company Act of 1940, as amended, (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, (c) a "public utility" as such term is defined in the Federal Power Act, as amended, (d) a "rail carrier or a person controlled by or affiliated with a rail carrier", within the meaning of Title 49, U.S.C., or (e) a "carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable. Section 6.19. Environmental Matters. (a) The Company and each Subsidiary has all Environmental Permits necessary for the conduct of its business and for the ownership, use, maintenance and operation of its assets, and is in compliance with all material terms thereof. All such Environmental Permits are valid and in full force and effect and, to the Company's knowledge, none are threatened to be revoked, cancelled, suspended or modified adversely -27- 33 for any reason. As to any such Environmental Permit that is about to expire or is needed for the proposed conduct of its business, the Company or such Subsidiary, as the case may be, has timely and properly applied for renewal or receipt of the same or, if such Permit is not reasonably expected to be renewed, such nonrenewal will not have a Material Adverse Effect. (b) Without in any manner limiting any other representations and warranties set forth in this Agreement: (i) neither the Company nor any Subsidiary, nor any real property or facility presently owned, used, maintained or operated by the Company or any Subsidiary, nor any of the other assets of the Company or any Subsidiary is in violation of or is in noncompliance with, any Environmental Laws, except for violations or noncompliances which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and (ii) without in any manner limiting the generality of clause (i) above: (A) no Hazardous Materials have been used, generated, manufactured, transported, stored or treated, or disposed of, landfilled or in any other way Released by or on behalf of the Company or any Subsidiary, except for those of the foregoing activities which, individually or in the aggregate, could not have a Material Adverse Effect, and (B) to the Company's knowledge, no Hazardous Materials have been used, generated, manufactured, stored or treated, or disposed of, landfilled or in any other way Released (and no Release is threatened), by any Person other than the Company or any Subsidiary on, under, about or from any Property now or previously owned, used, maintained or operated by the Company or any Subsidiary or any Property adjacent to any such Property except for those of the foregoing activities (including Releases and threatened Releases) which, individually or in the aggregate, could not have a Material Adverse Effect; (C) neither the Company nor any Subsidiary is subject, as a result of the operation or condition of its business or assets prior to or at Closing, to any (1) contingent liability in connection with any Release or threatened Release of any Hazardous Materials into the environment whether on or off any Property owned, used, maintained or operated by the Company or such Subsidiary or (2) reclamation or remediation requirements under Environmental Laws, or any reporting requirements related thereto, except for liabilities or requirements which, individually or in the aggregate, could not have a Material Adverse Effect; (D) neither the Company nor any Subsidiary has been named as a potentially responsible party under, and none of its Property has been nominated or identified as a facility which is subject to an existing or potential -28- 34 claim under, CERCLA or comparable Environmental Laws, and no such Property is subject to any Lien arising under Environmental Laws; (E) the Company and each Subsidiary has all environmental and pollution control equipment necessary for (1) compliance in all material respects with all Environmental Laws (including all applicable Permits) and (2) operation of the business of the Company or such Subsidiary as it is presently conducted; (F) no Hazardous Materials have been incorporated into or contained in any of the personal property or improvements to real property owned, used, maintained or operated by the Company or any Subsidiary such that such Hazardous Materials could reasonably be expected to have a Material Adverse Effect; (G) none of the locations where Hazardous Materials have been used, generated, manufactured, stored, treated, recycled, disposed of or Released by or on behalf of the Company or any Subsidiary has been nominated or identified as a facility which may be subject to an existing or potential claim under CERCLA or comparable Environmental Laws; (H) to the knowledge of the Company, none of the offsite locations where Hazardous Materials from any of the assets of the Company or any Subsidiary have been stored, treated, recycled, disposed of or Released has been nominated or identified as a facility which may be subject to an existing or potential claim under CERCLA or comparable Environmental Laws; (I) neither the Company nor any Subsidiary has received any written notices of (1) any violation of, noncompliance with or remedial obligation under Environmental Laws relating to the ownership, use, maintenance, operation of, or conduct of business related to, any Property of the Company or such Subsidiary or (2) any Release or threatened Release of Hazardous Materials, except for violations, noncompliances, obligations, Releases or threatened Releases which, individually or in the aggregate, could not have a Material Adverse Effect; (J) there are no writs, injunctions, decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of the Company, threatened relating to the ownership, use, maintenance, operation of, or conduct of business related to, any Property of the Company or any Subsidiary arising out of or relating to Environmental Laws, nor does the Company or any Subsidiary have knowledge (after due inquiry) of any basis for any of the foregoing, except for writs, injunctions, decrees, orders, judgments, lawsuits, claims, proceedings or investigations which, individually or in the aggregate, could not have a Material Adverse Effect; -29- 35 (K) no underground or aboveground storage tanks or surface impoundments are located at any Property owned, used, maintained or operated by the Company or any Subsidiary other than those which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and (L) there are no material obligations, undertakings or liabilities arising out of or relating to Environmental Laws which the Company or any Subsidiary has agreed to, assumed or retained, by contract or otherwise. Section 6.20. Books and Records. The Company maintains books, records and accounts with respect to itself and the Subsidiaries which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets, and maintains a system of internal accounting controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with management's general or specific authorization, (b) transactions are recorded as necessary (i) to permit preparation of financial statements in accordance with GAAP, and (ii) to maintain accountability for assets, (c) access to assets is permitted only in accordance with management's general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Section 6.21. Fiscal Year. The fiscal year of the Company and each Subsidiary coincides with the calendar year. Section 6.22. Brokerage. All negotiations relative to this Agreement, the other Loan Documents and the transactions contemplated hereby have been carried on by the Company and the other Loan Parties without the intervention of any Person which might give rise to a valid claim against the Purchasers for a brokerage commission or other like payment. Section 6.23. Labor Matters. Schedule IX lists each employment, consultant or similar agreement and all labor contracts and collective bargaining agreements to which the Company or any Subsidiary is a party or by which it is bound. Except as otherwise listed on Schedule IX, no strikes or other labor disputes are pending or threatened against the Company or any Subsidiary. All payments due from the Company or any Subsidiary on account of employee health and welfare insurance have been paid or, if not due, have been accrued as liabilities on the books of the Company or such Subsidiary. Section 6.24. Patents, Trademarks, Etc. The Company and each Subsidiary owns, or is licensed or otherwise has the lawful right to use, all patents, trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as now conducted and as proposed to be conducted. All tradenames used by the Company or any Subsidiary are listed on Schedule X. Assumed name certificates have been duly filed of record with appropriate Governmental Authorities for each of such tradenames. -30- 36 Section 6.25. Chief Executive Office. The chief executive office of the Company and the office where it maintains its records is located at 1600 West 7th Street, Fort Worth, Texas 76102-2599. Section 6.26. Permitted Investments. Schedule XI specifies the aggregate amount of each investment held by the Company and any of its Subsidiaries on the date hereof other than those permitted by clauses (a) through (j) of Section 9.11. Section 6.27. Liens. None of the Properties of the Company or any Subsidiary is subject to any Lien other than Permitted Liens. Section 6.28. Full Disclosure. (a) Neither this Agreement (including the Schedules and Exhibits hereto), the other Loan Documents, the Company Financials, the instruments described in Section 6.03(a) nor any document delivered by the Company or any of its Affiliates pursuant to Article III contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which the same were made. (b) There is no fact (excluding general economic conditions not peculiar to the Company or any Subsidiary) which (i) has had a Material Adverse Effect or, in the opinion of any Responsible Officer of the Company, could reasonably be expected in the future to have a Material Adverse Effect and (ii) has not been set forth in this Agreement (including the Schedules and Exhibits hereto) or in the Company Financials. ARTICLE VII PURCHASE FOR INVESTMENT; SOURCE OF FUNDS Section 7.01. Representations of the Purchasers. (a) Each of the Purchasers hereby represent to the Company that it (i) is purchasing the Notes for its own account for investment and not with a view to, or for sale in connection with, the distribution thereof or with any present intention of distributing or selling any of the Notes, provided that the disposition of the Purchaser's property shall at all times be within its control, (ii) is an "accredited investor", as defined in Regulation D under the Securities Act, and (iii) (x) has knowledge and experience in financial and business matters such that it is capable of evaluating the merits and risks of the investment in the Notes and (y) is able to bear the economic risk of such investment. Each of the Purchasers understands that the Notes have not been registered under the Securities Act and may not be sold or otherwise transferred by the Purchasers except pursuant to an effective registration statement under such Act or pursuant to an available exemption therefrom under such Act. (b) Each of the Purchasers further represents to the Company that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by it to pay the purchase price of the Notes to be purchased by it hereunder: -31- 37 (i) the Source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit plan, treating as a single plan, all plans maintained by the same employer or employee organization, with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such plan, exceeds ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with your state of domicile; or (ii) the Source is either (1) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (2) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (ii), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (iii) (1) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), (2) no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, (3) the conditions of Part 1((c)and (g) of the QPAM Exemption are satisfied, (4) neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (5) the identity of such QPAM and the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (iii); or (iv) the Source is a governmental plan; or (v) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (v); or (vi) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. If you or any prospective transferee of a Note identifies a plan pursuant to paragraphs (ii), (iii) or (v) above, the Company shall deliver a certificate on the appropriate date of Closing, with respect to you and on or prior to the date of any transfer of any Note, with respect to any prospective transferee, which certificate shall state (x) whether it is a -32- 38 party in interest or a "disqualified, person" (as defined in Section 4975(e)(2) of the Code), with respect to any plan identified pursuant to paragraphs (ii) or (v) above, or (y) with respect to any plan, identified pursuant to paragraph (iii) above, whether it or any "affiliate" (as defined in Section V(c) of the QPAM Exemption) has, at such time or during the immediately preceding one year, exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to paragraph (c) above or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans. As used in this Section 7.01(b), the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. ARTICLE VIII AFFIRMATIVE COVENANTS Section 8.01. Financial Statements, Reports and Documents. The Company shall deliver to each Holder (in duplicate): (a) as soon as available, and in any event within 45 days, after the end of each Fiscal Quarter (other than the last Fiscal Quarter in any Fiscal Year), a consolidated balance sheet of the Company and the Consolidated Subsidiaries (in reasonable detail) as of the end of such Fiscal Quarter and the related consolidated statements of income, stockholders' equity and cash flows of the Company and the Consolidated Subsidiaries (in reasonable detail) for such Fiscal Quarter and for the portion of the current Fiscal Year ending on the last day of such Fiscal Quarter, in each case (i) prepared in accordance with GAAP and (ii) setting forth in comparative form the figures for the corresponding period of the preceding Fiscal Year, which financial statements shall be certified (subject to normal year-end audit adjustments) as to fairness of presentation, compliance with GAAP and consistency with prior periods by a Responsible Officer of the Company, it being understood that no such statement need be accompanied by complete footnotes; (b) as soon as available, and in any event within 90 days, after the end of each Fiscal Year, a consolidated balance sheet of the Company and the Consolidated Subsidiaries (in reasonable detail) as of the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows of the Company and the Consolidated Subsidiaries (in reasonable detail) for such Fiscal Year, in each case (i) prepared in conformity with GAAP and (ii) setting forth in comparative form the figures for the preceding Fiscal Year, which financial statements shall be accompanied by an opinion thereon (which shall not be qualified by reason of any limitation imposed by the Company) of the Independent Accountants stating that such financial statements, in the opinion of the Independent Accountants, present fairly the consolidated financial position of the Company and the Consolidated Subsidiaries as of the date thereof and the consolidated results of their operations and cash flows for the period covered thereby in conformity with GAAP consistently -33- 39 applied (except for noted changes in which the Independent Accountants concur) and that the examination of the Independent Accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, an Officers' Certificate (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 9.01, 9.02, 9.03, 9.04, 9.05, 9.06 and 9.07 on the date of such financial statements, (ii) stating that the signers have reviewed this Agreement and the other Loan Documents and have made, or caused to be made under their supervision, a review of the transactions and condition of the Company during the accounting period covered by such financial statements and (iii) stating that such review did not disclose the existence during or at the end of such accounting period of any Default or, if any Default exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (b) above, a written statement by the Independent Accountants giving the opinion thereon stating (i) that their audit has included a review of the terms of this Agreement and that such review is sufficient to enable them to make the statement referred to in clause (iv) of this paragraph (d) (it being understood that such Independent Accountants shall not be required to conduct or make any special or additional audit procedures or examinations for purposes of such written statement, other than those required by generally accepted auditing standards, and that their audit will not have been directed primarily toward obtaining knowledge of any Default), (ii) whether, in the course of their audit, they obtained knowledge (and whether, as of the date of such written statement, they have knowledge) of the existence and continuance of any Default and, if so, specifying the nature and period of existence thereof, (iii) that they have examined the Officers' Certificate delivered in connection therewith pursuant to clause (c) above and (iv) that the matters set forth in such Officers' Certificate pursuant to subclause (i) of clause (c) above have been properly stated in accordance with this Agreement; (e) promptly upon receipt thereof, a copy of each management letter submitted to the Company by the Independent Accountants (and each response of the Company thereto), it being understood and agreed that all material items which are furnished to the Holders pursuant to this clause (e) shall be treated as confidential if such items are not previously known to any Holder and if, and so long as, such items are not generally available to the public, but nothing herein contained shall limit or impair the right of any Holder to (i) disclose such items to any other Holder, any prospective Transferee, the National Association of Insurance Commissioners or any Governmental Authority, (ii) disclose such items in connection with any litigation, investigation or similar proceeding, (iii) use such information to the extent pertinent -34- 40 to an evaluation of the Obligations or to enforce compliance with the terms and conditions of this Agreement, (iv) take any action required by law or (v) take any lawful action which such Holder deems necessary to protect its interests under this Agreement or any other Loan Document; (f) promptly upon becoming available, a copy of each consolidating balance sheet and income statement of the Company and the Consolidated Subsidiaries prepared by or on behalf of the Company after the date hereof, including those prepared in connection with any federal income tax return for the Company or any Subsidiary; (g) promptly upon transmission thereof, a copy of each (i) financial statement, proxy statement, notice and report sent or made available by the Company to its security holders in compliance with the Exchange Act or any comparable federal or state laws relating to the disclosure by any Person of information to its security holders, (ii) regular and periodic report, registration statement (excluding exhibits) and prospectus filed by the Company with any securities exchange or with the SEC or any Governmental Authority succeeding to any of its functions and (iii) press release or other statement made available by the Company to the public concerning material developments in the business of the Company; (h) as soon as practicable, and in any event within two Business Days, after the Company obtains knowledge of any Default, an Officers' Certificate specifying the nature and period of existence thereof and what action the Company has taken, is taking or proposes to take with respect thereto; (i) as soon as practicable, and in any event within ten Business Days, after the Company obtains knowledge of any condition (excluding general economic conditions not peculiar to the Company or any Subsidiary), happening or event which, in the opinion of the Board of Directors or any Responsible Officer of the Company, could reasonably be expected to have a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence thereof and what action the Company has taken, is taking or proposes to take with respect thereto; (j) promptly, a copy of each Material Contract entered into or assumed by the Company after the date hereof and each amendment, supplement or modification entered into after the date hereof in respect of any Material Contract; and (k) such other information concerning the business, financial condition, results of operation, prospects or Properties of the Company or any of any Subsidiary as any Holder shall reasonably request. Section 8.02. Payment of Principal, Interest and Premium. The Company will duly and punctually pay the principal of, and interest and premium (if any) on, the Notes in accordance with the terms of the Notes and this Agreement. -35- 41 Section 8.03. Payment of Taxes, Claims and Indebtedness. The Company will, and will cause each Subsidiary to, pay and discharge, as and when due and payable, (a) all taxes, assessments and governmental charges or levies imposed upon it or any of its Properties or in respect of any of its franchises, business, income or profits, (b) all claims (including claims for labor, services, materials and supplies) for sums which, if unpaid, might become a Lien upon any of its Property and (c) all of its other indebtedness in excess of $500,000; provided, however, that no such tax, assessment, charge or levy, claim or indebtedness (other than the Obligations) need be paid if and so long as (i) no Default shall be in existence, (ii) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and (iii) such reserves or other appropriate provision (if any) as shall be required by GAAP shall have been made therefor. Section 8.04. Maintenance of Existence and Rights; Conduct of Business. The Company will, and will cause each Subsidiary to, (a) preserve and keep in full force and effect (except as permitted by Section 9.16) its corporate or partnership, as the case may be, existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business, (b) qualify and remain qualified as a foreign Person authorized to do business in each jurisdiction in which such qualification is required and (c) carry on and conduct its business (i) in the ordinary course, (ii) in an orderly and efficient manner consistent with good business practices and (iii) in accordance, in all material respects, with all Legal Requirements. Section 8.05. Compliance with Loan Documents. The Company will, and will cause each Subsidiary to, promptly comply with any and all covenants and provisions of each Loan Document to which it is a party. Section 8.06. Compliance with Contracts and Permits. The Company will, and will cause each Subsidiary to, comply with all of its Applicable Contracts and Applicable Permits except for noncompliances which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Section 8.07. Inspection. (a) The Company will, and will cause each Subsidiary to, permit any Person designated by any Holder, at all reasonable times, to (i) visit and inspect any of its Properties, (ii) examine, copy or make excerpts from, any and all books, records, software, documents and other information in the possession of the Company or such Subsidiary and relating to its affairs and (iii) discuss its affairs, finances and accounts with its directors, officers and independent public accountants; and, by this provision, the Company (on behalf of itself and each Subsidiary) irrevocably authorizes such accountants to discuss with such Person the affairs, finances and accounts of the Company and such Subsidiary. All such visits and inspections shall be at the expense of such Holder unless a Default shall exist, in which event the reasonable costs and expenses associated with all such events and inspections shall be at the expense of the Company. (b) The Company will keep at its principal executive office a true copy of this Agreement and each other Loan Document and cause the same to be available for inspection -36- 42 at said office during normal business hours by any Holder or any Transferee or prospective Transferee designated by any Holder. Section 8.08. Books and Records. The Company will, and will cause each Subsidiary to, (a) maintain (in accordance with good accounting practices and all Legal Requirements) complete and accurate books, records and accounts accurately and fairly reflecting its transactions in reasonable detail and (b) maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) its transactions are executed in accordance with management's general or specific authorization; (ii) its transactions are recorded as necessary (A) to permit preparation of financial statements in accordance with GAAP and (B) to maintain accountability for its assets; (iii) access to its assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for its assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Section 8.09. Compliance with Legal Requirements. (a) The Company will, and will cause each Subsidiary to, will comply with all Legal Requirements applicable to it or any of its Properties, business, operations or transactions except for noncompliances which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (b) Without limiting the foregoing, the Company will, and will cause each Subsidiary to, (i) comply in a timely fashion with, or operate pursuant to valid waiver of the provisions of, all Environmental Laws, including any such Laws relating to contamination from any Hazardous Materials except for noncompliances which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (ii) notify each Holder promptly in the event of any material violation of any Environmental Law and (iii) promptly forward to each Holder a copy of any Permit, order, notice, application or other communication or report in connection with any material matter relating to the Environmental Laws as they may affect it or any of its Properties. Section 8.10. Insurance. The Company will, and will cause each Subsidiary to, maintain in full force and effect, with sound and reputable insurers, such insurance on its Properties and business against such casualties, risks, liabilities and contingencies, and in such types and amounts, as are consistent with customary practices and standards of companies engaged in similar businesses; provided, however, except as may be required by any Legal Requirement, neither the Company nor any Subsidiary shall be required to maintain (i) business interruption insurance or (ii) insurance on its inventories. -37- 43 Section 8.11. Authorizations and Approvals. The Company will, and will cause each Subsidiary to, promptly obtain, from time to time at its own expense, all such Permits as may be required to enable it to comply with its obligations hereunder and under the other Loan Documents. Section 8.12. Maintenance of Properties. (a) The Company will, and will cause each Subsidiary to, protect and maintain (or cause to be protected or maintained), in good repair, working order and condition (ordinary wear and tear excepted), all Properties used or intended for use in its business. (b) From time to time, the Company will, and will cause each Subsidiary to, make (or cause to be made) all appropriate repairs, renewals and replacements thereof so that, at all times, it may conduct its business properly and efficiently and in accordance with all Legal Requirements; provided that failure to perform this paragraph (b) in accordance with its terms will not constitute an Event of Default unless such failure could have a Material Adverse Effect. (c) The Company will, and will cause each Subsidiary to, comply at all times with the provisions of all leases to which it is a party as lessee or under which it occupies Property; provided that nothing in this paragraph (c) shall require the Company or any Subsidiary to comply with any such provision unless the noncompliance with such provision could reasonably be expected to have a Material Adverse Effect. Section 8.13. Ownership of Subsidiaries. The Company will, at all times, directly or indirectly own and hold the entire legal title to and beneficial interest in all outstanding Stock (other than directors' qualifying shares, if any, to the extent required by applicable law) of each Subsidiary, in each case free and clear of all Liens. Section 8.14. Further Assurances. The Company will, and will cause each Subsidiary to, promptly take all such actions as the Required Holders may, at any time or from time to time, reasonably request in order to (i) further carry out and consummate the Overall Transaction or (ii) comply with or accomplish the covenants and agreements of the Loan Parties in any of the Loan Documents. ARTICLE IX NEGATIVE COVENANTS Until payment in full of the Notes and all other Obligations, the Company covenants and agrees as follows: Section 9.01. Consolidated Indebtedness for Money Borrowed. The Company will not permit Consolidated Indebtedness for Money Borrowed, as of the last day of any Fiscal Quarter commencing on or after September 30, 1996, to be greater than the amount determined by multiplying the Applicable Percentage times the sum of (a) Consolidated Indebtedness for Money Borrowed as of such date and (b) Consolidated Tangible Net Worth as of such date. As used in this Section 9.01, "Applicable Percentage" means 75%. -38- 44 Section 9.02. Consolidated Tangible Net Worth. The Company will not permit Consolidated Tangible Net Worth at any time to be less than the sum of (a) $30,625,000 plus (b) 50% of Consolidated Adjusted Net Income (but only if positive) for each Fiscal Quarter ending after December 31, 1992. Section 9.03. Current Assets to Current Liabilities Ratio. The Company will not permit the ratio of (a) Consolidated Current Assets to (b) Consolidated Current Liabilities to be less than 3.5 to 1 as of the last day of any Fiscal Quarter commencing on or after January 1, 1995. Section 9.04. Current Assets to Total Indebtedness Ratio. The Company will not permit the ratio of (a) Consolidated Current Assets to (b) Consolidated Current Liabilities plus Consolidated Funded Debt to be less than .8 to 1 as of the last day of any Fiscal Quarter commencing on or after September 30, 1996. As used in this Section 9.04, "Consolidated Funded Debt" means, at any time, Consolidated Indebtedness for Money Borrowed at such time, provided that in no event shall Consolidated Funded Debt include any obligation included in Consolidated Current Liabilities. Section 9.05. Inventory Turnover. The Company will not at any time permit the ratio of (a) cost of goods sold by the Company and the Consolidated Subsidiaries for the Computation Period (as shown on the consolidated statements of income delivered by the Company pursuant to clause (a) or (b) of Section 8.01 with respect to the Computation Period) to (b) the Average Monthly Inventory for the Computation Period to be less than 1.65 to 1. As used in this Section 9.05, (i) "Computation Period" means, at any time, the 12-month period ended on the date of the most recent balance sheet delivered (or required to be delivered) by the Company pursuant to clause (a) or (b) of Section 8.01 and (ii) "Average Monthly Inventory" means, when used with reference to any Computation Period, the amount determined by dividing (A) the aggregate amounts of inventory appearing on the books of the Company and the Consolidated Subsidiaries as of the last day of each calendar month within such Computation Period by (B) twelve. Section 9.06. Fixed Charge Coverage. The Company will not at any time permit the ratio of (a) the sum of Consolidated Adjusted Net Income for the Computation Period plus the aggregate amount of all taxes, rents, leases and interest expenses deducted from gross income to obtain such Consolidated Adjusted Net Income to (b) the aggregate amount of all such rents, leases and interest expenses so deducted to be less than 1.5 to 1. As used in this Section 9.06, "Computation Period" means, at any time, the period of four consecutive Fiscal Quarters ended on the date of the most recent balance sheet delivered (or required to be delivered) by the Company pursuant to clause (a) or (b) of Section 8.01. Section 9.07. Restricted Payments. (a) The Company will not, and will not permit any Subsidiary to, (i) declare or make any dividends or distributions on any of its Stock (other than dividends payable in shares of its Stock), (ii) purchase, redeem or acquire for value any of the Company's or any Subsidiary's Stock, (iii) make any principal payment on (or make any payment, transfer or deposit for the purpose of canceling, extinguishing, satisfying or defeasing) any indebtedness of the Company which is subordinate in right of -39- 45 payment to the Notes or any other Obligation, (iv) set aside funds for any such purposes or (v) become liable to do any of the foregoing (in each case, a "Restricted Payment") unless, immediately after giving effect thereto, (A) no Default shall exist and (B) the aggregate amount of all Restricted Payments made by the Company and all Subsidiaries on or after January 1, 1996 does not exceed the sum of $15,000,000 plus 50% of Consolidated Adjusted Net Income from and after January 1, 1996. For purposes of this Section 9.07, the Company's repurchase of shares of its common stock in the aggregate amount of $38,250,000 under its issuer tender offer commenced November 18, 1996 in accordance with Rule 13E-4 promulgated by the SEC shall not be considered a Restricted Payment. (b) Notwithstanding the foregoing provisions of this Section 9.07, the Company may, so long as no Default shall be in existence or shall result therefrom, purchase, redeem or acquire shares of the Company's capital stock with the net cash proceeds received by the Company during the immediately preceding 18-month period from the sale of other shares of the Company's capital stock, in which event both the receipt and expenditure of such proceeds shall be excluded from any calculation under paragraph (a) above. (c) Nothing in this Section 9.07 shall prohibit any Subsidiary from making any Restricted Payment to the Company or any Wholly-Owned Subsidiary, and no such Restricted Payment shall be taken into account in any calculation under paragraph (a) above. Section 9.08. Limitation on Indebtedness. (a) The Company will not incur, create, assume or have outstanding any indebtedness, except: (1) (A) indebtedness of the Company arising out of this Agreement and the other Loan Documents, (B) indebtedness of the Company arising out of the 1993 Note Agreement and the other 1993 Loan Documents and (C) indebtedness of the Company arising out of the 1995 Note Agreement and the other 1995 Loan Documents; (2) indebtedness of the Company arising out of the Bank Loan Agreement; (3) purchase money indebtedness (not to exceed $10,000,000 in the aggregate for the Company and all Subsidiaries at any time outstanding); (4) current liabilities for taxes and assessments incurred in the ordinary course of business and not yet due, and other liabilities for unpaid taxes being contested in good faith by the obligor the payment of which is not at the time required by Section 8.03; (5) current indebtedness (other than indebtedness for borrowed money or purchase money indebtedness) for accounts payable or other claims (including claims for labor, services, materials and supplies) incurred in the ordinary course of business, provided that all such accounts and claims shall be promptly paid and discharged when due or in conformity with customary trade terms, except for those being contested in good faith by the obligor and the payment of which is not at the time required by Section 8.03; -40- 46 (6) contingent liabilities resulting from the endorsement of negotiable instruments in the ordinary course of business; (7) indebtedness constituting Assurances of the Company permitted by Section 9.09; (8) indebtedness for borrowed money of the Company owing to any Subsidiary, but only if permitted by Section 9.11; (9) indebtedness secured by Liens described in clause (j) of the definition of "Permitted Liens" in Section 2.01; and (10) indebtedness for borrowed money of the Company not otherwise permitted by the foregoing provisions of this Section 9.08(a) if (A) immediately after giving effect the incurrence or assumption thereof by the Company, the Company is in compliance with Sections 9.01, 9.02, 9.03, 9.04, 9.05 and 9.06 and (B) at the time of the incurrence or assumption thereof by the Company and immediately thereafter, no Default shall exist. (b) The Company will not permit any Subsidiary to incur, create, assume or have outstanding any indebtedness, except: (1) (A) indebtedness of Subsidiaries arising out of this Agreement and the other Loan Documents, (B) indebtedness of Subsidiaries arising out of the 1993 Guaranty and (C) indebtedness of Subsidiaries arising out of the 1995 Guaranty; (2) purchase money indebtedness (not to exceed $10,000,000 in the aggregate for the Company and all Subsidiaries at any time outstanding); (3) current liabilities for taxes and assessments incurred in the ordinary course of business and not yet due, and other liabilities for unpaid taxes being contested in good faith by the obligor the payment of which is not at the time required by Section 8.03; (4) current indebtedness (other than indebtedness for borrowed money or purchase money indebtedness) for accounts payable or other claims (including claims for labor, services, materials and supplies) incurred in the ordinary course of business, provided that all such accounts and claims shall be promptly paid and discharged when due or in conformity with customary trade terms, except for those being contested in good faith by the obligor and the payment of which is not at the time required by Section 8.03; (5) contingent liabilities resulting from the endorsement of negotiable instruments in the ordinary course of business; -41- 47 (6) indebtedness constituting Assurances of Subsidiaries permitted by Section 9.09; (7) indebtedness for borrowed money of any Subsidiary owing to the Company or to any other Subsidiary, but only if permitted by Section 9.11; (8) indebtedness secured by Liens described in clause (j) of the definition of "Permitted Liens" in Section 2.01; (9) other indebtedness of any Subsidiary not otherwise permitted by the foregoing provisions of this Section 9.08(b), but (A) only if such indebtedness is outstanding on the date hereof and described in Schedule VIII and (B) excluding any extensions, renewals and rearrangements of such indebtedness; (10) (A) in the case of Pantbelaning, the Pantbelaning Indebtedness, (B) in the case of Pantbelaning, Murtrum, and the Murtrum Affiliate, Indebtedness for Money Borrowed (not to exceed SEK 55,000,000 in the aggregate at any time outstanding) incurred after the date hereof pursuant to a credit facility to be extended by one or more banks, but only if no Default shall be in existence at the time of the incurrence of such indebtedness, and (C) in the case of Harvey & Thompson Limited, the Harvey & Thompson Indebtedness and, to the extent permitted under the 1993 Note Agreement and the 1995 Note Agreement, additional Indebtedness for Money Borrowed in an amount not to exceed 5,000,000 pounds sterling in the aggregate at any time outstanding incurred after the date hereof pursuant to a credit facility to be extended by one or more banks, but only if no Default or Event of Default shall be in existence at the time of the incurrence of such Indebtedness for Money Borrowed; provided that the Indebtedness for Money Borrowed described in clauses (A), (B) and (C) described above may be extended, renewed or refinanced so long as there is no increase in principal amount of such Indebtedness for Money Borrowed and so long as no Default shall be in existence or shall occur upon such extension, renewal or refinancing; and (11) in the case of any Wholly-Owned Subsidiary acquired by the Company after the date hereof in accordance with Section 9.20(a)(1), all indebtedness of such Subsidiary outstanding on the date of its acquisition by the Company, but (i) only if the amount of such indebtedness, when aggregated with the total amount of all other indebtedness of all Persons (including such Wholly-Owned Subsidiary) outstanding pursuant to this clause (11), does not exceed $750,000, (ii) only if such indebtedness was incurred, created or assumed by such Subsidiary prior to its acquisition by the Company and not in anticipation of, or in connection with, such acquisition and (iii) excluding any extensions, renewals and rearrangements of such indebtedness. Section 9.09. Assurances. The Company will not, and will not permit any Subsidiary to, enter into, assume or become or be liable in respect of any Assurance, except for (i) Assurances by the Company of indebtedness of Subsidiaries permitted by Section 9.08(b), (ii) Assurances by one or more Guarantors of indebtedness (other than the Obligations) of -42- 48 the Company permitted by Section 9.08(a) but only if and so long as the Guaranty is in full force and effect, (iii) Assurances of the Guarantors evidenced by the Guaranty, (iv) Assurances by the Company and the Guarantors of the Pantbelaning Indebtedness, and (v) other Assurances not otherwise permitted by this Section 9.09 but only to the extent that the aggregate amount of all indebtedness relating to such Assurances does not exceed $500,000. Section 9.10. Negative Pledge. The Company will not, and will not permit any Subsidiary to, assume, create or suffer to exist any Lien upon any of its Properties (whether now owned hereafter acquired) except Permitted Liens. Section 9.11. Limitation on Investments. The Company will not, and will not permit any Subsidiary to, make or have outstanding any Investments in any Person, except for: (a) pawn transactions and pawn loans made in the ordinary course of business; (b) travel advances and other similar advances made to employees in the ordinary course of business; (c) advances and extensions of credit (in the form of accounts receivable) made to customers in the ordinary course of business; (d) advances and deposits made by the Company or any Subsidiary in the ordinary course of business to contractors performing services for the Company or such Subsidiary, as the case may be; (e) in the case of the Company, Investments in Wholly-Owned Subsidiaries (including Wholly-Owned Subsidiaries acquired after the date hereof in accordance with Section 9.20(a)(1)) resulting from its acquisition or ownership of Stock of, or capital contributions to, such Subsidiaries but, in each case, only to the extent not prohibited by Section 9.20; (f) in the case of any Subsidiary, Investments in the Company; (g) in the case of any Subsidiary, Investments in Wholly-Owned Subsidiaries (including Wholly-Owned Subsidiaries acquired after the date hereof in accordance with Section 9.20(a)(1)) resulting from its acquisition or ownership of Stock of, or capital contributions to, such Wholly-Owned Subsidiaries but, in each case, only to the extent not prohibited by Section 9.20; (h) loans and advances by the Company to any Wholly-Owned Subsidiary, provided that, in the case of any such loan or advance made after the date hereof, no Default shall exist either immediately before or after giving effect thereto; -43- 49 (i) loans and advances made by any Subsidiary to the Company or to any Wholly-Owned Subsidiary; (j) Temporary Cash Investments; (k) other Investments not otherwise permitted by this Section 9.11, but only if owned by the Company and/or any Subsidiary on the date hereof and described in Schedule XI; and (l) other Investments made after the date hereof and not otherwise permitted by this Section 9.11, provided that neither the Company nor any Subsidiary shall make any Investment under this clause (l) if a Default shall be in existence immediately before or after such Investment or if the amount of such Investment, when aggregated with the total amount of all other Investments then outstanding under this clause (l), exceeds 7.5% of Consolidated Tangible Net Worth as of the date of such Investment. Section 9.12. Alteration of Contracts, Etc. The Company will not, and will not permit any Subsidiary to, (a) cancel, terminate, surrender, release, alter, amend, modify or supplement any Applicable Contract or Applicable Permit, (b) waive timely performance of any of the provisions of any Applicable Contract or Applicable Permit or (c) consent or agree to, or permit, any of the foregoing, provided that any such action may be taken if the Company shall determine in good faith that such action could not reasonably be expected to have a Material Adverse Effect. Section 9.13. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, enter into any transaction with, or pay any management fees to, any of its Affiliates except in the ordinary course of business and then only upon terms that are no less favorable to Company or such Subsidiary, as the case may be, than would be obtainable at the time in arms'-length transactions with Persons which are not Affiliates of the Company or such Subsidiary, as the case may be, provided that this Section 9.13 shall not apply to transactions between the Company and any Wholly-Owned Subsidiary or to any management fees payable by any Subsidiary to the Company or any Wholly-Owned Subsidiary. Section 9.14. Limitation on Sale or Issuance of Subsidiary Stock. (a) The Company will not permit any Subsidiary to issue or sell any shares of Stock (or any securities convertible into or exchangeable for or carrying rights to subscribe for shares of Stock) of such Subsidiary to any Person other than the Company or a Wholly-Owned Subsidiary. (b) The Company will not (i) sell, transfer or otherwise dispose of any shares of Stock (or any securities convertible into or exchangeable for or carrying rights to subscribe for shares of Stock) of any Subsidiary or (ii) permit any Subsidiary to sell, transfer or otherwise dispose of any shares of Stock (or any securities, convertible into or exchangeable for or carrying rights to subscribe for shares of Stock) of any other Subsidiary. -44- 50 Section 9.15. Limitation on Sale of Properties. (a) The Company will not, and will not permit any Subsidiary to, sell, assign, convey, exchange, lease or otherwise dispose of any of its Properties (including accounts receivable and pawn loans), whether now owned or hereafter acquired, except in the ordinary course of its business; provided, however, that the Company and the Subsidiaries may sell Properties having an aggregate net book value (at the time of the disposition thereof) not in excess of $5,000,000 during any Fiscal Year and, provided further, that this Section 9.15 shall not operate to prevent the transactions permitted by Section 9.14 or Section 9.16 or any sale, transfer or lease of Property by a Wholly-Owned Subsidiary to the Company or to another Wholly-Owned Subsidiary and, provided further, that the Company will not, and will not permit any Subsidiary to, sell, assign, discount or otherwise dispose of any accounts receivable, except in the ordinary course of business consistent with the Company's collection practices as in effect from time to time and not a part of a financing. (b) Nothing in this Section 9.15 shall prohibit the Company, so long as no Default shall have occurred and be continuing, from selling the real estate (including improvements thereon) currently owned by the Company at 500 Franklin Avenue, 209 South Fifth Street and 225 South Fifth Street, Waco, Texas, and in no event shall the net book value of such Property be taken into account in any computation under this Section 9.15. Section 9.16. Dissolution; Liquidation; Merger; Consolidation. The Company will not, and will not permit any Subsidiary to, dissolve or liquidate or consolidate or merge with, or sell, assign, convey, exchange, lease or otherwise dispose of its Properties as an entirety or substantially as an entirety to, any other Person except that: (a) any corporation may consolidate with or merge into the Company if (i) the Company shall be the surviving corporation, (ii) immediately after giving effect to such transaction, (A) no Default or Event of Default shall have occurred and be continuing, (B) the Company is solvent and no less creditworthy than immediately prior to the consummation of such transaction and (C) the consummation of such transaction did not have, and could not reasonably be expected to have, a Material Adverse Effect and (iii) each Holder shall have received an Officers' Certificate, dated not more than 10 days prior to the effective date of such transaction, describing such transaction and stating that such transaction is permitted by this Section 9.16; (b) the Company may consolidate with or merge into, or sell, assign, convey, exchange, lease or otherwise dispose of its Properties as an entirety or substantially as an entirety to, any Person if (i) such Person shall be a solvent corporation organized under the laws of any state of the United States of America, (ii) such Person shall, by written instrument in form and substance acceptable to the Required Holders, expressly and unconditionally assume, agree to pay and perform all the Obligations and to be bound by this Agreement and the other Loan Documents the same as if such Person had originally executed this Agreement in place of the Company and had been the original maker of the Notes, (iii) immediately after giving effect to such transaction, (A) no Default or Event of Default shall have occurred and be continuing, (B) such Person is no less creditworthy than was the Company -45- 51 immediately prior to the consummation of such transaction and (C) the consummation of such transaction did not have, and could not be reasonably expected to have, a Material Adverse Effect and (iv) each Holder shall have received an Officers' Certificate, dated not more than ten days prior to the effective date of such transaction, describing such transaction and stating that such transaction is permitted by this Section 9.16; (c) any Wholly-Owned Subsidiary may consolidate with or merge into, or sell, assign, convey, exchange, lease or otherwise dispose of its Properties as an entirety or substantially as an entirety to, the Company or any other Wholly-Owned Subsidiary; and (d) any Wholly-Owned Subsidiary may consolidate or merge with any Person solely for the purpose of the Company's acquisition of such Person in accordance with Section 9.20(a)(1). Section 9.17. Change of Name, Fiscal Year and Method of Accounting. The Company will not, and will not permit any Subsidiary to, (i) change its name, (ii) change its fiscal year, (iii) change its principal accounting firm to an accounting firm other than the Independent Accountants or (iv) change its method of accounting unless required under GAAP. Section 9.18. Lines of Business. The Company will not, and will not permit any Subsidiary to, engage in any business other than (i) the pawnshop business, (ii) the business of cashing checks and conducting related cash dispensing transactions, (iii) the business of offering tires and wheels on a rent-to-own or comparable basis and performing ancillary automobile-related services, and (iv) activities related to the above. Section 9.19. Amendment of Organizational Documents. The Company will not, and will not permit any Subsidiary to, amend its Organizational Documents if such action could reasonably be expected to have a Material Adverse Effect. Section 9.20. Limitation on Acquisition of New Subsidiaries. (a) The Company will not, and will not permit any Subsidiary to, (i) acquire any Stock of any Person, (ii) enter into any partnership or joint venture or (iii) take any action which would result in the Company having any Subsidiary other than those listed in Schedule II except that, from time to time, the Company may: (1) acquire (whether by purchase, merger or other similar transaction) any Person, but only if: (A) immediately after giving effect to such acquisition, such Person shall constitute a Wholly- Owned Subsidiary; -46- 52 (B) immediately after giving effect to such acquisition, no Default shall be in existence, and the consummation of such acquisition did not have, and could not be reasonably expected to have, a Material Adverse Effect; (C) each Holder shall have received an Officers' Certificate, dated not more than ten days prior to the effective date of such acquisition, describing such acquisition (including the name of such Person and the business conducted by it) and stating that such acquisition is permitted by this Section 9.20, which Officers' Certificate shall be accompanied by complete and accurate copies of the Organizational Documents of such Person; and (D) promptly (and in any event within 15 days) after the consummation of such acquisition, such Person shall duly authorize, execute and deliver to each Holder an instrument in writing pursuant to which such Person agrees to become a Guarantor under, and to be bound as a Guarantor by the terms of, the Guaranty and the Subrogation and Contribution Agreement; and (2) create or form a new corporation or limited partnership (the "New Entity") and thereupon cause the New Entity to become a Wholly-Owned Subsidiary, but only if: (A) no Default shall exist immediately after the New Entity becomes a Subsidiary; (B) subject to paragraph (b) below, promptly (and in any event within 15 days) after its creation or formation, the New Entity shall duly authorize, execute and deliver to each Holder an instrument in writing pursuant to which the New Entity agrees to become a Guarantor under, and to be bound as a Guarantor by the terms of, the Guaranty and the Subrogation and Contribution Agreement; (C) except as required by clause (B) above, the New Entity shall not conduct any business prior to becoming a Subsidiary; and (D) subject to paragraph (b) below, promptly (and in any event within 15 days) after the creation or formation of the New Entity, the Company shall deliver to each Holder an Officers' Certificate notifying the Holders of the formation or creation of the New Entity, which Officers' Certificate shall (i) specify the name of the New Entity and the jurisdiction of its incorporation or formation, (ii) describe, in reasonable detail, the business proposed to be conducted by the New Entity, (iii) state that the Company is authorized to form or create the New Entity and to cause it to become a Subsidiary in accordance with this Section 9.20 and (iv) be accompanied by complete and accurate copies of the Organizational Documents of the New Entity. -47- 53 (b) In no event shall any New Entity created or formed pursuant to paragraph (a)(2) above be required to execute and deliver a written instrument with respect to the Guaranty as contemplated by clause (B) thereof nor shall the Company be required to deliver the documents described with respect to such New Entity in clause (D) thereof until the earlier of (i) the date on which the Company makes an Investment in such New Entity (other than the incurrence of routine organizational expenses and other than capital contributions totalling less than $5,000) and (ii) the date on which such New Entity first conducts business. (c) Nothing in this Section 9.20 shall operate to prevent any transaction permitted by Section 9.11 or Section 9.16. (d) If any Person becomes a Subsidiary at any time after the date hereof, such Person shall be deemed to have incurred or made, as the case may be, at the time it becomes a Subsidiary (i) all Assurances, indebtedness, loans, advances and Investments of such Person which are outstanding at such time and (ii) all Liens then in effect with respect to any of its Properties. Section 9.21. ERISA. The Company will not, and will not permit any Subsidiary or Related Person to, (a) engage in any transaction in connection with which the Company or any Subsidiary could be subject to either a civil penalty assessed pursuant to section 502(i) of ERISA or a tax imposed by section 4975 of the Code, terminate any Plan (other than a multiemployer plan) in a manner, or take any other action with respect to any such Plan, which could result in any liability of the Company or any Subsidiary to the Pension Benefit Guaranty Corporation, fail to make full payment when due of all amounts which, under the provisions of applicable law, or the terms of any Plan or collective bargaining agreement, the Company or any Subsidiary is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency, whether or not waived, with respect to any Plan (other than a multiemployer plan), if, in any such case, such penalty or tax or such liability, or the failure to make such payment, or the existence of such deficiency, as the case may be, could reasonably be expected to have a Material Adverse Effect; (b) permit the aggregate present value of all benefit liabilities under all Plans maintained at such time by the Company, any Subsidiary and any Related Persons (other than multiemployer plans) that are subject to Title IV of ERISA to exceed the aggregate current value of the assets of such Plans allocable to such benefit liabilities by more than $500,000; or (c) permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to multiemployer plans incurred by the Company, the Subsidiaries and Related Persons to exceed $250,000. -48- 54 As used in this Section 9.21, (i) the term "accumulated funding deficiency" has the meaning specified in section 302 of ERISA and section 412 of the Code, (ii) the terms "present value," "benefit liabilities" and "current value" have the respective meanings specified in sections 3 and 4001 of ERISA and (iii) "multiemployer plan" means a Plan which is a "multiemployer plan" as defined in section 4001(a)(3) of ERISA. Section 9.22. No Inconsistent Agreements. The Company will not enter into, assume or otherwise become obligated under any agreement or instrument which restricts the ability of the Company to consummate the Private Placement or perform its obligations under any Loan Document. Section 9.23. Incorporation of More Restrictive Covenants. In the event the Bank Loan Agreement or any renewal, modification, or replacement thereof at any time includes a financial covenant or restriction similar to the covenants and restrictions set forth in Section 9.01, 9.05 or 9.06 that is more restrictive than the levels set forth in said Section 9.01, 9.05 and 9.06 (the "More Restrictive Covenant"), the Company shall, immediately upon such inclusion of the More Restrictive Covenant, notify the Purchasers and furnish a verbatim statement of the More Restrictive Covenant. Such notification shall also inform the Purchasers of the Required Holders' right to elect in writing to substitute such More Restrictive Covenant as described below and shall state the date by which such election must be made in accordance with this Section 9.23. The Required Holders may elect to substitute the More Restrictive Covenant for the corresponding Section 9.01, 9.05 or 9.06 by notifying the Company in writing within sixty (60) days after receipt of the notice referred to in the preceding sentence. ARTICLE X EVENTS OF DEFAULT Section 10.01. Events of Default. If any of the following events (each such event being an "Event of Default") shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (a) the Company shall fail to pay when due under this Agreement any principal of or premium, if any, on any Note; (b) any Loan Party shall fail to pay any interest, premium or other Obligation when due under any Loan Document, and such failure shall have continued for five days; or (c) any representation or warranty made by or on behalf of any Loan Party in any Loan Document shall prove to be untrue or inaccurate as of the date hereof or as of the Closing Date; or (d) any representation or warranty made by or on behalf of any Loan Party in any certificate, statement or other writing furnished to any Holder after the date -49- 55 hereof in connection with or pursuant to any Loan Document shall prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made; or (e) the Company shall fail to perform or observe any covenant or agreement contained in Section 8.01(h), Sections 9.01 through 9.07 or Section 9.14; or (f) the Company shall fail to perform or observe any other covenant, agreement, term or condition contained in any Loan Document and such failure shall not be remedied within 30 consecutive days after the earlier of (i) the date on which such failure became known to any Responsible Officer of the Company and (ii) the date on which written notice thereof shall have been received by the Company from any Holder; or (g) any Guarantor shall fail to perform or observe any agreement contained in its Guaranty; or (h) any Loan Party, Harvey & Thompson Limited, Pantbelaning, Murtrum or any Murtrum Affiliate shall (i) default in any payment of principal of or interest on any other indebtedness in excess of $500,000 beyond any period of grace provided with respect thereto or (ii) fail to perform or observe any other covenant or agreement contained in any agreement under which any such indebtedness is created or outstanding within any applicable grace period provided therein (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is (A) to cause such indebtedness to become due prior to its stated maturity or (B) to permit the holder or holders of such indebtedness (or any Person acting on behalf of such holder or holders) to cause such indebtedness to become due prior to its stated maturity; or (i) the Company or any Subsidiary shall make an assignment for the benefit of creditors or shall fail to generally pay its debts as such debts become due; or (j) any decree or order for relief in respect of the Company or any Subsidiary shall be entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect, of any jurisdiction (herein called the "Bankruptcy Law") and such decree or order remains unstayed and in effect for more than 60 days; or (k) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of such Person, or of any substantial part of the assets of such Person, or commences a voluntary case under the federal Bankruptcy Law or any proceedings relating to such Person under the Bankruptcy Law of any other jurisdiction; or -50- 56 (l) any such petition or application is filed, or any such proceedings as described in clause (k) above are commenced, against the Company or any Subsidiary and such Person by any act indicates its approval thereof, consent thereto or acquiescence therein; or (m) an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 consecutive days; or (n) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing the dissolution, winding-up or liquidation of such Person and such order, judgment or decree remains unstayed and in effect for more than 60 consecutive days; or (o) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing a split-up of such Person which requires the divestiture of assets and such order, judgment or decree remains unstayed and in effect for more than 60 consecutive days; or (p) any final judgment or final judgments for the payment of money in excess of the sum of $500,000 in the aggregate shall be rendered against the Company or any Subsidiary and such judgment or judgments shall not be satisfied, discharged or stayed (with sufficient reserves having been set aside by the Company or such Subsidiary to pay such judgment or judgments) at least ten days prior to the date on which any of its assets could be lawfully sold to satisfy such judgment; or (q) this Agreement or any other Loan Document shall at any time, for any reason, cease to be in full force and effect or shall be declared to be null and void in whole or in any material part by the final judgment of any court or other Governmental Authority having jurisdiction in respect thereof, or the validity or the enforceability of this Agreement or any other Loan Document shall be contested by or on behalf of any Loan Party, or any Loan Party shall renounce this Agreement or any other Loan Document, or deny that it is bound by the terms hereof or thereof or has any further liability hereunder or thereunder; or (r) the Company or any Subsidiary shall have (i) concealed or removed, or permitted to be concealed or removed, any part of its Property with the intent to hinder, delay or defraud its creditors or any of them or (ii) made or suffered a transfer under any bankruptcy, fraudulent conveyance or similar law; then (i) if such event is an Event of Default specified in clauses (i), (j), (k) (1) or (m) of this Section 10.01, all of the Notes shall thereupon be and become automatically due and payable together with interest accrued thereon and together with the Make-Whole Premium, if any, with respect to each Note, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived -51- 57 by the Company, (ii) if such event is an Event of Default specified in clause (a) or clause (b) (but only with respect to the failure of any Loan Party to pay interest) of this Section 10.01, any Holder may at its option, by notice in writing to the Company, declare all of the Notes held by such Holder to be, and all of such Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Make-Whole Premium, if any, with respect to each such Note, without presentment, demand, protest, notice of intent to accelerate or other notice of any kind, all of which are hereby waived by the Company, and (iii) if such event is any other continuing Event of Default, the Holders of at least 66-2/3% of the aggregate principal amount of the Notes at the time outstanding may at their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Make- Whole Premium, if any, with respect to each Note, without presentment, demand, protest, notice of intent to accelerate or other notice of any kind, all of which are hereby waived by the Company; provided that in the case of each acceleration of the Notes solely on account of any Default (other than a payment default) described in clause (c), (d), (e), (f), (g), (h) or (p) of this Section 10.01, the Make-Whole Premium, if any, with respect to each Note shall be due and payable upon such acceleration only if such Default is the result of an intentional or willful act of the Company or any Affiliate of the Company. At any time after the principal of, and interest accrued on, any or all of the Notes are declared due and payable, the Holders of at least 66-2/3% of the aggregate principal amount of the Notes at the time outstanding may at their option, by written notice to the Company, rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, the principal of and premium, if any, on any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue principal and premium and (to the extent permitted by applicable law) any overdue interest in respect of such Notes at a rate per annum from time to time equal to the Default Rate, (b) the Company has paid all sums paid or advanced by any Holder under any Loan Document (other than the loans evidenced by the Notes), (c) all Defaults, other than nonpayment of amounts which have become due solely by reason of such declaration, have been cured or waived pursuant to Section 11.03, and (d) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or any other Loan Document; but no such rescission and annulment shall extend to or affect any subsequent Default or impair any right consequent thereon. Section 10.02. Other Remedies. If any Event of Default shall occur and be continuing, any Holder may proceed to protect and enforce its rights under this Agreement and the other Loan Documents by exercising such remedies as are available to such Holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or any other Loan Document or in aid of the exercise of any power granted in this Agreement or in any other Loan Document, or such Holder may proceed to enforce the payment of all Obligations or to enforce any other legal or equitable right of such Holder. -52- 58 ARTICLE XI MISCELLANEOUS Section 11.01. Note Payments. (a) The Company agrees that, so long as the Purchasers or their respective nominees shall hold any Note, it will make payments of principal thereof (and premium if any, and interest thereon) which comply with the terms of this Agreement, by electronic funds transfer to the account or accounts of the Purchasers as specified in Schedule I or such other account or accounts in the United States of America as the Purchasers may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. (b) The Purchasers agree that, before disposing of any Note, they will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid, provided that the failure to so endorse or any error in so endorsing any such amount on such schedule (or on a continuation thereof) shall not limit or otherwise affect the obligation of the Company or any other Loan Party to pay the Obligations. (c) The Company agrees to afford the benefits of paragraph (a) of this Section 11.01 to any Transferee which shall have made the same agreement as the Purchasers have made in paragraph (b) of this Section 11.01. Section 11.02. Expenses. (a) Whether or not the transactions contemplated by this Agreement shall be consummated, the Company will pay and will indemnify and hold harmless the Purchasers and each other Indemnitee in respect of all reasonable expenses in connection with such transactions and in connection with any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement, the Notes or any other Loan Document, including: (i) the reasonable costs and expenses of preparing and reproducing this Agreement, the Notes and the other Loan Documents, of furnishing all opinions of counsel referred to herein and all certificates on behalf of the Company and the Subsidiaries, and of the performance of and compliance with all agreements and conditions contained herein and in the other Loan Documents on the part of the Company and the Subsidiaries to be performed or complied with, (ii) the cost of delivering to the principal office of the Purchasers, insured to the satisfaction of the Purchasers, the Notes originally issued to the Purchasers hereunder and any Notes delivered to the Purchasers upon any substitution of such Notes and of the Purchasers delivering any Notes, insured to the satisfaction of the Purchasers, upon any such substitution, (iii) the reasonable fees, expenses and disbursements of special counsel to the Purchasers in connection with such transactions (including the costs and expenses incurred in connection with obtaining a private placement number) and any such amendments or waivers (whether or not such amendments or waivers become effective) and (iv) the reasonable costs and expenses, including attorneys' fees, incurred by the Purchasers or any Transferee in enforcing any rights under this Agreement or the other Loan Documents or in responding to any subpoena or any other legal process issued in connection with this Agreement, the other Loan Documents or the Overall Transaction or by reason of the Purchasers' or any Transferee's having acquired any Note, including reasonable costs and expenses incurred in any bankruptcy case. -53- 59 (b) The Company also will pay, and will indemnify, and hold the Purchasers and each other Indemnitee harmless from, all claims in respect of the fees, if any, of brokers and finders engaged by or on behalf of the Company. (c) In furtherance of the foregoing, at the Closing the Company will pay the reasonable fees and disbursements of Chapman and Cutler, special counsel to the Purchasers, which are reflected as unpaid in the statement of special counsel to the Purchasers delivered to the Company at or prior to the time of Closing. (d) The obligations of the Company under this Section 11.02 shall survive the transfer of any Note or portion thereof or interest therein by the Purchasers or any Transferee and the payment of the Notes. (e) In the event any Holder or Holders propose to engage special counsel in connection with any amendments or waivers requested by the Company under or in respect of this Agreement or any other Loan Document, such Holder or Holders agree to engage only one special counsel for each such matter and to use reasonable efforts to cause such special counsel to furnish the Company with an estimate of the total fees, expenses and disbursements to be incurred by such special counsel in connection with such engagement, provided that the failure (for any reason) of such special counsel to provide such an estimate (nor any error therein or deviation therefrom) shall not relieve the Company of any of its obligations under this Section 11.02. Section 11.03. Consent to Waivers and Amendments. (a) This Agreement and the other Loan Documents may be amended, and the Company may take any action herein or therein prohibited, or omit to perform any act herein or therein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holders except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement or any other Loan Document shall change the maturity of any Note, or change the principal of, or the rate or time of payment of interest or any premium payable with respect to any Note, or affect the time, amount or allocation of any required prepayments, or alter or amend the right of any Holder to declare all of the Notes held by such Holder to be due and payable in accordance with the provisions of Section 10.01 or change or modify any of the provisions of this Section 11.03. Each Holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this Section 11.03, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. (b) Executed or true and correct copies of any consent, waiver and amendment effected pursuant to the provisions of this Section 11.03 shall be delivered by the Company to each Holder forthwith following the date on which the same shall have been executed and delivered by the Required Holders. -54- 60 (c) No course of dealing between the Company and the Holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any Holder of such Note. Section 11.04. Solicitation of Holders. The Company will not solicit, request or negotiate for or with respect to any proposed consent, waiver or amendment of any of the provisions of this Agreement or any other Loan Document unless each Holder shall concurrently be informed thereof in writing by the Company and shall be afforded the opportunity to consider the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. The Company will not pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Holder as consideration for or as an inducement to the entering into by any such Holder of any waiver or amendment of any of the terms and provisions of this Agreement or any other Loan Document unless such remuneration is concurrently paid, on the same terms, ratably to each Holder. Section 11.05. Form, Registration, Transfer and Exchange of Notes; Lost Notes. (a) The Notes are issuable as registered notes without coupons in minimum denominations equal to $1,000,000 (except as may be necessary to reflect any principal amount not evenly divisible by $1,000,000). The Company shall keep at its principal executive office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Subject to paragraph (d) below, upon surrender for registration of transfer of any Note at the principal executive office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of the designated Transferee or Transferees. Every Note surrendered for registration of transfer shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the Holder of such Note, or such Holder's attorney, duly authorized in writing. (b) At the option of any Holder, any Note held by such Holder may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the Holder making the exchange is entitled to receive. (c) Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were called by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the Holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such Holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. -55- 61 (d) Each Purchaser agrees, to the extent permitted by applicable law, that it will not transfer any Notes except as follows: (i) it may transfer some (but not all) of the Notes to not more than two Transferees, (ii) it may at any time transfer all of the Notes then held by it to any single Transferee, and (iii) it may at any time transfer all or a part of the Notes then held by it to one or more Affiliates of the Purchasers; provided, however, that it shall be a condition to any transfer pursuant to clause (i) or (ii) above, as well as any subsequent transfer of a Note by a Transferee, that each Transferee executes and delivers to the Company an instrument in writing whereby such Transferee agrees that it will not transfer to any Person (other than an Affiliate of such Transferee) less than all of the Notes held by such Transferee and, provided further, that it shall be a condition to any transfer to an Affiliate of the Purchasers pursuant to clause (iii) above that such Affiliate executes and delivers to the Company an instrument in writing whereby such Affiliate agrees that the transfer restrictions contained in this paragraph (d) shall be applicable to such Affiliate the same as if such Affiliate were the Purchasers. Section 11.06. Persons Deemed Owners. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered in accordance with Section 11.05 as the owner and Holder of such Note for the purpose of receiving payment of principal of and premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Section 11.07. Reliance on and Survival of Representations and Warranties. (a) All of the representations and warranties of the Loan Parties contained in the Loan Documents or in any certificates or other instruments delivered by any Loan Party at or after the Closing pursuant to any Loan Document shall (i) survive the execution and delivery of this Agreement, the Notes and the other Loan Documents, the transfer by the Purchasers of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by the Purchasers or any Transferee, regardless of any investigation made at any time by or on behalf of the Purchasers, any Transferee or any other Person and (ii) be deemed to be material and to have been relied upon by each Holder, notwithstanding any investigation heretofore or hereafter made by or on behalf of any Holder. (b) All representations, warranties and covenants contained herein made by the Purchasers or any Holder shall survive the execution and delivery of this Agreement, the Notes and the other Loan Documents, and may be relied upon by the Company and its successors and assigns. No Holder (including the Purchasers) shall be responsible for the truth, correctness or performance of the representations or warranties of the Company, the Guarantors or any other Holder (including any Transferee). -56- 62 Section 11.08. Successors and Assigns. All covenants and other agreements in this Agreement contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. Each Transferee, by taking any Note, shall be deemed to have made the representation contained in Part 1 of Schedule XII and at least one of the representations contained in Part 2 of Schedule XII and to have agreed to be bound by the terms and conditions of this Agreement. Section 11.09. Notices. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (a) if to the Purchasers, addressed to it at the address specified for such communications in Schedule I, or at such other address as the Purchasers shall have specified to the Company in writing, (b) if to any other Holder, addressed to such other Holder at such address as such other Holder shall have specified to the Company in writing or, if any such other Holder shall not have so specified an address to the Company, then addressed to such other Holder in care of the last holder of such Note which shall have so specified an address to the Company and (c) if to the Company, addressed to it at 1600 West 7th Street, Fort Worth, Texas 76102-2599, Attention: President, or at such other address as the Company shall have specified to each Holder in writing. Section 11.10. Substitution of Purchasers. The Purchasers shall have the right, by written notice to the Company, to substitute any one of its Affiliates as the purchaser of the Notes, which notice shall be signed by both the Purchasers and such Affiliate and shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representation contained in Part 1 of Schedule XII and of at least one of the representations set forth in Part 2 of Schedule XII. Upon receipt of such notice, wherever the word "Purchaser" is used in this Agreement (other than in this Section 11.10) or any other Loan Document or certificate, opinion or other instrument delivered or to be delivered pursuant hereto or thereto, such word shall be deemed to refer to such Affiliate in lieu of the Purchaser. In the event such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to the Purchaser all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "Purchaser" is used in this Agreement or any other Loan Document or certificate, opinion or other instrument delivered or to be delivered pursuant hereto or thereto, such word shall no longer be deemed to refer to such Affiliate, but shall refer to the Purchaser, and the Purchaser shall have all the rights of an original Holder of the Notes under this Agreement. Section 11.11. Satisfaction Requirement. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to the Purchasers or to the Required Holders, the determination of such satisfaction shall be made by the Purchasers or the Required Holders, as the case may be, in the sole and exclusive judgment of the Person or Persons making such determination unless, by the terms of this Agreement, such matter is required to be reasonably satisfactory to the Purchasers or to the Required Holders, as the case may be, in which event the determination -57- 63 of such satisfaction shall be made by the Purchasers or the Required Holders, as the case may be, in the reasonable judgment of the Person or Persons making such determination. Section 11.12. Independence of Covenants. All covenants contained in this Agreement shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that such action or condition would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. Section 11.13. Remedies Cumulative. No right, power or remedy granted under any Loan Document is intended to be exclusive, but each shall be cumulative and in addition to any other rights, powers or remedies referred to in such Loan Document or otherwise available at law or in equity and the exercise or beginning of exercise by any party hereto of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by such party of any or all such other rights, powers or remedies. Section 11.14. Reproduction of Documents. This Agreement, the Notes, the other Loan Documents and all documents relating hereto and thereto, including (a) consents, waivers and notifications which may hereafter be executed, (b) documents received by the Purchasers at the Closing and (c) financial statements, certificates and other information previously or hereafter furnished to any Holder of a Note, may be reproduced by such Holder or the Company by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and any original document so reproduced may be destroyed. The Company and the Purchasers agree and stipulate that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section 11.15. Notes as Securities. The Company and the Purchasers agree that the Notes are securities as defined in each of the Securities Act and the Exchange Act. Section 11.16. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 11.17. Interest. (a) Each provision in this Agreement, the Notes and the other Loan Documents is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, to any Holder for the use, forbearance or detention of the indebtedness evidenced by the Notes or any other Loan Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Loan Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the Highest -58- 64 Lawful Rate, and all amounts owed under this Agreement, the Notes and each other Loan Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Agreement, the Notes or any other Loan Documents shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. (b) Anything in this Agreement, any Note or any other Loan Document to the contrary notwithstanding, the Company shall never be required to pay unearned interest on any Note or ever be required to pay interest on such Note at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Agreement, such Note or any other Loan Document would exceed the Highest Lawful Rate, or if the Holder of such Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Company under this Agreement, such Note and the other Loan Documents to a rate in excess of the Highest Lawful Rate, then (i) the amount of interest which would otherwise be payable by the Company under this Agreement, such Note and the other Loan Documents shall be reduced to the amount allowed under applicable law and (ii) any unearned interest paid by the Company or any interest paid by the Company in excess of the Highest Lawful Rate shall be in the first instance credited on the principal of such Note with the excess thereof, if any, refunded to the Company. (c) It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by any Holder under the Notes held by it, or under this Agreement or the other Loan Documents, which are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate shall be made, to the extent permitted by usury laws applicable to such Notes (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the loans evidenced by said Notes all interest at any time contracted for, charged or received by such Holder in connection therewith. (d) If, at any time and from time to time, (i) the amount of interest payable to any Holder on any date shall be computed at the Highest Lawful Rate and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such holder would be less than the Highest Lawful Rate, then the amount of interest payable to such Holder in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate until the total amount of interest payable to such Holder shall equal the total amount of interest which would have been payable to such Holder if the total amount of interest had been computed without giving effect to this Section 11.17. Section 11.18. Representations, Etc. Cumulative. All representations, covenants, agreements and indemnities contained in this Agreement shall be in addition to and cumulative of the representations, covenants, agreements and indemnities contained in the other Loan Documents. Section 11.19. Submission to Jurisdiction. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT -59- 65 LOCATED IN NEW YORK, NEW YORK OVER ANY ACTION OR PROCEEDING (A) TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS AGREEMENT OR UNDER ANY OTHER LOAN DOCUMENT OR (B) ARISING FROM OR RELATING TO ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT AND THE LOAN DOCUMENTS, AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT. THE COMPANY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 11.09, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING. EACH SUCH SERVICE IS HEREBY ACKNOWLEDGED BY THE COMPANY TO BE SUFFICIENT, EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. IF ANY AGENT APPOINTED BY THE COMPANY REFUSES TO ACCEPT SERVICE, THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM OR VENUE TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. THE COMPANY HEREBY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 11.19 SHALL AFFECT THE RIGHT OF ANY HOLDER OR ANY OTHER PERSON TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR THE PROPERTY OF THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. Section 11.20. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the Internal Laws of the State of New York, without reference to principles of conflicts of law. Section 11.21. Indemnification. The Company hereby waives any claim for contribution against any Indemnitee and agrees to indemnify, exonerate and hold each Indemnitee free and harmless from and against any and all actions, causes of action, suits, citations, directives, demands, assessments, losses, liabilities, damages and expenses, including (without limitation) reasonable attorneys' fees and disbursements and, in the case of clause (e) below, fees and disbursements of environmental consultants (collectively, the "Indemnified Liabilities"), incurred, suffered, sustained or required to be paid by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any transaction financed in whole or in part directly or indirectly with the proceeds of any of the Notes, (b) the exercise, protection or enforcement of any Holder's rights, remedies, powers or privileges under this Agreement or any other Loan Document, (c) the breach of any representation or warranty of any Loan Party contained herein or in any other Loan Document, (d) the nonfulfillment by any Loan Party of, or its failure to perform, any of its covenants or agreements contained in this Agreement or any of the other Loan Documents or (e) the presence of Hazardous Materials on, or the escape, seepage, leakage, spillage, discharge, emission or release of Hazardous Materials from, any of the real Properties of the -60- 66 Company or any Subsidiary or any site, facility or location to which any material, products, waste or other substances from or attributable to the business or operations of the Company or any Subsidiary have been transported for treatment, disposal, storage or deposit, the operation or violation of any Environmental Law at any such Property, site, facility or location, any Environmental Claim in connection with the Company or any Property of the Company, except, in each case, for any of such Indemnified Liabilities arising on account of such Indemnitee's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of the Indemnified Liabilities that is permissible under applicable law. The obligations of the Company under this Section 11.21 shall survive the transfer and payment of the Notes. Section 11.22. Survival of Indemnities, Etc. (a) The indemnities contained in this Agreement are cumulative and in addition to the indemnities contained in the other Loan Documents and shall survive the termination of this Agreement and the transfer and payment of the Notes. (b) THE INDEMNITIES CONTAINED IN THIS AGREEMENT SHALL COVER AND INCLUDE LOSSES, COSTS, EXPENSES, CLAIMS, DAMAGES, PENALTIES AND OBLIGATIONS ARISING OUT OF OR RESULTING FROM THE NEGLIGENCE OF ANY INDEMNITEE, REGARDLESS OF WHETHER SUCH NEGLIGENCE BE ORDINARY OR SOLE. Section 11.23. Judgment Currency. (a) The obligation of the Company hereunder and under the other Loan Documents to make payments in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than Dollars, except to the extent that such tender or recovery results in the effective receipt by each Holder of the full amount of Dollars expressed to be payable to such Holder under this Agreement or any other Loan Documents. If for the purpose of obtaining or enforcing judgment against the Company in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than Dollars (such other currency being referred to in this Section 11.23 as the "Judgment Currency") an amount due in Dollars, the conversion shall be made, at the Dollar Equivalent, as of the Business Day immediately preceding the day on which the judgment is given (such Business Day being referred to in this Section 11.23 as the "Judgment Currency Conversion Date"). For purposes of this Section 11.23, the term "Dollar Equivalent" shall mean, with respect to any monetary amount in a currency other than Dollars, at any time for the determination thereof, the amount of Dollars obtained by converting such foreign currency involved in such computation into Dollars at the spot rate for the purchase of Dollars with the applicable foreign currency as quoted to such Holder at approximately 10:00 A.M. (New York City time) on the date of determination thereof specified herein. (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Company covenants and agrees to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of -61- 67 payment, will produce the amount of Dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the Dollar Equivalent for this Section 11.23, such amounts shall include any premium and costs payable in connection with the purchase of the Dollars. Section 11.24. Liabilities of Holders. Neither this Agreement nor any other Loan Documents nor any disposition of the Notes shall be deemed to create any liability or obligation of any Holder to enforce any provision hereof or of any other Loan Document for the benefit or on behalf of any other Person who may be the holder of any Note. Section 11.25. Taxes. The Company will (a) pay all taxes (including interest and penalties) that may be payable in connection with the execution and delivery of this Agreement or any other Loan Document or any amendment of, or waiver or consent under or with respect to, this Agreement or any other Loan Document and (b) indemnify and hold the Purchasers and each other Holder harmless from and against any loss or liability resulting from nonpayment or delay in payment of any such tax. The obligations of the Company under this Section 11.25 shall survive the transfer and payment of the Notes. Section 11.26. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Section 11.27. Entire Agreement. This Agreement and the other Loan Documents to which the Company is a party constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Subject to Section 11.08, nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any Person other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. -62- 68 The Purchasers should indicate its agreement with the foregoing by signing the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between the Purchasers and the Company. Very truly yours, CASH AMERICA INTERNATIONAL, INC. By /s/ THOMAS A. BESSANT, JR. -------------------------------- Thomas A. Bessant, Jr., Senior Vice President and Chief Financial Officer 69 The foregoing Agreement is hereby accepted as of the date first above written. THE TRAVELERS INSURANCE COMPANY By /s/ A. WILLIAM CARNDUFF -------------------------------- 2nd Vice President THE TRAVELERS LIFE AND ANNUITY COMPANY By /s/ A. WILLIAM CARNDUFF -------------------------------- 2nd Vice President PRIMERICA LIFE INSURANCE COMPANY By /s/ A. WILLIAM CARNDUFF -------------------------------- 2nd Vice President NATIONWIDE LIFE INSURANCE COMPANY By /s/ EDWIN P. MCCAUSLAND, JR. -------------------------------- Vice President Fixed-Income Securities EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU By /s/ EDWIN P. MCCAUSLAND, JR. -------------------------------- Vice President Fixed-Income Securities 70 OHIO NATIONAL LIFE ASSURANCE CORPORATION By /s/ MICHAEL A. BOEDEKER -------------------------------- Michael A. Boedeker Vice President, Fixed-Income Securities THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY By: MIMLIC Asset Management Company By /s/ GREG A. LAMBERT -------------------------------- Vice President EX-13 6 ANNUAL REPORT TO SECURITY HOLDERS 1 EXHIBIT 13 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ================================================================================ GENERAL The Company is a diversified provider of specialty financial services to individuals in the United States, United Kingdom, and Sweden. The Company offers secured non-recourse loans to individuals, commonly referred to as pawn loans, and provides check cashing services through its wholly owned subsidiary, Mr. Payroll Corporation ("Mr. Payroll"). The revenue received from pawn loans is finance and service charges. The disposition of merchandise, primarily collateral from unredeemed pawn loans, is a related but secondary source of net revenue from the Company's lending function. Royalties and franchise fees are generated by the check cashing services provided by Mr. Payroll. The Company expanded its check cashing operations when it acquired the remaining 51% interest in Mr. Payroll in a purchase transaction effective after the close of business on December 31, 1996. Mr. Payroll is a franchiser of check cashing kiosks and service centers and a seller of automated check cashing machines. The 1997 financial statements include the revenues and expenses of Mr. Payroll. Previously, the Company recorded its 49% share of Mr. Payroll's losses in its consolidated financial statements under the equity method of accounting. YEAR ENDED 1997 COMPARED TO YEAR ENDED 1996 Net revenues increased 9.0% to $178.1 million in 1997 from $163.4 million in 1996. Of the 9% increase in net revenues, 4.3% was attributable to gains from same unit pawn operations (those in operation more than one year), 3.2% was attributable to the net addition of 19 pawn units in 1997 and 1.5% was attributable to royalties and franchise fees from Mr. Payroll's check cashing services. Finance and service charges are impacted by changes in the average outstanding amount of pawn loans and average loan yields. Finance and service charge revenues increased 12.5% to $104.1 million in 1997 from $92.6 million in 1996, primarily due to a 13.7% increase in the average outstanding loan balance in 1997 which was partially offset by a slight decrease in the annual loan yield. The consolidated annual loan yield, which represents a weighted average of the distinctive yields realized in the three countries in which the Company operates, declined to 95% in 1997, from 96% in 1996. The average loan balance per average location in operation increased in all three countries in which the Company operates. A 4.4% increase in the number of outstanding loans as of December 31, 1997, compared to December 31, 1996, indicates a higher customer demand for pawn loans in both domestic and foreign markets. While the consolidated average pawn loan amount remained constant at $99, the domestic pawn loan amount increased 5% to $78. The foreign average pawn loan decreased 8% to $174, primarily due to the strengthening of the U.S. dollar against the Swedish kronor. Proceeds from the disposition of merchandise increased 4.4% to $196.7 million in 1997 from $188.4 million in 1996. The rise in merchandise dispositions was impacted by a 4% increase in same unit dispositions, a $3.7 million decrease in proceeds from the disposition of scrap jewelry, an increase in units in operation and a 9% increase in the merchandise turnover rate to 2.5 times in 1997, from 2.3 times in 1996. The margin on disposition of merchandise increased .9% to $71.4 million in 1997 from $70.8 million in 1996. The Company believes that its continued emphasis on maximizing cash returns on capital employed resulted in increased revenues, increased merchandise turns, a reduction in the average level of merchandise held for disposition, and the achievement of increased net revenues. As a result of this focus and lower prices realized on the sale of pure gold in the open market, gross margin as a percentage of dispositions decreased to 36.4% in 1997, from 37.6% in 1996. Royalties and franchise fees of $2.5 million were generated from the Company's check cashing operations, and consisted of franchise fees for new check cashing franchises, royalties based on a percentage of check cashing fees from existing franchise operations and check verification fees in connection with automated check cashing machines. Operations and administration expense, as a percentage of net revenues, increased to 69.6% in 1997, compared to 68.5% in 1996. Total operations and administration expense increased $12.0 million in 1997, to $123.9 million, representing a 10.7% increase from $111.9 million in 1996. Domestic pawn operations contributed $7.8 million of the increase, due to the net addition of 18 new units, higher personnel costs, higher occupancy costs, and the development of a franchise program, while foreign pawn operations contributed $.5 million. The consolidation of Mr. Payroll into operations and administration expenses for the first time in 1997 contributed $3.7 million of the increase. Depreciation and amortization, as a percentage of net revenues, decreased to 9.0% in 1997, from 9.9% in 1996, due primarily to a moderation in the Company's unit expansion during the past twenty-four months. Interest expense, net of interest income, increased as a percentage of net revenues, to 6.5% in 1997 from 5.8% in 1996. The amount of net interest expense increased $2.2 million, or 23.5%, to $11.6 million in 1997 from $9.4 million in 1996, due to additional debt incurred in the fourth quarter of 1996 to repurchase 4.5 million shares of the Company's common stock and additional investments in subsidiary and affiliate businesses during 1997. Weighted average debt outstanding increased 27.4% to $154.0 million in 1997 from $120.9 million in 1996. The effective rate of interest decreased to 7.6% in 1997 from 8.0% in 1996. Other expense represents the net effect of various items including operating losses from the Company's equity interest in affiliates, rental income, gains and losses on disposition of certain non-operating assets and other miscellaneous items. Other expense decreased by $.4 million in 1997 from 1996. In 1997, the Company recorded a $.5 million loss from its affiliate Express Rent-A-Tire, Ltd. ("Express"), compared to combined losses totalling$1.0 million in 1996 from Express and Mr. Payroll. As set forth above, the Company attained 100% ownership of Mr. Payroll on December 31, 1996, therefore Mr. Payroll's 1997 results of operations are included in the Company's consolidated results of operations. The Company's combined effective federal, state and foreign income tax rate decreased to 36.6% for 1997 from 37.5% for 1996, due to a reduced foreign tax rate. Net income as a percentage of net revenues was 9.3% in 1997, compared to 9.6% in 1996. Diluted net income per share was $.66 for 1997 compared to $.54 for 1996. YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995 Net revenues increased 7.6% to $163.4 million in 1996 from $151.9 million in 1995, primarily from a 6.6% gain from same units (those in operation more than one year). The Company's net unit expansion activity of nine units in 1996 accounts for the remaining increase. Finance and service charges are impacted by changes in the average outstanding amount of pawn loans and average loan yields. Finance and service charge revenues increased 17.4% to $92.6 million in 1996 from $78.9 million in 1995 because of a 16.5% increase in the average outstanding loan balance in 1996. The consolidated annual loan yield, which represents a weighted average of the distinctive yields realized in the three countries in which the Company operates, remained constant at 96% for both years. The increase in average loan balance per average location in operation is primarily a reflection of an increased customer base in all three countries. The 6% increase in the average pawn loan amount at the end of the year is the result of a 12% increase for foreign operations and a 4% increase domestically. The 12% increase in the average foreign loan is due to a slight increase in the loan advance rate (loan-to-value ratio). Changes in the loan advance rate occur in the ordinary course of business. The domestic increase is a reflection of the increase in the number of loans in the portfolio that have been extended or renewed. Historically, these are higher average loans. Proceeds from the disposition of merchandise increased 8% to $188.4 million in 1996 from $174.7 million in 1995. The rise in merchandise dispositions was impacted by a 2% increase in same unit dispositions, a $6.2 million increase in proceeds from dispositions of 2 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ================================================================================ scrap gold and other precious metals at wholesale and an increase in units in operation. The margin on disposition of merchandise decreased 3% to $70.8 million in 1996 from $73.0 million in 1995. While gross margin as a percentage of dispositions decreased to 37.6% in 1996 from 41.8% in 1995, the merchandise turnover rate increased 35% to 2.3 times in 1996 from 1.7 times in 1995. The Company believes that the introduction of an incentive compensation program for its field operations personnel, with a focus of rewarding the maximization of cash returns on capital employed, led to increased revenues, increased merchandise turns and decreased levels of merchandise held for disposition, while contributing to lower gross margins on the disposition of merchandise. Operations and administration expenses, as a percentage of net revenues, decreased to 68.5% in 1996, compared to 69.2% for 1995. An emphasis on cost containment, coupled with a new incentive pay plan for unit employees and a moderation in the number of unit openings, contributed to the reduction in expenses as a percentage of net revenues. Depreciation and amortization, as a percentage of net revenues, decreased to 9.9% in 1996 from 10.1% in 1995. This decrease is due primarily to the reduction in the number of units acquired or opened in 1996. Interest expense, net of interest income, decreased, as a percentage of net revenues, to 5.8% in 1996 from 6.9% in 1995. The amount of net interest expense decreased by 9.7% to $9.4 million in 1996 from $10.4 million in 1995, primarily due to a 9% reduction in weighted average debt outstanding. This reduction was the result of increased cash flows from operating activities and lower capital expenditures. Other expense represents the net effect of various items including operating losses from the Company's equity interest in affiliates, rental income, gains and losses on disposition of certain non-operating assets and other miscellaneous items. Other expense increased by $.3 million in 1996 over 1995, primarily due to a $.5 million increase in losses from the Company's equity interest in affiliates. The Company's combined effective federal, state and foreign income tax rate remained relatively unchanged at 37.5% for 1996, compared to 37.7% in 1995 before the cumulative effect of the change in accounting principle. Net income, as a percentage of net revenues, was 9.6% in 1996, compared to 8.5% in 1995 before the cumulative effect of the change in accounting principle. Diluted net income per share was $.54 for 1996 compared to $.45 for 1995 before the cumulative effect of the change in accounting principle. LIQUIDITY AND CAPITAL RESOURCES In management's opinion, the Company's cash flow and liquidity remain strong. Net cash provided by operating activities was $26.7 million, $41.9 million and $24.0 million for 1997, 1996 and 1995, respectively. In 1997, the Company invested $7.3 million to increase its pawn loan portfolio, $5.3 million to acquire ten pawn units and $1.2 million in advances to Express. The Company also invested $16.4 million in purchases of property and equipment. Of this amount $10.7 million was for property improvements, equipment for startup locations, remodeling selected operating units and additions to computer systems. Approximately $5.7 million was for the development of an automated check cashing system. During 1997, the Company paid $4.3 million on current maturities of long-term debt, purchased $1.4 million of treasury shares, paid $1.2 million in dividends and received $1.8 million from the reissuance of treasury shares under the Company's stock option plans. The funding of these activities came primarily from the internally generated cash flow from operations and the issuance of $30.0 million of unsecured notes payable due in 2008. At December 31, 1997, $51.0 million was outstanding on the Company's $125 million revolving line of credit. The Company's (pound)5 million line of credit in the United Kingdom had a balance outstanding of (pound)1.3 million (approximately $2.1 million) at December 31, 1997. The Company's SEK 215 million lines of credit in Sweden had a balance outstanding of SEK 171 million (approximately $21.6 million) at December 31, 1997. The Company plans to open approximately 25 to 40 new pawn units in 1998 at an estimated cost of $220,000 per unit. The Company intends to continue to develop Mr. Payroll's automated check cashing system and anticipates that Mr. Payroll will incur future losses until sufficient revenues are generated from the sale and operation of automated check cashing machines. On January 22, 1997, the Company's Board of Directors authorized management to purchase up to one million shares of its common stock. During 1997, the Company purchased 119,900 shares under the program for $1.1 million. Purchases may be made from time to time in the open market and it is expected that funding of the program will come from operating cash flow and existing bank facilities. Management believes that borrowings available under its revolving credit facilities, cash generated from operations and current working capital of $175 million should be sufficient to meet the Company's anticipated future capital requirements. IMPACT OF FOREIGN CURRENCY EXCHANGE RATES The Company is subject to the risk of unexpected changes in foreign currency exchange rates by virtue of its operations in the United Kingdom and Sweden. In accordance with generally accepted accounting principles, the Company's foreign assets, liabilities, and earnings are converted into U.S. dollars for consolidation into the Company's financial statements. At December 31, 1997, the Company had recorded a cumulative reduction to stockholders' equity of $2.5 million as a result of fluctuations in foreign currency exchange rates. Net income from foreign operations during 1997, 1996 and 1995 translated to $6.0 million, $5.9 million and $4.4 million, respectively. Future earnings and comparisons with prior periods reported by the Company may fluctuate depending on applicable currency exchange rates in effect during the periods. COMPUTER SYSTEMS - THE YEAR 2000 ISSUE The Company has taken actions to understand the nature and extent of the work required to make its systems Year 2000 compliant. The Company is utilizing both internal and external resources to identify, correct or reprogram and test systems for Year 2000 compliance, but it has not yet completed that process. As a result, the Company has not yet determined the Year 2000 compliance expense and related potential effect on earnings. While this is an ongoing process and these efforts will involve additional costs, the Company believes, based on currently available information, that it will be able to manage its total Year 2000 transition without any material adverse effect on its business operations. CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS This Annual Report to Shareholders contains forward-looking statements about the business, financial condition and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in demand for the Company's services, changes in competition, the ability of the Company to open new operating units in accordance with its plans, economic conditions, real estate market fluctuations, interest rate fluctuations, changes in the capital markets, changes in tax and other laws and governmental rules and regulations applicable to the Company's business, and other risks indicated in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this Annual Report to Shareholders, the words "believes," "estimates," "plans," "expects," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. 3 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ================================================================================ (Dollars in thousands - December 31) SUMMARY The Company has expanded its lending operations over the past three years by increasing from 340 operating locations at December 31, 1994, to 401 operating locations at December 31, 1997. The growth in locations is attributable to acquisitions and the establishment of new units. Effective upon the close of business on December 31, 1996, the Company purchased the remaining 51% interest in Mr. Payroll Corporation, a franchiser of check cashing kiosks and service centers. Mr. Payroll has expanded its check cashing and servicing operations in 1997 from 152 units at December 31, 1996, to 166 units at December 31, 1997. Selected consolidated and operations data for the three years ended December 31, 1997 are presented below.
1997 1996 1995 --------- --------- --------- REVENUES Finance and service charge revenues $ 104,138 $ 92,591 $ 78,857 Proceeds from disposition of merchandise 196,728 188,377 174,722 Royalties and franchise fees 2,500 -- -- --------- --------- --------- TOTAL REVENUES 303,366 280,968 253,579 ========= ========= ========= Cost of disposed merchandise 125,284 117,585 101,707 --------- --------- --------- NET REVENUES $ 178,082 $ 163,383 $ 151,872 ========= ========= ========= OTHER DATA CONSOLIDATED OPERATIONS: Net revenues by source - Finance and service charge revenues 58.5% 56.7% 51.9% Margin on disposition of merchandise 40.1% 43.3% 48.1% Royalties and franchise fees 1.4% -- -- Expenses as a percentage of net revenues - Operations and administration 69.6% 68.5% 69.2% Depreciation and amortization 9.0% 9.9% 10.1% Interest, net 6.5% 5.8% 6.9% Income from operations before depreciation and amortization as a percentage of total revenues 17.9% 18.3% 18.5% Income before income taxes as a percentage of total revenues 8.6% 8.9% 8.1% ========= ========= ========= LENDING OPERATIONS: Annualized yield on loans 95% 96% 96% Average loan balance per average location in operation $ 279 $ 255 $ 227 Average loan amount at year-end (not in thousands) $ 99 $ 99 $ 93 Margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise 36.4% 37.6% 41.8% Average annualized merchandise turnover 2.5X 2.3x 1.7x Average merchandise held for disposition per average location $ 129 $ 138 $ 160 Locations in operation - Beginning of year 382 373 340 Acquired 10 6 4 Start-ups 13 8 32 Combined or closed (4) (5) (3) End of year 401 382 373 Average number of locations in operation 392 377 363 ========= ========= ========= CHECK CASHING OPERATIONS: Franchised check cashing units - Checks cashed per average unit $ 5,017 -- -- Royalties and franchise fees per average unit $ 15 -- -- Units in operation at end of year 145 -- -- Average units in operation for the year 150 -- -- Automated check cashing machines in service - Checks cashed per average machine $ 1,733 -- -- Verification and check cashing fees per average machine $ 11 -- -- Machines at end of year 21 -- -- Average number of machines for the year 5 -- --
4 17 SIX YEAR SUMMARY OF SELECTED FINANCIAL DATA ================================================================================ (Dollars in thousands, except per share data)
1997 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- --------- OPERATIONS - years ended December 31 Total revenues $ 303,366 $ 280,968 $ 253,579 $ 262,105 $ 224,700 $ 185,410 Income from operations 38,214 35,313 31,493 31,370 25,262 21,694 --------- --------- --------- --------- --------- --------- Income before income taxes and cumulative effect of change in accounting principle 26,157 25,108 20,616 24,958 21,766 20,348 --------- --------- --------- --------- --------- --------- Income before cumulative effect of change in accounting principle 16,579 15,684 12,849 15,498 13,839 13,006 Cumulative effect on prior years of change in accounting principle -- -- (19,772) -- -- -- --------- --------- --------- --------- --------- --------- Net income (loss) $ 16,579 $ 15,684 $ (6,923) $ 15,498 $ 13,839 $ 13,006 ========= ========= ========= ========= ========= ========= Net income (loss) per share: Basic - Income before cumulative effect of change in accounting principle $ .68 $ .55 $ (.45 $ .55 $ .49 $ .47 Cumulative effect of change in accounting principle -- -- (.69) -- -- -- --------- --------- --------- --------- --------- --------- Net income (loss) $ .68 $ .55 $ (.24) $ .55 $ .49 $ .47 --------- --------- --------- --------- --------- --------- Diluted - Income before cumulative effect of change in accounting principle $ .66 $ .54 $ (.45 $ .54 $ .48 $ .45 Cumulative effect of change in accounting principle -- -- (.69) -- -- -- --------- --------- --------- --------- --------- --------- Net income (loss) $ .66 $ .54 $ (.24) $ .54 $ .48 $ .45 --------- --------- --------- --------- --------- --------- Dividends per share $ .05 $ .05 $ .05 $ .05 $ .05 $ .04 3/4 --------- --------- --------- --------- --------- --------- Weighted average shares: Basic 24,281 28,703 28,633 28,410 28,289 27,701 Diluted 25,158 28,806 28,863 28,930 28,938 28,698 --------- --------- --------- --------- --------- --------- Pro forma amounts: (a) (a) (a) (a) Total revenues $ 303,366 $ 280,968 $ 253,579 $ 221,950 $ 191,851 $ 157,302 Income from operations 38,214 35,313 31,493 25,181 21,275 17,609 Net income 16,579 15,684 12,849 11,599 11,327 10,432 Net income per share - Basic $ .68 $ .55 $ .45 $ .41 $ .40 $ .38 Net income per share - Diluted $ .66 $ .54 $ .45 $ .40 $ .39 $ .36 ========= ========= ========= ========= ========= =========
1997 1996 1995 1994(a) 1993(a) 1992(a) --------- --------- --------- --------- --------- --------- FINANCIAL POSITION - at December 31 Loans $ 112,240 $ 107,679 $ 87,782 $ 78,095 $ 49,089 $ 46,926 Merchandise held for disposition, net 53,468 48,777 56,647 58,079 43,865 40,110 Working capital 175,477 164,998 161,533 148,347 101,854 96,541 Total assets 341,279 325,082 314,107 304,485 229,220 203,088 Total debt 150,428 150,365 123,462 119,796 64,000 50,000 Stockholders' equity 168,321 154,027 174,952 163,662 150,849 140,585 Current ratio 7.5x 7.6x 11.3x 8.1x 8.2x 8.7x Debt to equity ratio 89.4% 97.6% 70.6% 73.2% 42.4% 35.6% ========= ========= ========= ========= ========= ========= LOCATIONS - at year-end Lending operations 401 382 373 340 280 249 Check cashing operations 166 152 -- -- -- -- ========= ========= ========= ========= ========= =========
(a) Unaudited pro forma amounts assuming retroactive application of change in accounting principle. 5 18 CONSOLIDATED BALANCE SHEETS - December 31 ================================================================================ (In thousands, except share data)
1997 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 1,119 $ 1,334 Loans 112,240 107,679 Merchandise held for disposition, net 53,468 48,777 Finance and service charges receivable 17,414 15,248 Prepaid expenses and other 5,523 5,293 Deferred tax assets 12,529 11,643 --------- --------- Total current assets 202,293 189,974 Property and equipment, net 66,388 62,818 Intangible assets, net 64,977 66,065 Other assets 7,621 6,225 --------- --------- Total assets $ 341,279 $ 325,082 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 14,971 $ 13,959 Customer deposits 3,740 2,955 Income taxes currently payable 3,819 3,776 Current portion of long-term debt 4,286 4,286 --------- --------- Total current liabilities 26,816 24,976 Long-term debt 146,142 146,079 --------- --------- Commitments and contingencies (Note 15) Stockholders' equity: Common stock, $.10 par value per share, 80,000,000 shares authorized; shares issued, 30,235,164 in 1997 and 1996 3,024 3,024 Paid in surplus 122,155 121,878 Retained earnings 91,337 75,973 Notes receivable - stockholders (1,337) (1,065) Foreign currency translation adjustment (2,458) (386) --------- --------- 212,721 199,424 Less - shares held in treasury, at cost (5,812,519 in 1997 and 5,975,670 in 1996) (44,400) (45,397) --------- --------- Total stockholders' equity 168,321 154,027 --------- --------- Total liabilities and stockholders' equity $ 341,279 $ 325,082 ========= =========
See notes to consolidated financial statements. 6 19 CONSOLIDATED STATEMENTS OF INCOME - Years Ended December 31 ================================================================================ (In thousands, except per share data)
1997 1996 1995 --------- --------- --------- REVENUES Finance and service charge revenues $ 104,138 $ 92,591 $ 78,857 Proceeds from disposition of merchandise 196,728 188,377 174,722 Royalties and franchise fees 2,500 -- -- --------- --------- --------- TOTAL REVENUES 303,366 280,968 253,579 --------- --------- --------- Cost of disposed merchandise 125,284 117,585 101,707 --------- --------- --------- NET REVENUES 178,082 163,383 151,872 ========= ========= ========= OPERATING EXPENSES Operations 101,218 92,270 88,147 Administration 22,703 19,680 16,937 Amortization 3,288 3,547 3,607 Depreciation 12,659 12,573 11,688 --------- --------- --------- Total operating expenses 139,868 128,070 120,379 --------- --------- --------- INCOME FROM OPERATIONS 38,214 35,313 31,493 Interest expense, net 11,644 9,429 10,437 Other expense 413 776 440 --------- --------- --------- Income before income taxes 26,157 25,108 20,616 Provision for income taxes 9,578 9,424 7,767 --------- --------- --------- Income before cumulative effect of change in accounting principle 16,579 15,684 12,849 Cumulative effect on prior years of change in accounting principle -- -- (19,772) --------- --------- --------- NET INCOME (LOSS) $ 16,579 $ 15,684 $ (6,923) ========= ========= ========= Net income (loss) per share: Basic - Income before cumulative effect of change in accounting principle $ .68 $ .55 $ .45 Cumulative effect of change in accounting principle -- -- (.69) --------- --------- --------- Net income (loss) $ .68 $ .55 $ (.24) --------- --------- --------- Diluted - Income before cumulative effect of change in accounting principle $ .66 $ .54 $ .45 Cumulative effect of change in accounting principle -- -- (.69) --------- --------- --------- Net income (loss) $ .66 $ .54 $ (.24) --------- --------- --------- Weighted average shares: Basic 24,281 28,703 28,633 Diluted 25,158 28,806 28,863 ========= ========= ========= Unaudited pro forma amounts assuming retroactive application of change in accounting principle: Net income $ 16,579 $ 15,684 $ 12,849 Net income per share - Basic $ .68 $ .55 $ .45 Net income per share - Diluted $ .66 $ .54 $ .45 ========= ========= =========
See notes to consolidated financial statements. 7 20 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Years Ended December 31 ================================================================================ (In thousands, except share data)
Notes Foreign Common Stock Receivable Currency Treasury Stock ----------------------- Paid In Retained Stock- Translation --------------------- Shares Amount Surplus Earnings holders Adjustment Shares Amount ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------- Balance at December 31, 1994 30,235,164 $ 3,024 $ 121,481 $ 70,081 $ -- $ (3,692) 1,666,099 $ (7,460) Net loss (6,923) Dividends declared - $.05 per share (1,431) Treasury shares reissued 297 (170,814) 726 Tax benefit from exercise of option shares 62 Increase in notes receivable - stockholders (1,071) Foreign currency translation adjustment (142) ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------- Balance at December 31, 1995 30,235,164 3,024 121,840 61,727 (1,071) (3,834) 1,495,285 (6,734) Net income 15,684 Dividends declared - $.05 per share (1,438) Treasury shares purchased 4,500,000 (38,750) Treasury shares reissued 27 (19,615) 87 Tax benefit from exercise of option shares 11 Reduction in notes receivable - stockholders 6 Foreign currency translation adjustment 3,448 ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------- Balance at December 31, 1996 30,235,164 3,024 121,878 75,973 (1,065) (386) 5,975,670 (45,397) Net income 16,579 Dividends declared - $.05 per share (1,215) Treasury shares purchased 147,811 (1,375) Treasury shares reissued (71) (310,962) 2,372 Tax benefit from exercise of option shares 348 Increase in notes receivable - stockholders (272) Foreign currency translation adjustment (2,072) ========== =========== =========== =========== =========== =========== ========= ========== BALANCE AT DECEMBER 31, 1997 30,235,164 $ 3,024 $ 122,155 $ 91,337 $ (1,337) $ (2,458) 5,812,519 $ (44,400) ========== =========== =========== =========== =========== =========== ========= ==========
See notes to consolidated financial statements. 8 21 CONSOLIDATED STATEMENTS OF CASH FLOWS - Years Ended December 31 ================================================================================ (In thousands)
1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Finance and service charge revenues $ 101,562 $ 89,694 $ 77,343 Proceeds from disposition of merchandise 197,470 187,766 174,668 Royalties and franchise fees 2,500 -- -- Additions to merchandise held for disposition, including loans forfeited (129,191) (109,065) (100,024) Operations and administration expenses (122,926) (109,486) (108,863) Interest paid (12,005) (9,500) (9,766) Other expense (413) (776) (440) Income taxes paid (10,322) (6,761) (8,910) --------- --------- --------- Net cash provided by operating activities 26,675 41,872 24,008 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans forfeited and transferred to merchandise held for disposition 118,263 97,903 85,508 Loans repaid or renewed 265,662 250,438 226,856 Loans made, including loans renewed (391,216) (365,852) (319,733) --------- --------- --------- Net increase in loans (7,291) (17,511) (7,369) --------- --------- --------- Acquisitions (5,324) (3,401) (1,612) Investments in and advances to affiliates (1,195) (3,250) (2,200) Purchases of property and equipment (16,392) (7,206) (13,467) Proceeds from sales of property and equipment 22 145 124 --------- --------- --------- Net cash used by investing activities (30,180) (31,223) (24,524) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net (payments) borrowings under bank lines of credit (21,751) 27,347 (19,347) Proceeds from issuance of long-term debt 30,000 -- 20,000 Payment on notes payable (4,286) -- -- Net reduction (increase) in notes receivable - stockholders 243 6 (1,071) Net proceeds from reissuance of treasury shares 1,786 114 581 Treasury shares purchased (1,375) (38,750) -- Dividends paid (1,215) (1,438) (1,431) --------- --------- --------- Net cash provided (used) by financing activities 3,402 (12,721) (1,268) --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (112) (29) 392 --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (215) (2,101) (1,392) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,334 3,435 4,827 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,119 $ 1,334 $ 3,435 --------- --------- --------- RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income (loss) $ 16,579 $ 15,684 $ (6,923) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting principle -- -- 19,772 Amortization 3,288 3,547 3,607 Depreciation 12,659 12,573 11,688 (Increase) decrease in merchandise held for disposition, net (3,907) 8,520 1,683 Increase in finance and service charges receivable (2,576) (2,897) (1,514) (Increase) decrease in prepaid expenses and other (265) 246 1,191 Increase (decrease) in accounts payable and accrued expenses 899 2,147 (4,299) Increase (decrease) in customer deposits, net 742 (611) (54) Increase (decrease) in income taxes payable 479 1,038 (1,014) (Decrease) increase in deferred taxes, net (1,223) 1,625 (129) --------- --------- --------- Net cash provided by operating activities $ 26,675 $ 41,872 $ 24,008 ========= ========= =========
See notes to consolidated financial statements. 9 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE 1 NATURE OF THE COMPANY History and Operations - Cash America International, Inc. ("the Company") is a diversified provider of specialty financial services to individuals in the United States, United Kingdom, and Sweden. The Company offers secured non-recourse loans to individuals, commonly referred to as pawn loans. Disposing of merchandise, primarily collateral from unredeemed pawn loans, is a related but secondary activity of the Company's lending function. In addition, the Company provides check cashing services through its wholly owned subsidiary, Mr. Payroll Corporation ("Mr. Payroll"). As of December 31, 1997, the Company operated 401 lending units, 145 franchised check cashing units, and 21 automated check cashing machines. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The consolidated financial statements include the accounts of the Company's wholly owned subsidiaries and the Company's 49% investment in and share of net earnings or losses of its unconsolidated affiliate Express Rent-A-Tire, Ltd. ("Express") treated as an equity investment. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation - The assets and liabilities of international subsidiaries are translated into United States dollars at the rates of exchange in effect at the balance sheet date, and resulting adjustments are accumulated as a separate component of stockholders' equity. Revenues and expenses are translated at the monthly average exchange rates occurring during the year. Cash and Cash Equivalents - The Company considers cash on hand in units, deposits in banks and short-term marketable securities with original maturities of 90 days or less as cash and cash equivalents. Loans and Revenue Recognition - Pawn loans ("loans") are made on the pledge of tangible personal property. The Company accrues finance and service charge revenue on all loans that the Company deems collection is probable based on historical loan redemption statistics. For loans not repaid, the carrying value of the forfeited collateral ("merchandise held for disposition") is stated at the lower of cost (cash amount loaned) or market. Merchandise Held for Disposition, Proceeds from Disposition of Merchandise and Cost of Disposed Merchandise - Merchandise held for disposition includes merchandise acquired from unredeemed loans, merchandise purchased directly from the public and merchandise purchased from vendors. Merchandise held for disposition is stated at the lower of cost (specific identification) or market. The Company provides an allowance for shrinkage and valuation based on management's evaluation of the merchandise. The allowance deducted from the carrying value of merchandise held for disposition amounted to $2,158,000 and $2,078,000 at December 31, 1997 and 1996, respectively. Revenue is recognized, and merchandise held for disposition is reduced, at the time of disposition. Interim customer payments for layaway sales are recorded as deferred revenue and subsequently recognized as revenue during the period in which final payment is received. Cost of disposed merchandise and the merchandise held for disposition reduction are computed on a specific identification basis. Property and Equipment - Property and equipment are recorded at cost. Depreciation expense is generally provided on a straight-line basis, using estimated useful lives of 15 to 30 years for buildings and 3 to 10 years for equipment and leasehold improvements. The cost of property retired or sold and the related accumulated depreciation is removed from the accounts and any resulting gain or loss is recognized in the income statement. Intangible Assets - Intangible assets, consisting primarily of excess purchase price over net assets acquired, are being amortized on a straight-line basis over their expected periods of benefit, generally 25 to 40 years. Management assesses the recoverability of intangible assets by comparing the intangible assets to the undiscounted cash flows expected to be generated by the acquired units during the anticipated period of benefit. Pre-opening costs associated with the establishment of new units are capitalized and expensed over twelve months from the date of opening. Pre-opening costs remaining to be amortized totaled $104,000 and $88,000 at December 31, 1997 and 1996, respectively, Accumulated amortization of intangible assets was $19,216,000 and $17,042,000 at December 31, 1997 and 1996, respectively. 10 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ Income Taxes - The provision for income taxes is based on pretax income as reported for financial statement purposes. Deferred income taxes are provided in accordance with the assets and liability method of accounting for income taxes to recognize the tax effects of temporary differences between financial statement and income tax accounting. Deferred federal income taxes are not provided on the undistributed earnings of foreign subsidiaries to the extent the Company intends to reinvest such earnings overseas indefinitely. Fair Values of Financial Instruments - Pawn loans are outstanding for a relatively short period, generally 90 days or less for domestic loans and 180 days or less for foreign loans, depending on local regulations. The rate of finance and service charge is determined by regulatory guidelines and bears no valuation relationship to interest rate market movements. Generally, pawn loans may not be resold to anyone but a licensed pawnbroker. For these reasons, management believes that the fair value of pawn loans approximates their carrying value. The Company's bank credit facilities bear interest at rates which are adjusted frequently based on market rate changes. Accordingly, management believes that the fair value of the debt approximates its carrying value. The fair value of the 8.33%, 8.14% and 7.10% senior unsecured notes payable is estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms. Management believes that the fair value of the senior unsecured notes approximates the carrying value. The Company's interest rate exchange agreement is repriced every three months. Due to its short-term nature, the fair value of the interest rate agreement approximates the carrying value. Hedging and Derivatives Activity - The Company uses derivative financial instruments for the purpose of hedging currency, on a short-term basis, and interest rate exposures which exist as part of ongoing business operations. In the event the Company transfers funds between currencies, it may enter into a short-term currency swap at the time of the transaction to eliminate the risk of currency fluctuations. The Company may utilize interest rate exchange and interest rate cap agreements to control interest rate exposure. Amounts expected to be paid or received on interest rate exchange and interest rate cap agreements are recognized as adjustments to interest expense over the term of the agreements. The Company may, from time to time, enter into forward sale contracts with a major bullion bank to sell fine gold which is produced from the Company's liquidation of forfeited gold merchandise in the normal course of business. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes. Advertising Costs - Costs of advertising are expensed at the time of first occurrence. Advertising expense was $3,444,000, $3,395,000 and $3,867,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Stock Based Compensation - Effective January 1, 1996, the Company adopted Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") which establishes financial accounting and reporting standards for stock-based employee compensation plans. The pronouncement defines a fair value-based method of accounting for an employee stock option or similar equity instrument. FAS 123 allows an entity to continue to measure compensation cost for those plans using the intrinsic value-based method of accounting as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company elected to remain with the accounting in APB 25 and has made the pro forma disclosures of net income and net income per share as if the fair value-based method of accounting defined in FAS 123 had been applied. Net Income (Loss) Per Share - Net income (loss) per share is calculated as required by the Financial Accounting Standards Board ("FASB"), Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("FAS 128"), which is effective for financial statements issued for periods ending after December 15, 1997. This standard requires dual presentation of basic and diluted earnings per share and a reconciliation between the two amounts. Basic earnings per share excludes dilution, and diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised and converted into common stock. The Company has implemented FAS 128 and all prior periods' net income (loss) per share have been restated to comply with the standard. The reconciliation between basic and diluted weighted average common shares outstanding, follows:
1997 1996 1995 ------ ------ ------ (In thousands) Weighted average shares - Basic 24,281 28,703 28,633 Plus shares applicable to stock option plans 877 103 230 ------ ------ ------ Weighted average shares - Diluted 25,158 28,806 28,863 ====== ====== ======
11 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ New Accounting Standards - In February 1997, the FASB issued Statement of Financial Accounting Standards No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"). FAS 129 is effective for periods ending after December 15, 1997. The Company has provided the required additional footnote disclosures concerning securities and participation rights, dividend and liquidation preferences, and unusual voting rights. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for reporting comprehensive income and its components in a full set of financial statements. The new standard requires that all items that are to be recognized under accounting standards as components of comprehensive income, including an amount representing total comprehensive income, be reported in a financial statement that is displayed with the same prominence as other financial statements. Pursuant to FAS 130, the Company will be required to display comprehensive income, including net income and foreign currency translation adjustments, in its consolidated financial statements issued for periods beginning January 1, 1998, and thereafter. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes reporting standards for a company's operating segments in annual financial statements and the reporting of selected information about operating segments in interim financial reports. The new pronouncement also establishes standards for related disclosures about products and services, geographic areas and major customers. The statement is effective for financial statements for periods beginning after December 15, 1997. The Company believes it will not be required to report segment information for the year ending December 31, 1998. Reclassifications - Certain amounts in the consolidated financial statements for 1996 and 1995 have been reclassified to conform with the presentation format adopted in 1997. These reclassifications have no effect on the net income previously reported. NOTE 3 CHANGE IN ACCOUNTING PRINCIPLE Effective January 1, 1995, the Company changed its method of revenue recognition on pawn loans. The Company accrues finance and service charge revenue on all loans that the Company deems collection is probable based on historical loan redemption statistics. For loans not repaid, the carrying value of the forfeited collateral ("merchandise held for disposition") is stated at the lower of cost (cash amount loaned) or market. Prior to 1995, finance and service charge revenue was accrued on all loans. For loans not repaid, the carrying value of the merchandise held for disposition was stated at the lower of cost (cash amount loaned plus accrued finance and service charge revenue) or market. The Company believes the accounting change provides a more timely matching of revenues and expenses with which to measure results of operations. The cumulative effect of the accounting change on years prior to January 1, 1995, of $19,772,000 (net of a tax benefit of $11,611,000) is included as a reduction of 1995 net income. The effect for 1995 of adopting the change in revenue recognition on pawn loans was to decrease income before cumulative effect of change in accounting principle $2,358,000 ($.08 per share) and net income $22,130,000 ($.77 per share). The unaudited pro forma amounts shown in the statements of income reflect the effect of retroactive application on finance and service charge revenues, cost of disposed merchandise and related income taxes. NOTE 4 ACQUISITIONS The Company acquired a total of ten pawnshops for an aggregate cash consideration of $5,324,000 and a total of six pawnshops for an aggregate cash consideration of $3,401,000 in purchase transactions during 1997 and 1996, respectively. The related assets and results of operations have been included in the Company's financial statements from the dates of acquisition. In 1994, the Company paid $2 million to acquire a 49% interest in Mr. Payroll Corporation ("Mr. Payroll"), a franchiser of check-cashing kiosks and service centers. Effective at the close of business on December 31, 1996, the Company acquired, in a purchase transaction, the remaining 51% interest in Mr. Payroll. The aggregate purchase price of the 51% interest is to be paid in three annual installments in an amount equal to .9775 times the defined after-tax net income of Mr. Payroll for the 1996, 1997 and 1998 fiscal years, respectively. No consideration is payable based on Mr. Payroll's results of operations in 1997 and 1996, respectively. The assets and liabilities of Mr. Payroll are included in the Company's Consolidated Balance Sheets at December 31, 1997 and 1996. Mr. Payroll's results of operations have been included in the Company's financial statements since January 1, 1997. 12 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ NOTE 5 PROPERTY AND EQUIPMENT Major classifications of property and equipment at December 31, 1997 and 1996 were as follows:
1997 1996 -------- -------- (In thousands) Land $ 4,715 $ 4,724 Buildings and leasehold improvements 60,076 56,498 Furniture, fixtures and equipment 57,106 47,199 -------- -------- Total 121,897 108,421 Less - accumulated depreciation 55,509 45,603 -------- -------- Property and equipment - net $ 66,388 $ 62,818 ======== ========
NOTE 6 INVESTMENT IN AFFILIATE On September 20, 1995, the Company acquired, for a nominal amount, a 49% interest in Express, a private entity, which offers automobile and truck tires and wheels on a rent-to-own basis. The Company also acquired an option for $1 million to purchase an additional 41% interest. In conjunction with its investment, the Company entered into a revolving credit agreement which provides for maximum borrowings of $4 million from the Company. Interest is payable quarterly at a rate reset monthly that is equivalent to LIBOR plus 4%. As of December 31, 1997, Express had borrowings outstanding of $3,595,000 at an effective interest rate of 9.97%. Express granted the Company a security interest in all of its assets. The entire unpaid principal is due and payable on December 31, 1998. The investment in and advances to Express are included in other assets. NOTE 7 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 1997 and 1996 were as follows:
1997 1996 ------- ------- (In thousands) Trade accounts payable $ 2,920 $ 2,864 Accrued taxes, other than income 3,485 3,338 Accrued payroll and fringe benefits 5,278 3,917 Accrued interest payable 1,090 1,451 Other accrued liabilities 2,198 2,389 ------- ------- Total $14,971 $13,959 ======= =======
NOTE 8 LONG-TERM DEBT The Company's long-term debt at December 31, 1997 and 1996 consisted of:
1997 1996 -------- -------- (In thousands) U.S. Line of Credit up to $125 million due June 30, 2001 $ 51,000 $ 71,750 U.K. Line of Credit up to (pound)5 million due April 30, 1999 2,146 1,457 Swedish Lines of Credit up to SEK 215 million 21,567 27,158 8.33% senior unsecured notes due 2003 25,715 30,000 8.14% senior unsecured notes due 2007 20,000 20,000 7.10% senior unsecured notes due 2008 30,000 -- -------- -------- 150,428 150,365 Less current portion 4,286 4,286 -------- -------- Total long-term debt $146,142 $146,079 ======== ========
Interest on the U.S. Line of Credit is charged, at the Company's option, at either a margin over LIBOR (1.0% at December 31, 1997) or at the Agent's base rate. The Company pays a fee of .25% per annum on the unused portion. During the year ended December 31, 1997, the weighted average amount outstanding was $79,571,000, and the effective interest rate was 6.87% after taking into account the interest rate cap agreements. As of December 31, 1997, the Company held interest rate cap agreements totalling $40,000,000 which limit the maximum LIBOR rate to 6%. $20,000,000 will expire on December 10, 1999, and $20,000,000 will expire on September 18, 2000. Interest on the U.K. Line of Credit is charged at the Bank's cost of funds plus a margin of 60 basis points for borrowings less than 14 days, and a margin of 55 basis points for borrowings of 14 days or more. The Company pays a fee of .15% per annum on the unused portion. During the year ended December 31, 1997, the weighted average amount outstanding was (pound)1,284,000 (approximately $2,105,000), and the effective interest rate was 7.31%. During 1997, the company converted its Swedish term loan to an SEK 185,000,000 ($23,300,000 as of December 31, 1997) line of credit maturing September 30, 2002 (the "1997 Swedish Line of Credit"). Interest is charged at the Stockholm InterBank Offered Rate ("STIBOR") plus a margin of 1.0%. Interest on SEK 118,750,000 ($14,956,000 as of December 31, 1997) of the 1997 Swedish Line of Credit is payable at a fixed rate of 10.93% pursuant to a floating to fixed interest rate exchange agreement that will expire on August 17, 1998. The Company pays a fee of .25% per annum on the unused portion. The Company also has an SEK 30,000,000 ($3,778,000 as of December 31, 1997) line of credit with a commercial bank 13 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ maturing January 1, 2000 (the "1995 Swedish Line of Credit"). Interest is charged at the Bank's base funding rate plus 1.0%. The Company pays a fee of .375% per annum on the unused portion. As of December 31, 1997, amounts outstanding under the 1997 and 1995 Swedish Lines of Credit were SEK 165,000,000 ($20,781,000), and SEK 6,305,000 ($786,000), respectively. During the year ended December 31, 1997, the weighted average amount outstanding under both lines of credit and the term loan was SEK 184,836,000 (approximately $24,197,000) and the effective interest rate, including the impact of the floating to fixed interest rate exchange agreement, was 8.92%. In December 1997, the Company issued $30,000,000 of Senior Unsecured Notes with a final maturity of January 2, 2008. The 7.10% notes are payable in seven equal annual payments beginning January 2, 2002. All debt instruments are unsecured and governed by agreements that have provisions that require the Company to maintain certain financial ratios and limit specific payments and equity distributions. The annual maturities of long-term debt through 2002 are: 1998 - $4.3 million; 1999 - $6.4 million; 2000 - $4.3 million; 2001 - $55.3 million; 2002 - $30.1 million. NOTE 9 INCOME TAXES The components of the Company's deferred tax assets and liabilities as of December 31 are as follows:
1997 1996 -------- -------- (In thousands) Deferred tax assets: Provision for valuation of merchandise held for disposition $ 527 $ 499 Tax over book accrual of finance and service charge revenues 12,125 11,003 Book over tax depreciation 911 461 Net operating loss carryforwards 1,210 1,335 Other 833 651 -------- -------- Total deferred tax assets 15,606 13,949 Valuation allowance for deferred tax assets (405) (547) -------- -------- Net deferred tax assets $ 15,201 $ 13,402 ======== ======== Deferred tax liabilities: Deferred acquisition and start-up costs $ 207 $ 200 Amortization of acquired intangibles 763 589 Foreign tax reserves 681 543 Other 398 242 -------- -------- Total deferred tax liabilities $ 2,049 $ 1,574 -------- -------- Net deferred tax assets $ 13,152 $ 11,828 -------- -------- Balance sheet classification: Current deferred tax assets $ 12,529 $ 11,643 Included in non-current assets 623 185 -------- -------- Net deferred tax assets $ 13,152 $ 11,828 ======== ========
The components of the provision for income taxes and the income to which it relates for the years ended December 31 are shown below:
1997 1996 1995 ------- ------- ------- (In thousands) Income before income taxes: Domestic $17,362 $16,427 $13,961 Foreign 8,795 8,681 6,655 ------- ------- ------- $26,157 $25,108 $20,616 ======= ======= =======
Provision for income taxes:
1997 1996 1995 -------- -------- -------- (In thousands) Current portion of provision: Federal $ 7,717 $ 4,906 $ 6,127 Foreign 2,380 2,572 1,536 State and local 704 440 437 -------- -------- -------- $ 10,801 $ 7,918 $ 8,100 ======== ======== ======== Deferred portion of provision (benefit): Federal $ (1,463) $ 1,376 $ (624) Foreign 409 249 351 State and local (169) (119) (60) -------- -------- -------- $ (1,223) $ 1,506 $ (333) -------- -------- -------- Total provision $ 9,578 $ 9,424 $ 7,767 ======== ======== ========
The effective tax rate differs from the federal statutory rate for the following reasons:
1997 1996 1995 ------- ------- ------- (In thousands) Tax provision computed at the statutory federal income tax rate $ 9,155 $ 8,788 $ 7,216 Non-deductible amortization of intangible assets 517 465 465 Foreign tax rate difference (530) (240) (547) Other 436 411 633 ------- ------- ------- Total provision $ 9,578 $ 9,424 $ 7,767 ======= ======= ======= Effective tax rate 36.6% 37.5% 37.7% ======= ======= =======
As of December 31, 1997, the Company has net operating loss carryforwards of $3,457,000 for U.S. income tax purposes. This amount consists of $287,000 from the 1993 acquisition of Express Cash International Corporation ("Express Cash") and $3,170,000 from the 1996 acquisition of Mr. Payroll Corporation. The loss carryforward attributable to Express Cash expires in 2007, while the loss carryforwards for Mr. Payroll expire from 2009 through 2011. The losses can be used to offset future taxable income of the companies that incurred such 14 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ losses. The amount of the Express Cash loss carryforwards which the Company can utilize each year is limited to approximately $342,000. The valuation allowance remaining at December 31, 1997 and 1996 relates to net operating loss carryforwards of Mr. Payroll. When realized, the tax benefits from these carryforwards will be applied to reduce goodwill from the acquisition of Mr. Payroll. Domestic income taxes have not been provided on undistributed earnings of foreign subsidiaries to the extent that it is the Company's intent to reinvest these earnings overseas indefinitely. Upon distribution of accumulated earnings of all foreign subsidiaries, the Company would be subject to U.S. income taxes (net of foreign tax credits) of approximately $300,000. NOTE 10 EMPLOYEE BENEFIT PLANS The Cash America International, Inc. 401(k) Savings Plan was amended July 1, 1996, to expand eligibility and increase benefit levels. The 401(k) Savings Plan is open to substantially all domestic employees after six months of employment. The Cash America International, Inc. Nonqualified Savings Plan, which commenced on July 1, 1996, is available to certain members of management. Participants may contribute up to 15% of their earnings to these plans. The Company makes matching contributions of 50% of each participant's contributions, based on participant contributions of up to 5% of compensation. Company contributions vest at the rate of 20% each year after one year of service; thus a participant is 100% vested after five years of service. The Company provides benefits under separate retirement plans for eligible employees in foreign countries. Total Company contributions to retirement plans were $575,000, $367,000 and $207,000 in 1997, 1996 and 1995, respectively. NOTE 11 STOCKHOLDERS' EQUITY In December 1996, the Company purchased 4,500,000 treasury shares of its common stock in a "Dutch Auction" tender offer for $38,250,000 plus $500,000 in expenses related to the offer. In January 1997, the Board of Directors authorized the purchase of up to 1,000,000 shares of the Company's common stock. During 1997, 119,900 shares were purchased for an aggregate amount of $1,081,000. NOTE 12 STOCK PURCHASE RIGHTS On August 5, 1997, the Board of Directors of the Company declared a dividend distribution of one Common Stock Purchase Right (the "Right") for each outstanding share of its common stock. The Rights become exercisable in the event a person or group acquires 15% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the common stock. If any person becomes a 15% or more shareholder of the Company, each Right (subject to certain limits) will entitle its holder (other than such person or members of such group) to purchase, for $37.00, the number of shares of the Company's common stock determined by dividing $74.00 by the then current market price of the common stock. The rights will expire on August 5, 2007. NOTE 13 STOCK OPTIONS During 1997, 1996, and 1995, the Company granted stock options under various plans (the "Plans") it sponsored. The Company applies APB Opinion 25 and related Interpretations in accounting for the Plans. In 1995, the FASB issued FAS 123 which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of FAS 123 is optional and the Company has decided not to elect these provisions of FAS 123. However, pro forma disclosures as if the Company adopted the fair value-based cost recognition provisions of FAS 123 are presented below:
Year Ended December 31 1997 1996 1995 ---------- ---------- ---------- (In thousands) Net Income (loss) As reported $ 16,579 $ 15,684 $ (6,923) Pro forma $ 16,299 $ 15,675 $ (6,974) ---------- ---------- ---------- Earnings (loss) per share Basic: As reported $ .68 $ .55 $ (.24) Pro forma $ .67 $ .55 $ (.24) ---------- ---------- ---------- Diluted: As reported $ .66 $ .54 $ (.24) Pro forma $ .65 $ .54 $ (.24) ---------- ---------- ----------
The effects of applying FAS 123 in the pro forma amounts above are not indicative of future effects. FAS 123 does not apply to awards granted prior to the 1995 fiscal year. 15 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ Under the Plans, the Company is authorized to issue 5,900,000 shares of Common Stock pursuant to "Awards" granted as incentive stock options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended) and nonqualified stock options. The Company granted nonqualified stock options in 1997, 1996, and 1995 to employees and directors. The stock options granted have contractual terms of 5 to 15 years. All of the options granted to the employees and directors have an exercise price equal to or greater than the fair market value of the stock at grant date. Most of the options granted in 1996 and 1995 vest ratably over a four-year period beginning on the first anniversary of the date of grant. Some options granted during 1997 become fully vested on the seventh anniversary of the date of grant, but vesting will accelerate if specified share price appreciation criteria are met. Other 1997 options vest on the third anniversary of the date of grant. A summary of the Company's stock option activity during the three-year period ending December 31, 1997 is as follows (shares in thousands):
Year Ended December 31, 1997 1996 1995 ----------------- ----------------- ----------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICES Shares Prices Shares Prices ------ -------- ------ -------- ------ -------- Outstanding at beginning of year 3,759 $ 6.63 3,959 $ 6.76 4,143 $ 6.81 Granted 1,028 $ 10.17 25 $ 6.63 173 $ 5.74 Exercised 311 $ 7.40 -- NA 155 $ 5.94 Forfeited 24 $ 9.38 39 $ 7.24 70 $ 8.30 Expired 18 $ 7.75 186 $ 9.30 132 $ 9.02 ------ -------- ------ -------- ------ -------- Outstanding at end of year 4,434 $ 7.40 3,759 $ 6.63 3,959 $ 6.76 ------ -------- ------ -------- ------ -------- Exercisable at end of year 3,189 $ 6.53 3,351 $ 6.58 3,309 $ 6.67 ------ -------- ------ -------- ------ -------- Weighted average fair value of options granted $4.03 $1.96 $1.57 ----- ----- -----
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in fiscal 1997, 1996, and 1995:
Year Ended December 31, 1997 1996 1995 ------ ------ ------ Expected term (years) 7.2 4.5 4.5 Risk-free interest rate 6.21% 6.51% 5.53% Expected dividend yield 0.50% 0.75% 0.87% Expected volatility 23.5% 23.5% 23.5%
Options outstanding as of December 31, 1997 are summarized below (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------------------- ---------------------------------- WEIGHTED AVERAGE YEARS OF REMAINING WEIGHTED WEIGHTED RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE EXERCISE EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE PRICE --------------- ----------- ------------- -------------- ----------- ---------------- $5.63 TO $7.00 2,891 6.63 $6.31 2,802 $6.33 $7.01 TO $10.81 1,543 7.30 $9.43 387 $8.02 --------------- ----- ---- ----- ----- ----- $5.63 TO $10.81 4,434 6.86 $7.40 3,189 $6.53
16 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ================================================================================ NOTE 14 BUSINESS SEGMENT INFORMATION The Company operates in the pawn and check cashing service industries. In addition to its domestic lending operations, it has pawn subsidiaries in the United Kingdom and Sweden, and a wholly owned subsidiary, Mr. Payroll.
PAWN OPERATIONS ----------------------- UNITED STATES FOREIGN MR. PAYROLL CONSOLIDATED ------------- -------- ----------- ------------ (In thousands) 1997 Total revenues $275,775 $ 24,341 $ 3,250 $303,366 Income (loss) from operations 28,837 11,059 (1,682) 38,214 Total assets excluding cash and equivalents 257,436 69,927 12,797 340,160 1996 Total revenues $257,381 $ 23,587 $ -- $280,968 Income from operations 24,058 11,255 -- 35,313 Total assets excluding cash and equivalents 244,006 72,901 6,841 323,748 1995 Total revenues $233,250 $ 20,329 n/a $253,579 Income from operations 22,627 8,866 n/a 31,493 Total assets excluding cash and equivalents 249,893 60,779 n/a 310,672
NOTE 15 COMMITMENTS AND CONTINGENCIES The Company leases certain of its pawnshop facilities under operating leases with terms ranging from three to ten years, with certain rights to extend for additional periods. Future minimum rentals due under non-cancelable leases are as follows for each of the years ending December 31: 1998 $14,292 1999 10,757 2000 6,448 2001 4,575 2002 2,202 Later years 6,830 ------- Total $45,104 =======
Rent expense was $15,949,000, $14,936,000 and $14,285,000 for 1997, 1996 and 1995, respectively. The Company is party to a number of lawsuits arising in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 17 30 REPORT OF INDEPENDENT ACCOUNTANTS ================================================================================ TO THE BOARD OF DIRECTORS AND STOCKHOLDERS CASH AMERICA INTERNATIONAL, INC. We have audited the accompanying consolidated balance sheets of Cash America International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cash America International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, the Company changed its method of revenue recognition on pawn loans effective January 1, 1995. COOPERS & LYBRAND L.L.P. Fort Worth, Texas January 20, 1998 18 31 INCOME STATEMENT QUARTERLY DATA (Unaudited) ================================================================================ (In thousands, except per share data)
FIRST SECOND THIRD FOURTH 1997 QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Total revenues $76,519 $69,419 $70,311 $87,117 Margin on disposition of merchandise $17,703 $16,237 $15,599 $21,905 Net income $ 3,790 $ 3,011 $ 3,442 $ 6,336 Net income per share - diluted* $ .15 $ .12 $ .14 $ .25 Weighted average shares - diluted* 24,875 24,949 25,224 25,568 1996 Total revenues $68,540 $65,927 $64,674 $81,827 Margin on disposition of merchandise $17,964 $16,472 $14,951 $21,405 Net income $ 3,210 $ 2,770 $ 3,463 $ 6,241 Net income per share - diluted* $ .11 $ .10 $ .12 $ .22 Weighted average shares - diluted* 28,740 28,754 28,930 28,887
* Net income per share and weighted average shares have been restated to conform to the requirements of FAS 128. See Note 2 of Notes to Consolidated Financial Statements for further discussion. COMMON STOCK DATA ================================================================================ The New York Stock Exchange is the principal exchange on which Cash America International, Inc. common stock is traded. There were 954 stockholders of record (not including individual participants in security listings) as of February 18, 1998. The high and low sales prices of common stock as quoted on the composite tape of the New York Stock Exchange and cash dividends per share during 1997 and 1996 were as follows:
FIRST SECOND THIRD FOURTH 1997 QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- High $ 10.50 $ 10.50 $ 11.75 $ 13.75 Low 8.00 8.50 9.50 10.88 Close 9.75 10.50 11.25 12.94 Cash dividend per share $ .01 1/4 $ .01 1/4 $ .01 1/4 $ .01 1/4 1996 High $ 6.50 $ 6.75 $ 7.63 $ 8.50 Low 4.75 5.13 6.00 6.88 Close 5.38 6.50 7.13 8.50 Cash dividend per share $ .01 1/4 $ .01 1/4 $ .01 1/4 $ .01 1/4
19 32 CORPORATE INFORMATION ================================================================================
BOARD OF DIRECTORS EXECUTIVE OFFICERS OTHER INFORMATION JACK R. DAUGHERTY (a) JACK R. DAUGHERTY CORPORATE OFFICES Chairman of the Board and Chairman of the Board and Cash America International Building Chief Executive Officer Chief Executive Officer 1600 West 7th Street Cash America International, Inc. Fort Worth, Texas 76102-2599 DANIEL R. FEEHAN (817) 335-1100 A.R. DIKE (b)(d) President and Chairman Chief Operating Officer TRANSFER AGENT AND REGISTRAR Willis Corroon Life, Inc. ChaseMellon Shareholder Services JAMES H. KAUFFMAN 2323 Bryan St., Ste. 2300 DANIEL R. FEEHAN (a) President Dallas, Texas 76201-2656 President and Cash America Pawn 1-800-635-9270 Chief Operating Officer Cash America International, Inc. MICHAEL C. STINSON INDEPENDENT PUBLIC ACCOUNTANTS President Coopers & Lybrand L.L.P. JAMES H. GRAVES (a)(b) Mr. Payroll Corporation Fort Worth, Texas Managing Director and Partner J.C. Bradford & Co. ROBERT D. BROCKMAN INVESTOR RELATIONS Executive Vice President Information requests B.D. HUNTER (a)(b) Administration should be forwarded to: Chairman of the Board Thomas A. Bessant, Jr. Huntco, Inc. MICHAEL D. GASTON Executive Vice President STOCK LISTING TIMOTHY J. MCKIBBEN (a)(c) Business Development New York Stock Exchange (NYSE) Chairman of the Board Symbol: PWN Ancor Holdings L.L.C. THOMAS A. BESSANT, JR. Senior Vice President ANNUAL STOCKHOLDERS' MEETING ALFRED M. MICALLEF (d) Chief Financial Officer and Treasurer April 21, 1998 9:00 am Chief Executive Officer Fort Worth Club Building JMK International, Inc. WILLIAM R. HORNE 12th Floor Senior Vice President 306 West 7th Street CARL P. MOTHERAL (d) Information Technology Fort Worth, Texas Chairman Motheral Printing Company HUGH A. SIMPSON Senior Vice President SAMUEL W. RIZZO (a)(c) General Counsel and Secretary A copy of the Company's Annual Report to the Consultant; Private Investor Securities and Exchange Commission on Form WILLIAM J. WHITE 10-K can be obtained without charge upon ROSALIN ROGERS (a)(c) Senior Vice President written request to the office of Investor Private Investor Public and Governmental Relations Relations. (a) Executive Committee Member (b) Compensation Committee Member (c) Audit Committee Member (d) Stock Option Committee Member Design: Graphic Concepts Group Printing: Motheral Printing
20 CASH AMERICA INTERNATIONAL, INC. 1600 WEST 7TH STREET FORT WORTH, TEXAS 76102 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 21, 1998 To Our Shareholders: The Annual Meeting of Shareholders of Cash America International, Inc. (the "Company") will be held at the Fort Worth Club, 12th Floor, Fort Worth Club Building, 306 West 7th Street, Fort Worth, Texas on Tuesday, April 21, 1998 at 9:00 a.m., Fort Worth Time, for the following purposes: (1) Election of eleven (11) persons to serve as directors of the Company to hold office until the next annual meeting of shareholders or until their successors are duly elected and qualified; (2) To consider and act upon a proposal to ratify the appointment of Coopers & Lybrand L.L.P. as independent auditors of the Company for the year 1998; and (3) To transact such other business as may properly come before the meeting or any adjournments thereof. Only holders of record of the Common Stock of the Company at the close of business on March 3, 1998 are entitled to notice of and to vote at the Annual Meeting. The presence, in person or by proxy, of the holders of a majority of the issued and outstanding Common Stock entitled to vote at the meeting is required for a quorum to transact business. The stock transfer books will not be closed. Management sincerely desires your presence at the meeting. However, so that we may be sure that your shares are represented and voted in accordance with your wishes, please sign and date the enclosed proxy and return it promptly in the enclosed stamped envelope. If you attend the meeting, you may revoke your proxy and vote in person. By Order of the Board of Directors, HUGH A. SIMPSON Secretary Fort Worth, Texas March 16, 1998 21 CASH AMERICA INTERNATIONAL, INC. 1600 WEST 7TH STREET FORT WORTH, TEXAS 76102 (PRINCIPAL EXECUTIVE OFFICES) PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS APRIL 21, 1998 SOLICITATION OF PROXIES The proxy statement and accompanying proxy are furnished in connection with the solicitation by the Board of Directors of Cash America International, Inc., a Texas corporation (the "Company"), of proxies to be voted at the Annual Meeting of Shareholders (the "Annual Meeting") to be held at the Fort Worth Club located on the 12th Floor of the Fort Worth Club Building, 306 West 7th Street, Fort Worth, Texas on Tuesday, April 21, 1998 at 9:00 a.m., Fort Worth Time and at any recess or adjournment thereof. The solicitation will be by mail, and this Proxy Statement and the accompanying form of proxy will be mailed to shareholders on or about March 16, 1998. The enclosed proxy, even though executed and returned, may be revoked at any time prior to the voting of the proxy by giving written notice of revocation to the Secretary of the Company at its principal executive offices or by executing and delivering a later-dated proxy or by attending the Annual Meeting and voting in person. However, no such revocation shall be effective until such notice has been received by the Company at or before the Annual Meeting. Such revocation will not affect a vote on any matters taken prior to receipt of such revocation. Mere attendance at the Annual Meeting will not of itself revoke the proxy. The expense of such solicitation will be borne by the Company and will include reimbursement paid to brokerage firms and other custodians, nominees and fiduciaries for their expenses in forwarding solicitation material regarding the meeting to beneficial owners. The Company has retained Kissel-Blake Inc. to assist in the solicitation of proxies from shareholders, and will pay such firm a fee for its services of approximately $5,000.00. Further solicitation of proxies may be made by telephone, telegraph or oral communication following the original solicitation by directors, officers and regular employees of the Company or by its transfer agent who will not be additionally compensated therefor, but will be reimbursed by the Company for out-of-pocket expenses. A copy of the Annual Report to Shareholders of the Company for its fiscal year ended December 31, 1997 is being mailed with this Proxy Statement to all shareholders entitled to vote, but does not form any part of the information for solicitation of proxies. VOTING SECURITIES OUTSTANDING; QUORUM The record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting was the close of business on March 3, 1998 (the "Record Date"). At the close of business on March 3, 1998, there were 24,445,218 shares of Common Stock, par value $.10 per share, issued and outstanding, each of which is entitled to one vote on all matters properly brought before the meeting. There are no cumulative voting rights. The presence in person or by proxy of the holders of a majority of the issued and outstanding shares of Common Stock on the Record Date is necessary to constitute a quorum at the Annual Meeting. Assuming the presence of a quorum, the affirmative vote of a majority of the shares of Common Stock present, or represented by proxy, and entitled to vote at the Annual Meeting is necessary for the election of directors and for ratification of the appointment of independent auditors. Shares voted for a proposal and shares represented by returned proxies that do not contain instructions to vote against a proposal 22 or to abstain from voting will be counted as shares cast for the proposal. Shares will be counted as cast against the proposal if the shares are voted either against the proposal or to abstain from voting. Broker non-votes will not change the number of votes for or against the proposal and will not be treated as shares entitled to vote, but such shares will be counted for purposes of determining the presence of a quorum. PURPOSES OF THE ANNUAL MEETING At the Annual Meeting, the shareholders of the Company will consider and vote on the following matters: (1) Election of eleven (11) persons to serve as directors of the Company to hold office until the next annual meeting of shareholders or until their successors are duly elected and qualified; (2) Ratification of the appointment of Coopers & Lybrand L.L.P. as independent auditors of the Company for the year 1998; and (3) Such other business as may properly come before the meeting or any adjournments thereof. ELECTION OF DIRECTORS The Company's Board of Directors for the ensuing year will consist of eleven (11) members who are to be elected for a term expiring at the next annual meeting of shareholders or until their successors shall be elected and shall have qualified. The following slate of eleven nominees has been chosen by the Board of Directors and the Board recommends that each be elected. Unless otherwise indicated in the enclosed form of Proxy, the persons named in such proxy intend to nominate and vote for the election of the following nominees for the office of director. All of such nominees except Clifton H. Morris, Jr. are presently serving as directors.
PRINCIPAL OCCUPATION DIRECTOR NAME AND AGE DURING PAST FIVE YEARS SINCE ------------ ---------------------- -------- Jack Daugherty Chairman of the Board and Chief Executive Officer of 1983 (50) the Company since its inception. Mr. Daugherty has owned and operated pawnshops since 1971. A. R. Dike Mr. Dike has owned and served as Chairman of the Board 1988 (62) and Chief Executive Officer of The Dike Co., Inc. (a private insurance agency) for the past twenty years. He was Chairman and Chief Executive Officer of The Insurance Alliance, Inc. from January 1988 to September 1991 and has been Chairman of Willis Corroon Life, Inc. of Texas since September 1991. Daniel R. Feehan President and Chief Operating Officer of the Company 1984 (47) since January 1990. James H. Graves Managing Director of J. C. Bradford & Co., a Nashville 1996 (49) based securities firm, where he has worked for more than five years. B. D. Hunter Mr. Hunter is the founder of Huntco, Inc., an 1984 (68) intermediate steel processing company, and for more than five years has served as its Chairman of the Board and Chief Executive Officer. Timothy J. McKibben Chairman of the Board of Ancor Holdings, a private 1996 (49) investment firm, since 1993, and prior to that, Chairman of the Board and President of Anago Incorporated, a company he co-founded in 1978 that manufactures disposable medical products.
2 23
PRINCIPAL OCCUPATION DIRECTOR NAME AND AGE DURING PAST FIVE YEARS SINCE ------------ ---------------------- -------- Alfred M. Micallef President since 1974, and currently Chief Executive 1996 (55) Officer, of JMK International, Inc., a holding company of rubber and plastics manufacturing businesses. Carl P. Motheral Mr. Motheral has served over twenty-five years as 1983 (71) President and Chief Executive Officer and also Director of Motheral Printing Company (a commercial printing company). Samuel W. Rizzo Consultant and private investor since 1995, and prior 1984 (62)(a)(c) to that Executive Vice President of Service Corporation International ("SCI"), a publicly held company that owns and operates funeral homes and related businesses, since February 1990. Rosalin Rogers Private investor since 1986, and prior to that a 1996 (47) principal with the brokerage firm of Financial First, Inc. in New York, New York. Clifton H. Morris, Jr. Chairman of the Board and Chief Executive Officer of -- (62) AmeriCredit Corp., a national automobile consumer finance company, since July 1988. (Mr. Morris served as a director of the Company from 1984 to 1996.)
Each nominee for election as a director has consented to serve if elected. The Board of Directors does not contemplate that any of the above-named nominees for director will be unable to accept election as a director of the Company. Should any of them become unavailable for election as a director of the Company then the persons named in the enclosed form of proxy intend to vote such shares represented in such proxy for the election of such other person or persons as may be nominated or designated by the Board of Directors. Certain nominees for director of the Company hold directorships in companies with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Mr. Hunter is a director of Mark Twain Bancshares, Inc., Celebrity, Inc., SCI, and Huntco Inc. Messrs. Daugherty, Rizzo and Graves are directors of Hallmark Financial Services, Inc. Mr. Feehan is a director of KBK Capital Corporation. Mr. Morris is a director of AmeriCredit Corp. and SCI. Also, Mr. Rizzo is a director of Tanknology Environmental, Inc. and Mr. Micallef is a director of Snyder Oil Company. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors held six meetings during the fiscal year ended December 31, 1997. Standing committees of the Board include the Executive Committee, Audit Committee, Executive Compensation Committee, and Stock Option Committee. The Company does not have a Nominating Committee. The Audit Committee's principal responsibilities consist of (a) recommending the selection of independent accountants, (b) reviewing the scope of the audit conducted by such auditors, as well as the audit itself, and (c) reviewing the Company's internal audit activities and matters concerning financial reporting, accounting and audit procedures, and policies generally. Its members are Messrs. Rizzo and McKibben and Ms. Rogers. The Audit Committee held three meetings during fiscal 1997. The Executive Compensation Committee oversees and administers the Company's executive compensation program and administers the Company's 1994 Long-Term Incentive Plan. Its decisions relating to executive compensation are reviewed by the full Board of Directors. Its members are Messrs. Hunter, Dike and Graves. The Committee held three meetings during fiscal 1997. The Stock Option Committee has the general duty to administer the Company's 1987 Stock Option Plan (with Stock Appreciation Rights) and the 1989 Key Employee Plan. Its members are Messrs. Dike, Micallef and Motheral. The Stock Option Committee held no meetings during fiscal year 1997. 3 24 All directors attended 75% or more of the total number of meetings of the Board and of committees on which they serve. DIRECTORS' COMPENSATION Directors each receive a retainer of $2,500 per quarter. In addition, Board members receive $2,500 per Board meeting attended, Executive Committee members receive $1,500 for each Executive Committee meeting attended, and all other committee members receive $1,000 for each committee meeting attended. During 1989, the Company adopted the 1989 Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan"), which provided for the grant to the Company's non-employee directors of options to purchase the Company's $.10 par value Common Stock. The Non-Employee Director Plan was approved by the Company's shareholders at the 1990 Annual Meeting. Effective October 25, 1989, options were granted under the Non-Employee Director Plan in the following amounts (after adjustment for stock splits in 1990 and 1992): 225,000 shares to each non-employee director serving on the Executive Committee of the Board of Directors (i.e., Messrs. Rizzo, Motheral and Morris), 150,000 shares to each other non-employee director with at least each two years of service on the Board of Directors as of the date of grant (i.e., Mr. Hunter) and 120,000 shares to each other non-employee director (i.e., Mr. Dike). The exercise price for all shares underlying such options was the last reported sale price of the Common Stock on the American Stock Exchange on the day preceding the date of grant ($6.33 after adjustment for stock splits in 1990 and 1992). The options expire 15 years from the date of grant. The options may be exercised with respect to 40 per cent of the number of shares subject to the options six months after the date of grant, and an additional 10 per cent of the shares subject to the options shall be exercisable as of the first, second, third, fourth, fifth and sixth anniversaries of the date of grant, except that in the event of the death or termination of service as a director by reason of disability, or in the event of a "change in control" of the Company (as that term is defined in the Non-Employee Director Plan), the options shall be immediately exercisable in full. An option holder may use already-owned Common Stock as full or partial payment for the exercise of options granted under the Non-Employee Director Plan. As a condition to participation in the Non-Employee Director Plan, each director named above in this paragraph entered into a Consultation Agreement with the Company dated as of April 25, 1990. Under these Agreements, the non-employee directors have agreed to serve the Company in an advisory and consultive capacity. They do not receive any additional compensation under these Agreements, however. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company has only one outstanding class of equity securities, its Common Stock, par value $.10 per share. The following table sets forth certain information, as of the Record Date, with respect to each person or entity who is known to the Company to be the beneficial owner of more than five percent (5%) of the Company's Common Stock. The information below was derived solely from filings made by such owners with the Securities and Exchange Commission.
AMOUNT OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL OWNER OWNERSHIP CLASS ------------------- ---------- ---------- Eagle Asset Management, Inc................................. 2,245,985(1) 9.25% 880 Carillon Parkway St. Petersburg, Florida 33716 David L. Babson & Co., Inc.................................. 1,828,790(2) 7.49% One Memorial Drive Cambridge, Massachusetts 02142
- ------------------ (1) Based upon information contained in a Schedule 13G, filed with the Company, which indicates that Eagle Asset Management, Inc. has sole voting power with regard to all 2,245,985 shares and the sole right to dispose of all 2,245,985 shares. 4 25 (2) Based upon information contained in a Schedule 13G, filed with the Company, which indicates that David L. Babson & Co., Inc. has sole voting power with regard to all 1,828,790 shares and the sole right to dispose of all 1,828,790 shares. The following table sets forth information with respect to the beneficial ownership of the Company's Common Stock, as of February 23, 1998 by its directors, nominees for election as directors, named executive officers, and all directors and executive officers as a group.
AMOUNT AND NATURE OF PERCENT OF NAME BENEFICIAL OWNERSHIP(1)(2) CLASS ---- -------------------------- ---------- Jack Daugherty...................................... 1,016,493 4.00% A. R. Dike.......................................... 136,000 .55% Daniel R. Feehan.................................... 497,582(3) 2.00% James H. Graves..................................... 3,200 * B. D. Hunter........................................ 165,000(4) .67% Timothy J. McKibben................................. 2,900 * Alfred M. Micallef.................................. 10,000 * Carl P. Motheral.................................... 444,065 1.79% Samuel W. Rizzo..................................... 303,710(5) 1.23% Rosalin Rogers...................................... 10,000 * James H. Kauffman................................... 39,186 .16% Robert D. Brockman.................................. 8,750 * Michael C. Stinson.................................. 200(6) * Clifton H. Morris, Jr............................... 227,000(7) .92% All Directors and Executive Officers as a group (18 persons).......................................... 2,924,692(8) 10.96%
- ------------------ * Indicates ownership of less than .1% of the Company's Common Stock. (1) Beneficial ownership as reported in the above table has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Unless otherwise indicated, each of the persons named has sole voting and investment power with respect to the shares reported. (2) Except for the percentages of certain parties that are based on options exercisable within sixty days of February 23, 1998, as indicated below, the percentages indicated are based on 24,445,218 shares of Common Stock issued and outstanding on February 23, 1998. In the case of parties holding options, the percentage ownership is calculated on the assumption that the shares presently purchasable or purchasable within the next sixty days underlying such options are outstanding. The shares subject to options that are exercisable within sixty days of February 23, 1998 are as follows: Mr. Daugherty -- 900,500 shares; Messrs. Motheral, Rizzo and Morris -- 225,000 shares each; Mr. Dike -- 120,000 shares; Mr. Feehan -- 349,100 shares; Mr. Hunter -- 150,000 shares; Mr. Kauffman -- 6,250 shares; and Mr. Brockman -- 8,750 shares;. (3) This amount includes 2,400 shares owned by Mr. Feehan's wife and 600 shares in the name of Mr. Feehan's children. (4) This amount includes 15,000 shares held by a corporation that Mr. Hunter indirectly controls. Mr. Hunter disclaims beneficial ownership of such shares. (5) This amount includes 19,500 shares owned by trusts of which Mr. Rizzo is trustee and 4,000 shares owned by Mr. Rizzo's wife. (6) This amount represents shares held in the name of Mr. Stinson's children. (7) This amount includes 2,000 shares owned by Mr. Morris' wife. (8) This amount includes 2,235,100 shares that directors and executive officers have the right to acquire within the next sixty days through the exercise of stock options. 5 26 COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 The Company's executive officers and directors are required to file under Section 16(a) of the Securities Exchange Act of 1934 reports of ownership and changes of ownership with the Securities and Exchange Commission. Based solely upon its review of the copies of such reports received by it, and written representations from individual directors and executive officers, the Company believes that during the fiscal year ended December 31, 1997 all filing requirements applicable to executive officers and directors have been complied with, except that Mr. William R. Horne, Senior Vice President, reported a September 1997 cashless option exercise on Form 5 instead of on a current report on Form 4. EXECUTIVE COMPENSATION The following sets forth information for each of the Company's last three fiscal years concerning the compensation of the Company's Chief Executive Officer and each of the other four most highly compensated executive officers who were serving as executive officers at the end of the last fiscal year. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION -- AWARDS --------------- SECURITIES ANNUAL COMPENSATION UNDERLYING ALL OTHER NAME AND -------------------- OPTIONS/ COMPENSATION PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS (#) ($)(1) ------------------ ---- --------- -------- --------------- ------------ Jack R. Daugherty, 1997 395,900 229,939 133,344 40,750 Chairman and CEO 1996 378,000 196,727 -- 40,628 1995 378,000 -- -- 48,534 Daniel R. Feehan, 1997 395,000 229,459 233,486 41,694 President and Chief 1996 341,750 177,834 -- 30,953 Operating Officer 1995 315,000 -- -- 30,464 James H. Kauffman, 1997 238,900 125,640 99,100 12,637 President -- Cash America 1996 112,500 46,840 25,000 4,754 Pawn(2) Robert D. Brockman, 1997 174,700 87,312 63,204 6,208 Executive Vice President -- 1996 169,200 70,447 -- 10,515 Administration(3) 1995 87,500 21,045 7,500 33,534 Michael C. Stinson, 1997 207,692 51,185 54,000 2,217 President -- Mr. Payroll Corporation(4)
- --------------- (1) The amounts disclosed in this column for 1997 include: (a)Company contributions of the following amounts under the Company's 401(k) Savings Plan on behalf of Mr. Daugherty: $4,013; Mr. Feehan: $14,014; Mr. Kauffman: $7,537; Mr. Brockman: $4,742; and Mr. Stinson: $1,041. (b)Payment by the Company of premiums for term life insurance on behalf of Mr. Daugherty: $1,737; Mr. Feehan: $2,680; Mr. Kauffman: $5,100; Mr. Brockman: $1,466; and Mr. Stinson: $1,176. (c)Annual premium payments under split-dollar life insurance policies on Mr. Feehan ($25,000) and on Mr. Daugherty's spouse ($35,000). (2) Mr. Kauffman joined the Company on July 1, 1996. (3) Mr. Brockman joined the Company on June 21, 1995. (4) Mr. Stinson became an executive officer in 1997. 6 27 OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table provides information concerning option exercises in fiscal 1997 and the value of unexercised options held by each of the named executive officers at the end of the Company's last fiscal year.
INDIVIDUAL GRANTS ------------------------------------------------------ NUMBER OF % OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO EXERCISE OR GRANT DATE OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT NAME GRANTED(#) FISCAL YEAR ($/SH) DATE VALUE($)(1) ---- ------------ ------------ ----------- ---------- ----------- Jack R. Daugherty 133,344(2) 13.0 10.8125 09/30/07 547,244 Daniel R. Feehan 101,200(3) 9.8 8.3750 01/21/07 341,044 132,286(2) 12.9 10.8125 09/30/07 542,902 James H. Kauffman 24,100(3) 2.3 8.3750 01/21/07 81,217 75,000(2) 7.3 10.8125 09/30/07 307,800 Robert D. Brockman 18,400(3) 1.8 8.3750 01/21/07 62,008 44,804(2) 4.4 10.8125 09/30/07 183,876 Michael C. Stinson 54,000(2) 5.3 10.8125 09/30/07 221,616
- --------------- (1) As permitted by the Securities and Exchange Commission's rules on executive compensation disclosure, the Company used the Black-Scholes model of option valuation to determine grant date present value. The Company does not advocate or necessarily agree that the Black-Scholes model can properly determine the value of an option. Calculations are based upon the following assumptions as of the grant date: (i) dividend yield per share of .68% for the January options and .64% for the September options based on the Company's history of dividend payments; (ii) volatility of 27.6% for the January options and 29.8% for the September options; (iii) exercise of the option at the end of the option term; (iv) a risk-free rate of return of 6.59% for the January options and 6.10% for the September options (based on the then quoted yield of Treasury Notes maturing 10 years from the grant date); and (v) a 3% annual discount factor for vesting limitations. (2) These stock options were granted on September 30, 1997 and become exercisable on September 30, 2004, subject to accelerated vesting as follows: The options would vest 50% if the market price of the Company's common stock equals or exceeds 150% of the exercise price for 20 consecutive calendar days, and the options would vest 100% if the market price equals or exceeds 200% of the exercise price for 20 consecutive calendar days. (3) These stock options were granted on January 21, 1997 and become exercisable on January 21, 2000. 7 28 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES The following table shows all individual grants of stock options to the named executive officers of the Company during the fiscal year ended December 31, 1997.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FY-END(#)(1) FY-END($)(2) ---------------------- -------------------- EXERCISABLE/ EXERCISABLE/ NAME UNEXERCISABLE UNEXERCISABLE ---- ---------------------- -------------------- Jack R. Daugherty 900,500/183,344 5,702,280/543,523 Daniel R. Feehan 349,100/274,886 2,105,914/958,107 James H. Kauffman 6,250/117,850 39,438/387,959 Robert D. Brockman 8,750/ 71,954 56,478/235,814 Michael C. Stinson -0-/ 54,000 -0-/114,750
- --------------- (1) These figures reflect the appropriate adjustments for the Company's three-for-two stock split in May 1990 and the two-for-one stock split in April 1992. (2) Values stated are based upon the closing price of $12.9375 per share of the Company's Common Stock on the New York Stock Exchange on December 31, 1997, the last trading day of the fiscal year. COMPENSATION COMMITTEE REPORT - -- OVERALL EXECUTIVE COMPENSATION POLICIES The basic philosophy of the Company's executive compensation program is to link the compensation of its executive officers to their contribution toward the enhancement of shareholder value. Consistent with that philosophy, the program is designed to meet the following policy objectives: - Attracting and retaining qualified executives critical to the long-term success of the Company. - Tying executive compensation to the Company's general performance and specific attainment of long-term strategic goals. - Rewarding executives for contributions to strategic management designed to enhance long-term shareholder value. - Providing incentives that align the executive's interest with those of the Company's shareholders. - -- ELEMENTS OF EXECUTIVE COMPENSATION The Company's executive compensation program consists of the following elements designed to meet the policy objectives set out above: Base Salary The Committee sets the annual salary of the Company's Chief Executive Officer and the President and reviews the annual salaries of the Company's other executive officers. In setting appropriate annual salaries, the Committee takes into consideration the minimum salaries set forth in certain executives' employment contracts (described elsewhere in this Proxy Statement), the level and scope of responsibility, experience, and performance of the executive, the internal fairness and equity of the Company's overall compensation structure, and the relative compensation of executives in similar positions in the marketplace. The Committee relies on information supplied by an outside compensation consulting firm pertaining to competitive compensation. The Company's executive compensation program is designed to position base salary at the 50th percentile of the competitive market and total cash compensation, including annual performance incentives, at the 75th percentile of the competitive market. The Committee believes that very few of the 8 29 companies in the peer groups described below under "Performance Graph" are included in the surveys used for compensation comparisons. Those surveys represent a much broader collection of U.S. companies. Annual Incentive Compensation In 1996, the Committee modified the Company's executive compensation program to formalize its short-term and long-term components. a. Short-Term Component Under this component, the Company's executive officers are eligible to receive annual incentive cash bonuses equal to certain percentages of their annual base salaries. The bonus percentage varies depending upon the officer's position with the Company, and the percentages increase if the Company's earnings performance exceeds the financial plan. A portion of the bonus amount is based on the officer's accomplishment of certain individual performance objectives established at the outset of the year. b. Long-Term Component Under this component, the Company's executive officers are eligible to receive long-term incentive grants in the form of restricted stock and/or stock options, with the number of shares of stock and/or options to equal certain percentages of the officers' annual base salaries. The applicable percentage varies depending upon the officer's position with the Company. The allocation between restricted stock and stock options is determined by the Committee at its discretion. The Company's 1994 Long-Term Incentive Plan (the "1994 Plan"), approved by the shareholders of the Company at the April 1994 Annual Meeting, allows for these forms of stock-based long-term incentive compensation awards. This long-term incentive component rewards effective management that results in long-term increases in the Company's stock price. In this way, it is designed to further the objective of fostering and promoting improvement in long-term financial results and increases in shareholder value. The Company granted options to certain of its executive officers in 1997 at an exercise price equal to the closing price of the Company's common stock on the New York Stock Exchange on the day preceding the date of grant. (See the "Options/SAR Grants in Last Fiscal Year" table in this Proxy Statement.) This arrangement rewards effective management that results in long-term increases in the Company's stock price. The number of options granted to the Company's highest paid executive officers, as reflected elsewhere in this Proxy Statement, is based in part on many of the same considerations underlying the determination of annual base salary. The options granted to certain of the Company's executive officers in October 1997 vest seven years after the date of grant. However, vesting will accelerate if the Company's stock price hits certain target levels: the options vest 50% if the stock price equals or exceeds 150% of the exercise price for twenty consecutive calendar days, and the options vest 100% if the stock price equals or exceeds 200% of the exercise price for twenty consecutive calendar days. Those executive officers covered by this grant would be scheduled to receive a comparable grant of options three years after the grant date or upon 100% vesting of these options, whichever comes first. With this grant, the Company further strengthened the link between its senior management's interests and those of the Company's shareholders. Deductibility Cap on Executive Compensation A federal tax law enacted in 1994 disallows corporate deductibility for certain compensation paid in excess of $1,000,000 to the Chief Executive Officer and the four other most highly paid executive officers. "Performance-based compensation," as defined in the tax law, is not subject to the deductibility limitation, provided certain shareholder approval and other requirements are met. Although the cash compensation paid to the Company's Chief Executive Officer and the four other most highly paid executive officers is well below the $1,000,000 level in each case, the Committee determined that the Company should seek to ensure that future stock option and performance award compensation under the 1994 Plan qualifies as "performance-based compensation." Accordingly, the 1994 Plan is intended to meet the requirements of this tax law and thereby preserve full deductibility of both stock option and stock-based performance award compensation expense. 9 30 - -- CEO'S COMPENSATION FOR FISCAL 1997 The fiscal 1997 salary of Mr. Jack R. Daugherty, Chief Executive Officer of the Company, was based primarily on his rights under his employment agreement with the Company, which is described elsewhere in this Proxy Statement. Under that agreement, Mr. Daugherty's minimum base salary is $386,000. The Committee believes that the total cash compensation paid to Mr. Daugherty was appropriate in light of the Company's accomplishments in 1997, including a 22% increase in earnings per share on the strength of continued improvement in the average unit loan-to-merchandise ratio and a continuing rise in net revenue yield on merchandise held for disposition. These 1997 accomplishments also support the Committee's belief that the fiscal 1997 cash compensation of the Company's other executive officers was set at appropriate levels. EXECUTIVE COMPENSATION COMMITTEE B. D. Hunter, Chairman A. R. Dike James H. Graves Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this Proxy Statement, in whole or in part, the preceding report and the Performance Graph on Page 11 shall not be incorporated by reference into any such filings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Executive Compensation Committee of the Company's Board of Directors is an officer, former officer, or employee of the Company or any subsidiary of the Company. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS As a condition to receiving grants of options under the 1989 Key Employee Stock Option Plan for Cash America International, Inc., Messrs. Daugherty and Feehan entered into employment agreements with the Company dated April 25, 1990. Effective August 1, 1997, Messrs. Daugherty and Feehan entered into amended and restated employment agreements with the Company. The initial term of each of these agreements expires July 31, 2002. Under these agreements, compensation is determined annually by the Company's Board of Directors, subject to minimum annual compensation of $386,000 for each of Messrs. Daugherty and Feehan. Included in each agreement is a covenant of the employee not to compete with the Company during the term of his employment and for a period of three years thereafter. The employment agreements also provide that if the employee is terminated by the Company other than for cause, the Company will pay to the employee the remainder of his current year's salary plus an amount equal to the employees' salary, at the then current rate, for a period equal to the greater of three years or the remainder of the term of the agreement, with that amount payable in thirty-six equal monthly installments. In the event the employee resigns or is terminated other than for cause within twelve months after a "change in control" of the Company (as that term is defined in the employment agreement), the employee will be entitled to earned and vested bonuses at the date of termination plus the remainder of his current year's salary (undiscounted) plus the present value (employing an interest rate of 8%) of five additional years' salary (for which purpose "salary" includes the annual rate of compensation immediately prior to the "change in control" plus the average annual cash bonus for the immediately preceding three year period). 10 31 PERFORMANCE GRAPH The following Performance Graph shows the changes over the past five year period in the value of $100 invested in: (1) the Company's Common Stock, (2) the Standard & Poor's 500 Index, and (3) the common stock of a peer group of companies whose returns are weighted according to their respective market capitalizations. The values of each investment as of the beginning of each year are based on share price appreciation and the reinvestment of dividends. The peer group consists of the other companies in the pawnbroking industry with publicly traded common stock. COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
CASH MEASUREMENT PERIOD AMERICA INTL S&P 500 (FISCAL YEAR COVERED) INC. COMP INDEX PEER GROUP DEC92 100.00 100.00 100.00 DEC93 86.73 110.08 61.32 DEC94 91.90 111.53 42.11 DEC95 51.56 153.45 23.24 DEC96 80.30 188.68 34.49 DEC97 122.81 251.63 52.68
DATA SOURCE: STANDARD & POOR'S COMPUSTAT TRANSACTIONS WITH MANAGEMENT The Board of Directors of the Company adopted an officer stock loan program in 1994 and modified the program in 1996. The purpose of the program is (i) to facilitate and encourage the ownership of Company common stock by the officers of the Company and (ii) to establish the terms for stock loan transactions with officers. Participants in the program can utilize loan proceeds to acquire and hold common stock of the Company by means of option exercises or otherwise. The stock to be held as a result of the loan must be pledged to the Company to secure the obligation to repay the loan. Under the terms of the loan, interest accrues at the "applicable Federal rate" for loans of this type, as published by the Internal Revenue Service from time to time. Interest is payable annually and may be paid with additional loan proceeds. Each loan has a one year maturity and is renewable thereafter for successive one year terms, except that the Committee could notify the borrower during any renewal term that the loan would not renew again after the next succeeding renewal term. The aggregate principal balance of all outstanding loans under the program may not exceed $5,000,000 at any time. As of December 31, 1997, Messrs. Daugherty and Feehan had stock loans outstanding under this program in the aggregate principal amounts of $899,296, and $1,205,508, respectively. 11 32 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. of Fort Worth, Texas served as independent public accountants for the Company for fiscal 1997 and has reported on the Company's financial statements. The Board of Directors of the Company has selected Coopers & Lybrand L.L.P. to audit the accounts of the Company for the fiscal year ending December 31, 1998 and recommends to the shareholders that they ratify this selection for the ensuing fiscal year ending December 31, 1998. The Company has been advised that Coopers & Lybrand L.L.P. has no relationship with the Company or its subsidiaries other than that arising from the firm's employment as auditors. The affirmative vote of a majority of the outstanding shares of Common Stock present at the Annual Meeting in person or by proxy is necessary for the ratification of the appointment of Coopers & Lybrand L.L.P. as independent public accountants. A representative of Coopers & Lybrand L.L.P. is expected to be present at the Annual Meeting and will be afforded an opportunity to make a statement and will be available to respond to appropriate questions at such meeting. While shareholder ratification is not required for the selection of Coopers & Lybrand L.L.P. since the Board of Directors has the responsibility for the selection of the Company's independent public accountants, the selection is being submitted for ratification at the Annual Meeting with a view towards soliciting the shareholders' opinion thereon, which opinion will be taken into consideration in future deliberations. THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE 1998 FISCAL YEAR. OTHER BUSINESS Any proposal to be presented by a shareholder at the Company's 1999 Annual Meeting of Shareholders must be presented to the Company by no later than November 13, 1998. It is important that proxies be returned promptly to avoid unnecessary expense. Therefore, shareholders are urged, regardless of the number of shares of stock owned, to date, sign and return the enclosed proxy in the enclosed reply envelope. By Order of the Board of Directors HUGH A. SIMPSON Secretary March 16, 1998 12 33 CASH AMERICA INTERNATIONAL, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR ANNUAL MEETING APRIL 21, 1998 The undersigned hereby constitutes and appoints Jack R. Daugherty, Daniel R. Feehan and Hugh A. Simpson, and each of them, my true and lawful attorneys and proxies, with power of substitution, to represent the undersigned and vote at the annual meeting of shareholders of Cash America International, Inc. (the "Company") to be held in Fort Worth, Texas on April 21, 1998, and at any adjournment thereof, all of the stock of the Company standing in my name as of the record date of March 3, 1998 on all matters coming before said meeting. (CHANGE OF ADDRESS) ---------------------------------------- ---------------------------------------- ---------------------------------------- (If you have written in the above space, please mark the corresponding box on the reverse side of this card). YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. 34 PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE [X] FOR WITHHELD Election of Directors, Nominees: Jack R. Daugherty, A.R. Dike, Daniel R. Feehan, James H. Graves, [ ] [ ] B.D. Hunter, Timothy J. McKibbon, Alfred M. Micallef, Carl P. Monthoral, Samuel W. Rizzo, Rosalin Rogers, Clifton H. Morris, Jr. except vote withheld from the following nominee(s). - --------------------------------------------------- FOR AGAINST ABSTAIN Ratification of the appointment of Coopers & Lybrand L.L.P. as independent auditors for the year 1998. [ ] [ ] [ ] On their discretion the proxies are authorized to vote upon such other matters as may come before the meeting or any adjournments thereof. [ ] CHANGE OF [ ] ADDRESS SIGNATURE SIGNATURE DATE --------------------------------------------- ------------------------------------------ -------------------- NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF CASH AMERICA INTERNATIONAL, INC.
Jurisdiction of Name Incorporation ---- ------------- Cash America International, Inc. Texas Cash America, Inc. Delaware Cash America, Inc. of Tennessee Tennessee Cash America, Inc. of Oklahoma Oklahoma Cash America, Inc. of Kentucky Kentucky Cash America, Inc. of South Carolina South Carolina Florida Cash America, Inc. Florida Georgia Cash America, Inc. Georgia Cash America, Inc. of North Carolina North Carolina Cash America Pawn, Inc. of Ohio Ohio Cash America, Inc. of Alabama Alabama Cash America, Inc. of Colorado Colorado Cash America, Inc. of Indiana Indiana Cash America, Inc. of Louisiana Delaware Cash America Pawn L.P. Delaware Cash America Management L.P. Delaware Cash America Holding, Inc. Delaware Harvey & Thompson Limited England Express Cash International Corporation Delaware CAII Pantbelaning AB Sweden Cash America of Missouri, Inc. Missouri Vincent's Jewelers and Loan, Inc. Missouri Mr. Payroll Corporation Texas Cash America, Inc. of Utah Utah Cash America Franchising, Inc. Delaware Cash America, Inc. of Illinois Illinois
EX-23 8 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the three separate registration statements of Cash America International, Inc. on Form S-8, (File No. 33-29658, File No. 33-36430 and File No. 33-59733) of our reports dated January 20, 1998, which include an explanatory paragraph related to a change in accounting principle, on our audits of the consolidated financial statements and financial statement schedule of Cash America International, Inc. as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which reports are included or incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Fort Worth, Texas March 30, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,119 0 129,654 0 53,468 202,293 121,897 55,509 341,279 26,816 146,142 0 0 3,024 165,297 341,279 196,728 303,366 125,284 226,502 38,650 0 11,644 26,157 9,578 16,579 0 0 0 16,579 0.68 0.66
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