<PAGE> 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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 76102-2599
FORT WORTH, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (817) 335-1100
---------------------
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <C>
Common Stock New York Stock Exchange
$.10 par value per share
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
None
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. X
---
THE AGGREGATE MARKET VALUE OF 23,614,271 SHARES OF THE REGISTRANT'S COMMON
STOCK HELD BY NONAFFILIATES ON MARCH 4, 1997 WAS APPROXIMATELY $210,739,140.
AT MARCH 4, 1997 THERE WERE 24,229,969 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, 1996 AND THE DEFINITIVE PROXY STATEMENT PERTAINING TO THE 1997 ANNUAL
MEETING OF SHAREHOLDERS ARE INCORPORATED HEREIN BY REFERENCE INTO PARTS II AND
IV, AND PART III, RESPECTIVELY.
================================================================================
<PAGE> 2
CASH AMERICA INTERNATIONAL, INC.
YEAR ENDED DECEMBER 31, 1996
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 15
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 15
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . 15
</TABLE>
SIGNATURES
i
<PAGE> 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, 1996, the Company owns pawnshops through
wholly-owned subsidiaries in fourteen states and the United Kingdom and Sweden.
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 1994, 1995, and 1996, loans repaid or
renewed as a percentage of loans made were 70.7%, 71.0%, and 68.5%
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 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.
1
<PAGE> 4
Pursuant to the Company's business expansion strategy, the Company
added a net 60 locations in 1994, 33 locations in 1995 and 9 locations in 1996.
Of these net 102 locations added, 31 were acquisitions and 82 were start- ups,
while 11 locations were either closed or combined. On September 22, 1994, the
Company acquired the ten-pawnshop Svensk Pantbelaning chain in Sweden.
Excluding the chain acquisition discussed above, the Company acquired 21 units
in individual purchase transactions during 1994, 1995, and 1996. As of December
31, 1996, the Company had 334 domestic and 48 foreign operating locations. The
Company plans to continue to expand its operating locations through new
start-ups and acquisitions.
LENDING FUNCTION
The Company is engaged 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 51% of the Company's net revenues (total revenues
less cost of disposed merchandise) in 1994, 52% in 1995 and 57% in 1996.
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' 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.
2
<PAGE> 5
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
income. The pawn loans are made for a term of six months with an approximate
annual yield in 1996 of 56%. 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, historically, the Company
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 1994, 1995 and 1996, the Company experienced gross profit margins on
dispositions of such merchandise of 41%, 42% and 38%, respectively.
At December 31, 1996, the Company had approximately 1,088,600 loans
outstanding with an aggregate balance outstanding of $107,679,000 or $99 per
loan outstanding.
Presented below is information with respect to pawn loans made,
acquired, repaid and forfeited for the years ended December 31, 1994, 1995 and
1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1994 1995 1996
------------ ------------- --------------
($ in thousands)
<S> <C> <C> <C>
Loans made .......................................... $ 285,818 $ 319,733 $ 365,852
Loans acquired ...................................... 17,297 362 1,020
Loans repaid ........................................ (136,575) (180,726) (207,297)
Loans renewed ....................................... (65,356) (46,130) (43,141)
Loans forfeited:
Available for disposition ...................... (70,032) (79,542) (91,501)
Disposed of at auction ......................... (3,111) (5,966) (6,402)
Effect of exchange rate translation ................. 965 1,956 1,366
------------ ------------- --------------
Net increase in pawn loans outstanding
at end of period ......................... $ 29,006 $ 9,687 $ 19,897
============ ============= ==============
Loans repaid or renewed as a percent of loans made .. 70.7% 71.0% 68.5%
============ ============= ==============
</TABLE>
3
<PAGE> 6
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,
1996, $109,715,000 of merchandise was added to merchandise held for
disposition, of which $91,501,000 was from loans not repaid and $18,214,000 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, 1996,
the Company held approximately $2,955,000 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, 1996, total merchandise on hand was $48,777,000,
after deducting $2,078,000 for allowance for shrinkage and valuation of
merchandise.
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.
Each Market Manager reports to a Division Vice President. As of April 1, 1996,
the Company has established three geographic operating divisions in the United
States, each of which is managed by 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 2,635 employees as of December 31,
1996. Of the total employees, approximately 185 were in executive,
administrative, clerical and accounting functions.
4
<PAGE> 7
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.
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
$140,000 to $200,000, with an average cost per location of approximately
$160,000 in 1996. 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.
5
<PAGE> 8
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 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 fourteen 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, 1995, 1996 and 1997 are as follows:
6
<PAGE> 9
<TABLE>
<CAPTION>
Year Ended June 30, 1995 Year Ended June 30, 1996 Year Ended June 30, 1997
------------------------------------ ----------------------------------- ----------------------------------
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
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ 1 to $ 126 ....... 240% $ 1 to $ 129 ........ 240% $ 1 to $ 132 ....... 240%
127 to 420 ....... 180 130 to 430 ........ 180 133 to 440 ....... 180
421 to 1,260 ....... 30 431 to 1,290 ........ 30 441 to 1,320 ....... 30
1,261 to 10,500 ....... 12 1,291 to 10,750 ........ 12 1,321 to 11,000 ....... 12
</TABLE>
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 $11,000. 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) 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.
7
<PAGE> 10
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
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.
8
<PAGE> 11
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:
<TABLE>
<CAPTION>
Maximum
Amount Allowable
Financed Annual
Per Pawn Percentage
Loan Rate
--------------- --------------
<S> <C> <C>
$ 1 to $ 150 ............... 240%
151 to 250 ............... 180
251 to 500 ............... 120
501 to 1,000 ............... 60
1,001 to 25,000 ............... 36
</TABLE>
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
9
<PAGE> 12
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 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 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
10
<PAGE> 13
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.
EXECUTIVE OFFICERS
The following sets forth, as of March 10, 1997, 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.
<TABLE>
<CAPTION>
Name Age Position
----------------------- --- --------------------------------------------------
<S> <C> <C>
Jack R. Daugherty 49 Chairman of the Board and Chief Executive
Officer
Daniel R. Feehan 46 President, Chief Operating Officer and Director
Robert D. Brockman 42 Executive Vice President - Administration
James H. Kauffman 52 Executive Vice President - Chief Financial Officer
Thomas A. Bessant, Jr. 38 Vice President - Finance and Treasurer
D. Eugene Kellough 57 Vice President and Controller
Hugh A. Simpson 37 Vice President - General Counsel and Secretary
</TABLE>
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.
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.
James H. Kauffman joined the Company in July 1996 as Executive Vice
President - Chief Financial Officer. Prior to that, he served as President of
Keystone Steel & Wire Company, a wire products manufacturer, from July 1991 to
June 1996.
Thomas A. Bessant, Jr. joined the Company in May 1993 as Vice
President-Finance and Treasurer. 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.
D. Eugene Kellough was elected Vice President and Assistant Secretary
of the Company in January 1989 and on March 1, 1989 was elected Vice President
and Secretary of the Company. In April 1991, Mr. Kellough was elected Vice
President and Controller.
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.
11
<PAGE> 14
ITEM 2. PROPERTIES
As of March 10, 1997 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, 1997, the geographic
markets served by the Company and the number of locations in such markets in
which it presently operates.
<TABLE>
<CAPTION>
Number of Locations
in Area
--------------------
<S> <C>
TEXAS:
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Central/South Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Rio Grande Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----
Total Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
---
FLORIDA:
Tampa/St. Petersburg . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Orlando . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Jacksonville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---
Total Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
---
GEORGIA:
Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Savannah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---
Total Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---
TENNESSEE:
Memphis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Nashville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---
Total Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--
OKLAHOMA:
Oklahoma City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Tulsa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---
Total Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---
LOUISIANA:
New Orleans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Baton Rouge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---
Total Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C>
INDIANA:
Indianapolis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Fort Wayne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---
Total Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---
MISSOURI:
Kansas City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
St. Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---
Total Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---
KENTUCKY:
Louisville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---
ALABAMA:
Mobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Birmingham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---
Total Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---
NORTH CAROLINA:
Charlotte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Greensboro/Winston Salem . . . . . . . . . . . . . . . . . . . . . . . . . 3
---
Total North Carolina . . . . . . . . . . . . . . . . . . . . . . . . 9
---
SOUTH CAROLINA:
Charleston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Greenville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---
Total South Carolina . . . . . . . . . . . . . . . . . . . . . . . . 7
---
COLORADO:
Denver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---
OHIO:
Cincinnati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---
Total United States . . . . . . . . . . . . . . . . . . . . . . . . . 336
---
UNITED KINGDOM:
London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---
Total United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . 37
---
SWEDEN:
Stockholm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
--
Total Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---
GRAND TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
===
</TABLE>
13
<PAGE> 16
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 12 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, 1996.
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 "Seven 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 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.
14
<PAGE> 17
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.
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, 1996 and 1995.
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.
15
<PAGE> 18
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 21 through 23.
(4) During the fourth quarter ended December 31, 1996, the Company did
not file any reports on Form 8-K.
16
<PAGE> 19
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 25, 1997.
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 25, 1997 on
behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JACK R. DAUGHERTY Chairman of the Board and March 25, 1997
- ------------------------------------------ Chief Executive Officer
Jack R. Daugherty (Principal Executive Officer)
/s/ DANIEL R. FEEHAN President, Chief Operating March 25, 1997
- ------------------------------------------ Officer and Director
Daniel R. Feehan
/s/ JAMES H. KAUFFMAN Executive Vice President - March 25, 1997
- ------------------------------------------ Chief Financial Officer
James H. Kauffman (Principal Financial and
Accounting Officer)
/s/ A. R. DIKE Director March 25, 1997
- ------------------------------------------
A. R. Dike
/s/ JAMES H. GRAVES Director March 25, 1997
- ------------------------------------------
James H. Graves
</TABLE>
17
<PAGE> 20
<TABLE>
<S> <C> <C>
/s/ B. D. HUNTER Director March 25, 1997
- ------------------------------------------
B. D. Hunter
/s/TIMOTHY J. McKIBBEN Director March 25, 1997
- ------------------------------------------
Timothy J. McKibben
/s/ ALFRED M. MICALLEF Director March 25, 1997
- ------------------------------------------
Alfred M. Micallef
/s/ CARL P. MOTHERAL Director March 25, 1997
- ------------------------------------------
Carl P. Motheral
/s/ SAMUEL W. RIZZO Director March 25, 1997
- ------------------------------------------
Samuel W. Rizzo
/s/ ROSALIN ROGERS Director March 25, 1997
- ------------------------------------------
Rosalin Rogers
</TABLE>
18
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
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 26 of the 1996 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 21, 1997
19
<PAGE> 22
CASH AMERICA INTERNATIONAL, INC.
SCHEDULE II--ALLOWANCE FOR VALUATION OF INVENTORY
For the Three Years Ended December 31, 1996
<TABLE>
<CAPTION>
Additions
------------------------
Balance
at Charged Charged Balance
Beginning to to at End
Description of Period Expense Other Deductions(a) of Period
----------- --------- ------- ----- ------------- ---------
($ in thousands)
Year Ended:
<S> <C> <C> <C> <C> <C>
December 31, 1996........... $2,372 $1,701 $ -0- $1,995 $2,078
====== ====== ===== ====== ======
December 31, 1995........... $2,514 $1,394 $ -0- $1,536 $2,372
====== ====== ===== ====== ======
December 31, 1994........... $2,120 $2,371 $ -0- $1,977 $2,514
====== ====== ===== ====== ======
</TABLE>
_______________________________
(a) Deducted from allowance for write-off or other disposition of inventory.
20
<PAGE> 23
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.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------
<S> <C>
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.
10.3 --1989 Non-Employee Director Stock Option Plan.(h) (Exhibit 10.47)
10.4 --Amendment to 1989 Non-Employee Director Stock Option Plan dated April 24, 1996.
10.5 --1989 Key Employee Stock Option Plan.(h) (Exhibit 10.48)
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C>
10.6 --Amendment to 1989 Key Employee Stock Option Plan dated January 21, 1997.
10.7 --1994 Long-Term Incentive Plan.(i) (Exhibit 10.5)
10.8 --Executive Employment Agreements between the Company and Messrs. Daugherty and Feehan, each dated April 25,
1990.(j) (Exhibit 10.48)
10.9 --Consultation Agreements between the Company and Messrs. Dike, Hunter, Motheral, and Rizzo, each dated April
25, 1990.(j) (Exhibit 10.49)
10.10 --Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of May
6, 1993.(k) (Exhibit 10.1)
10.11 --First Supplement to Note Agreement between the Company and Teachers Insurance and Annuity
Association of America dated as of September 20, 1994.(i) (Exhibit 10.11)
10.12 --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.(l)
(Exhibit 10.1)
10.13 --Fifth Supplement (December 30, 1996) to 1993 Note Agreement between the Company and Teachers
Insurance and Annuity Association of America.
10.14 --Note Agreement between the Company and Teachers Insurance and Annuity Association of America dated as of
July 7, 1995.(m) (Exhibit 10.1)
10.15 --First Supplement (November 10, 1995) to 1995 Note Agreement between the Company and Teachers Insurance and
Annuity Association of America.(l) (Exhibit 10.2)
10.16 --Second Supplement (December 30, 1996) to 1995 Note Agreement between the Company and Teachers Insurance and
Annuity Association of America.
10.17 --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 (n) (Exhibit 10.1)
13 --1996 Annual Report to Stockholders of the Company and 1997 Proxy Statement.
21 --Subsidiaries of Cash America International, Inc.
23 --Consent of Coopers & Lybrand L.L.P.
27 --Financial Data Schedule.
- ------------------------
</TABLE>
22
<PAGE> 25
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, 1989.
(i) Annual Report on Form 10-K for the year ended December 31, 1994.
(j) Post-Effective Amendment No. 4 to its Registration Statement on Form S-4,
File No. 33-17275.
(k) Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
(l) Quarterly Report on Form 10-Q for the quarter ended September 30,1995.
(m) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(n) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
23
<PAGE> 1
EXHIBIT 10.2
AMENDMENT THREE
TO THE
1987 STOCK OPTION PLAN
(WITH STOCK APPRECIATION RIGHTS)
FOR
CASH AMERICA INTERNATIONAL, INC.
By action of the Board of Directors of Cash America International,
Inc. this day, the 1987 Stock Option Plan (With Stock Appreciation Rights) for
Cash America International, Inc. (the "Plan") is hereby amended as follows:
Section 18 of the Plan is hereby amended as follows:
18. Amendment and Discontinuation of the Plan. Except as
provided in this Section 18, the Board or the Committee, subject to
the approval of the Board, may from time to time amend the Plan or any
Option; provided, however, that (except to the extent provided in
Section 8) no amendment or suspension of the Plan or any Option issued
hereunder shall, except as specifically permitted in any Option,
substantially impair any Option previously granted to any Optionee
without the consent of such Optionee. Subject to changes in law or
other legal requirements, including any change in the provisions of
Rule 16b-3 under the Securities Exchange Act of 1934, which would
permit otherwise, the Plan may not be amended without the consent of
the holders of a majority of the Shares then outstanding, to (i)
increase materially the aggregate number of Shares that may be issued
under the Plan (except for adjustments pursuant to Section 9 of the
Plan), (ii) increase materially the benefit accruing to Optionees
under the Plan, or (iii) modify materially the requirements as to
eligibility for participation in the Plan.
CASH AMERICA INTERNATIONAL, INC.
By: /s/ HUGH A. SIMPSON
-----------------------------
Hugh A. Simpson, Vice President -
General Counsel and Secretary
February 27, 1997
<PAGE> 1
EXHIBIT 10.4
AMENDMENT ONE
TO THE
1989 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
FOR
CASH AMERICA INTERNATIONAL, INC.
By action of the shareholders of Cash America International, Inc. this
day, the 1989 Non-Employee Director Stock Option Plan for Cash America
International, Inc. (the "Plan") is hereby amended as follows:
Section 5 of the Plan is amended to read as follows:
5. OPTION PERIOD. The Options granted under this Plan shall
be for a term of 15 years from the date of granting of each Option.
CASH AMERICA INTERNATIONAL, INC.
By: /s/ HUGH A. SIMPSON
-----------------------------
Hugh A. Simpson, Vice President -
General Counsel and Secretary
April 24, 1996
<PAGE> 1
EXHIBIT 10.6
AMENDMENT ONE
TO THE
1989 KEY EMPLOYEE STOCK OPTION PLAN
FOR
CASH AMERICA INTERNATIONAL, INC.
By action of the Board of Directors of Cash America International, Inc.
this day, the 1989 Key Employee Stock Option Plan for Cash America
International, Inc. (the "Plan") is hereby amended as follows:
Section 6 of the Plan is amended to read as follows:
6. OPTION PERIOD. The Options granted under this Plan shall be
for a term of fifteen years from the date of granting of each Option.
CASH AMERICA INTERNATIONAL, INC.
By: /s/ HUGH A. SIMPSON
----------------------------------
Hugh A. Simpson, Vice President -
General Counsel and Secretary
January 21, 1997
<PAGE> 1
EXHIBIT 10.13
FIFTH SUPPLEMENT TO 1993 NOTE AGREEMENT
This Fifth Supplement to 1993 Note Agreement (the "Fifth Supplement")
is made and entered into as of the 30th day of December, 1996, 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, and a Fourth Supplement to 1993 Note
Agreement dated as of November 10, 1995 (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 9.01 of the Note Agreement. Section
9.01 of the Note Agreement is hereby amended to read in its entirety 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%.
2. Amendment to Section 9.02 of the Note Agreement. Section 9.02
of the Note Agreement is hereby amended to read in its entirety as follows:
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.
<PAGE> 2
3. Amendment to Section 9.04 of the Note Agreement. Section 9.04 of the
Note Agreement is hereby amended to read in its entirety as follows:
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.
4. Amendment to Section 9.06 of the Note Agreement. Section 9.06 of the
Note Agreement is hereby amended to read in its entirety as follows:
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.
5. Amendment to Section 9.07 of the Note Agreement. Paragraph (a) of
Section 9.07 of the Note Agreement is hereby amended to read in its entirety as
follows:
(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 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.
2
<PAGE> 3
6. Amendment to Section 9.11 of the Note Agreement. Section 9.11 of the
Note Agreement is amended by deleting paragraphs (k) and (l) in their entirety
and, in lieu of those deleted paragraphs, inserting the following paragraphs
(k), (l) and (m):
(k) loans to officers of the Company and Subsidiaries in the
aggregate amount of $5,000,000;
(l) 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
(m) 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
(m) 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 (m), exceeds 10% of Consolidated Tangible Net Worth as of
the date of such Investment.
7. Definitions. All capitalized terms used herein and not otherwise
specifically defined shall have the respective meanings set forth in the Note
Agreement.
8. 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 Fifth Supplement.
9. Counterparts. This Fifth 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., and VINCENT'S JEWELERS AND LOAN, INC., as Guarantors, do each acknowledge
and approve the Note Agreement, as amended by this Fifth 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.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Fifth 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., Vice
President
4
<PAGE> 5
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Gregory W. MacCordy Gregory
-----------------------------------
W. MacCordy, Director Private
Placements
5
<PAGE> 6
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.
By: /s/ Thomas A. Bessant, Jr.
----------------------------------
Thomas A. Bessant, Jr.,
Vice President for All
6
<PAGE> 1
EXHIBIT 10.16
SECOND SUPPLEMENT TO 1995 NOTE AGREEMENT
This Second Supplement to 1995 Note Agreement (the "Second
Supplement") is made and entered into as of the 30th day of December, 1996, 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 Note Agreement dated as of November 10, 1995 (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 9.01 of the Note Agreement. Section
9.01 of the Note Agreement is hereby amended to read in its entirety 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%.
2. Amendment to Section 9.02 of the Note Agreement. Section 9.02
of the Note Agreement is hereby amended to read in its entirety as follows:
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.
<PAGE> 2
3. Amendment to Section 9.04 of the Note Agreement. Section 9.04 of the
Note Agreement is hereby amended to read in its entirety as follows:
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.
4. Amendment to Section 9.06 of the Note Agreement. Section 9.06 of the
Note Agreement is hereby amended to read in its entirety as follows:
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.
5. Amendment to Section 9.07 of the Note Agreement. Paragraph (a) of
Section 9.07 of the Note Agreement is hereby amended to read in its entirety as
follows:
(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 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.
2
<PAGE> 3
6. Amendment to Section 9.11 of the Note Agreement. Section 9.11 of the
Note Agreement is amended by deleting paragraphs (k) and (l) in their entirety
and, in lieu of those deleted paragraphs, inserting the following paragraphs
(k), (l) and (m):
(k) loans to officers of the Company and Subsidiaries in the
aggregate amount of $5,000,000;
(l) 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
(m) 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
(m) 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 (m), exceeds 10% of Consolidated Tangible Net Worth as of
the date of such Investment.
7. Definitions. All capitalized terms used herein and not otherwise
specifically defined shall have the respective meanings set forth in the Note
Agreement.
8. 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 Second Supplement.
9. Counterparts. This Second 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., and VINCENT'S JEWELERS AND LOAN, INC., as Guarantors, do each acknowledge
and approve the Note Agreement, as amended by this Second 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.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Second 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.,
Vice President
4
<PAGE> 5
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Gregory W. MacCordy, Director
-----------------------------------
Gregory W. MacCordy, Director
Private Placements
5
<PAGE> 6
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.
By: /s/ Thomas A. Bessant, Jr.
--------------------------------------
Thomas A. Bessant, Jr.,
Vice President for All
6
<PAGE> 1
EXHIBIT 13
SEVEN YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991(a) 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS - years ended December 31
Revenues $280,968 $253,579 $262,105 $224,700 $185,410 $137,681 $115,644
Operating income 35,313 31,493 31,370 25,262 21,694 17,288 15,126
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes, extraordinary
item, and cumulative effect of
change in accounting principle 25,108 20,616 24,958 21,766 20,348 17,464 13,691
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item
and cumulative effect of change
in accounting principle 15,684 12,849 15,498 13,839 13,006 10,513 8,662
Extraordinary item -- -- -- -- -- 393 --
Cumulative effect on prior years
of change in accounting principle -- (19,772) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 15,684 $ (6,923) $ 15,498 $ 13,839 $ 13,006 $ 10,906 $ 8,662
====================================================================================================================================
Fully diluted earnings (loss) per share -
Income before cumulative
effect of change in
accounting principle $ .54 $ .45 $ .53 $ .48 $ .45 $ .44 $ .36
Cumulative effect of change
in accounting principle -- (.69) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .54 $ (.24) $ .53 $ .48 $ .45 $ .44 $ .36
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends per share $ .05 $ .05 $ .05 $ .05 $.043/4 $ .04 $.02 2/3
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding - Fully
diluted (in thousands) 29,237 28,863 29,269 29,070 28,788 24,640 24,216
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA AMOUNTS(b):
Net income $ 15,684 $ 12,849 $ 11,599 $ 11,327 $ 10,432 $ 9,312 $ 5,491
Fully diluted earnings per share $ .54 $ .45 $ .40 $ .39 $ .36 $ .38 $ .23
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994(b) 1993(b) 1992(b) 1991(b) 1990(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION - at December 31
Loans $107,679 $ 87,782 $ 78,095 $ 49,089 $ 46,926 $ 28,990 $ 23,305
Inventory 48,777 56,647 58,079 43,865 40,110 23,441 19,759
Working capital 164,998 161,533 148,347 101,854 96,541 59,926 50,402
Total assets 325,082 314,107 304,485 229,220 203,088 126,589 107,119
Total debt 150,365 123,462 119,796 64,000 50,000 30,500 20,050
Stockholders' equity 154,027 174,952 163,662 150,849 140,585 89,312 80,744
Current ratio 7.6x 11.3x 8.1X 8.2x 8.7x 9.8x 9.0x
Debt to equity ratio 97.6% 70.6% 73.2% 42.4% 35.6% 34.1% 24.8%
- ------------------------------------------------------------------------------------------------------------------------------------
LOCATIONS - at year-end 382 373 340 280 249 178 151
====================================================================================================================================
</TABLE>
(a) Income before extraordinary item and cumulative effect of change in
accounting principle and net income include $469,000 of securities gains,
net of taxes.
(b) Unaudited pro forma amounts assuming retroactive application of change in
accounting principle.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The Company operates primarily in the specialty finance segment of secured
non-recourse loans to individuals, commonly known as pawn loans. The revenue
received from pawn loans is pawn service charges. The sale of merchandise,
primarily from forfeited collateral on pawn loans, is a related but secondary
activity of the Company's lending function. For an understanding of the
significant factors that influenced the Company's performance during the past
three fiscal years, the following discussion should be read in conjunction with
the consolidated financial statements appearing elsewhere in this annual
report.
YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995
Net revenues of the Company consist of pawn service charges and the gross
profit from the sale of collateral from forfeited loans and merchandise
purchased for resale. 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 relatively modest expansion
activity in 1996 (net increase of nine units) accounts for the remaining
increase.
Pawn service charges are impacted by changes in the average outstanding
amount of pawn loans and average loan yields. Pawn service charges increased
17.4% to $92.6 million in 1996 from $78.9 million in 1995 because of a same
unit increase in the average outstanding amount of pawn loans of 15%, combined
with the impact of units in operation for less than one year. 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 increases 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.
Sales increased 8% to $188.4 million in 1996 from $174.7 million in 1995.
The rise in sales was impacted by a same unit retail sales increase of 2%, a
$6.2 million increase in sales of scrap gold and other precious metals at
wholesale and an increase in units in operation. Gross profit from sales
decreased 3% to $70.8 million in 1996 from $73.0 million in 1995. While gross
profit as a percentage of sales decreased to 37.6% in 1996 from 41.8% in 1995,
inventory turns 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
inventory turns and decreased inventory levels, while emphasizing increases in
net revenues. This emphasis contributed to the decrease in gross profit margin
in 1996.
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 this 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, primarily due to a 9%
reduction in the average debt balance outstanding in 1996 compared to 1995.
This decrease was the result of increased cash flows from operating activities
and lower capital expenditures.
Other expense represents the net effect of a variety of 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 $336,000 in 1996 over
1995, primarily due to a $468,000 increase in losses on the Company's equity
interest in affiliates.
The Company's combined effective federal, state and international 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. Earnings per share was $.54 for 1996 compared to $.45 for 1995
before the cumulative effect of the change in accounting principle.
YEAR ENDED 1995 COMPARED TO YEAR ENDED 1994
Effective January 1, 1995, the Company changed its method of income
recognition on pawn loans. Under the method adopted in 1995, the Company
accrues pawn service charges 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 ("inventory") is stated at the
lower of cost (cash amount loaned) or market.
Changes in the business environment led the Company to focus more clearly
on the importance of generating higher cash-on-cash returns in its business
activities. The Company experienced a significant increase in competition from
other pawnshops and similar lending companies over the last several years. With
competitive influences affecting areas such as loan-to-value ratios and sales
price discounting, which resulted in lower margins, the Company's previous
accounting method increasingly hampered its ability to focus on the cash return
on capital employed. The new method more closely aligns net revenue and
earnings recognition with the actual collection of cash from loan payments and
the sale of forfeited collateral and other merchandise.
For purposes of comparison and discussion of operating results, the
following analysis compares 1995 to 1994 based on an unaudited pro forma
retroactive application using the changed accounting principle for 1994.
Net revenues increased 17.1% to $151.9 million in 1995 from $129.7 million
in 1994, primarily from a 5% gain on same units (those in operation more than
one year) with the remaining increase attributed to contributions from units in
operation for less than one year. During the two years ended December 31, 1995,
the Company expanded its operations by opening or acquiring 99 units while
closing or combining six units into existing locations for a net addition of
93.
Pawn service charges are impacted by changes in the average outstanding
amount of pawn loans and average loan yields. Pawn service charges increased
20.0% to $78.9 million in 1995 from $65.7 million in 1994 because of a same
unit increase in the average outstanding amount of pawn loans of 6%, combined
with the impact of units in operation for less than one year as noted above.
The operations of Svensk Pantbelaning (the "Swedish Subsidiary") for a full
year in 1995 accounted for 45% of the increase in pawn service charges for
1995. The consolidated annual loan yield achieved in 1995 of 96% is lower than
the 106% yield in 1994 due to the inclusion of a full year of operations of the
Swedish Subsidiary, which operates at a lower yield than the Company's other
operating segments. The consolidated 96% annual loan yield represents a
weighted average of the distinctive yields realized in the three countries in
which the Company operates. The increases in average loan balance per average
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
location in operation and in the average pawn loan at the end of the year are
both a result of the acquisition of the Swedish Subsidiary pawnbroking
locations, which have higher averages per location and amounts per pawn loan.
Sales increased 11.8% to $174.7 million in 1995 from $156.2 million in
1994. The rise in sales was impacted by the increase in the number of locations
in operation as noted above. Sales of scrap gold and other precious metals at
wholesale increased by $2.0 million while same unit retail sales were flat in
1995. Gross profit from sales increased 14.2% to $73.0 million in 1995 from
$64.0 million in 1994. Gross profit, as a percentage of sales, increased to
41.8% in 1995 from 40.9% in 1994. This increase is attributed to a higher
portion of sales from forfeited merchandise which, under the new accounting
principle, yields a higher gross profit margin than inventory purchased from
vendors and customers.
Operations and administration expenses, as a percentage of net revenues,
decreased to 69.2% in 1995, compared to 71.0% in 1994, primarily as a result of
greater efficiencies of scale of operating multiple units, along with an
emphasis on cost containment.
Depreciation and amortization, as a percentage of net revenues, increased
to 10.1% in 1995 from 9.5% in 1994. This increase was due to the net addition
of 93 operating locations as noted above and the completion in late 1994 of the
installation of the Company's point of sale computer system.
Interest expense increased sharply in 1995 due to higher levels of debt
outstanding and increased short-term interest rates on the Company's line of
credit. The Company's interest rate also increased in 1995 due to the placement
of $20 million in long-term fixed rate notes issued in July 1995, which
replaced short-term debt floating at lower rates.
Other expense is the net effect of a variety of items. Other expense
increased in 1995 by $300,000 over 1994 due to a $500,000 increase in losses on
the Company's equity interest in affiliates and a $200,000 decrease in losses
on the sale of non-operating assets.
The Company's combined effective federal, state and international income
tax rate was 37.7% in 1995, compared to 38.2% in 1994 based on unaudited pro
forma application of the change in accounting principle. The decrease is
attributed to the use of certain foreign tax credits by the Company in 1995.
Income before cumulative effect of the change in accounting principle, as
a percentage of net revenues, was 8.5% for 1995, compared to 8.9% for 1994
based on an unaudited retroactive application of the changed accounting
principle, reflecting higher operating and interest costs in 1995. Earnings per
share increased from $.40 in 1994, on a pro forma basis, to $.45 for 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash America's cash flow and liquidity, in management's opinion, remains
strong. Net cash provided by operating activities was $41.9 million, $24.0
million, and $10.1 million for 1996, 1995, and 1994, respectively. An emphasis
on reducing inventory levels and increasing inventory turnover, combined with
better operating results, accounts for the increase in cash provided by
operating activities.
In 1996, the Company invested $17.5 million to increase its loan
portfolio, $3.4 million to acquire six pawnshops and $3.3 million in advances
to affiliates. Additionally, effective upon the close of business on December
31, 1996, the Company acquired the remaining 51% interest in Mr. Payroll
Corporation ("Mr. Payroll"), a franchiser of check cashing kiosks and service
centers. The aggregate purchase price is to be paid in three annual
installments equal to .9775 times the defined after-tax net income of Mr.
Payroll for 1996, 1997 and 1998, respectively. No consideration is payable
based on Mr. Payroll's results of operations for 1996. The Company also
invested $7.2 million on property improvements and equipment for start-up
locations, remodeling selected pawnshops and additions to computer systems. The
Company plans to open approximately 20 to 30 new pawn units in 1997, at an
estimated cost of $180,000 per unit.
In December 1996, the Company purchased 4.5 million treasury shares of its
common stock in a "Dutch Auction" tender offer for $38.3 million plus $500,000
in expenses related to the offer. During 1996, the Company paid $1.4 million in
dividends.
The funding of these activities came primarily from the internally
generated cash flow from operations and the Company's revolving lines of
credit. At December 31, 1996 the Company's $125 million revolving line of
credit had a balance outstanding of $71.8 million. The Company's (pound)5
million line of credit in the United Kingdom had a balance outstanding of
(pound)850,000 (approximately $1.5 million) at December 31, 1996. The Company
also has a SEK 10 million line of credit in Sweden. There was no usage under
the SEK 10 million line of credit in 1996.
On January 22, 1997, the Company announced that its Board of Directors
authorized management to purchase up to one million shares of its common stock.
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 $165
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. The Company's foreign assets, liabilities and earnings are converted
into U.S. dollars in accordance with generally accepted accounting principles
for consolidation into the Company's financial statements. At December 31,
1996, the Company had recorded a cumulative reduction to stockholders' equity
of $386,000 as a result of fluctuations in foreign currency exchange rates.
Net income from foreign operations during 1996, 1995 and 1994 translated
to $5.9 million, $4.4 million and $4.1 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.
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.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
(Dollars in thousands - December 31)
SUMMARY
The Company has expanded significantly over the past three years by
increasing from 280 operating locations at December 31, 1993, to 382 operating
locations at December 31, 1996. The growth in locations is attributed to
acquisitions and the start-up of new Company units. Selected consolidated data
for the three years ended December 31, 1996, which reflect, in 1994, the
unaudited pro forma effects of applying the new accounting principle as if the
change had occurred on December 31, 1993, are presented below.
<TABLE>
<CAPTION>
Unaudited
Pro Forma
--------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES
Pawn service charges $ 92,591 56.7% $ 78,857 51.9% $ 65,703 50.7%
- ------------------------------------------------------------------------------------------------------------------
Gross profit from sales
Sales 188,377 174,722 156,247
Cost of sales 117,585 101,707 92,288
- ------------------------------------------------------------------------------------------------------------------
Gross profit 70,792 43.3% 73,015 48.1% 63,959 49.3%
- ------------------------------------------------------------------------------------------------------------------
Net revenues $163,383 100.0% $151,872 100.0% $129,662 100.0%
==================================================================================================================
OTHER DATA
Yield on loans outstanding 96% 96% 106%
Average loan balance per average
location in operation $ 255 $ 227 $ 202
Average pawn loan amount at year-end
(not in thousands) $ 99 $ 93 $ 89
Gross profit as a percentage of sales 37.6% 41.8% 40.9%
Average annualized inventory turnover 2.3x 1.7x 1.8x
Average inventory balance per average
location in operation $ 138 $ 160 $ 164
Expenses as a percentage of
net revenues:
Operations and administration 68.5% 69.2% 71.0%
Depreciation and amortization 9.9 10.1 9.5
Interest, net 5.8 6.9 4.8
Income from operations before
depreciation and amortization
as a percentage of total revenues 18.3% 18.5% 16.9%
Income before income taxes as a
percentage of total revenues 8.9% 8.1% 8.5%
Locations in operation:
Beginning of year 373 340 280
Acquired 6 4 21
Start-ups 8 32 42
Combined or closed (5) (3) (3)
- ------------------------------------------------------------------------------------------------------------------
End of year 382 373 340
- ------------------------------------------------------------------------------------------------------------------
Average number of locations
in operation 377 363 309
==================================================================================================================
</TABLE>
<PAGE> 5
CONSOLIDATED BALANCE SHEETS - December 31
- --------------------------------------------------------------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,334 $ 3,435
Service charges receivable 15,248 11,829
Loans 107,679 87,782
Inventory, net 48,777 56,647
Prepaid expenses and other 5,293 4,823
Deferred tax asset 11,643 12,710
- ---------------------------------------------------------------------------------------
Total current assets 189,974 177,226
Property and equipment, net 62,818 64,987
Intangible assets, net 66,065 63,421
Other assets 6,225 8,473
- ---------------------------------------------------------------------------------------
Total assets $325,082 $314,107
=======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,959 $ 9,584
Customer layaway deposits 2,955 3,524
Income taxes currently payable 3,776 2,585
Current portion of long-term debt 4,286 --
- ---------------------------------------------------------------------------------------
Total current liabilities 24,976 15,693
Long-term debt, net of current portion 146,079 123,462
- ---------------------------------------------------------------------------------------
Total liabilities 171,055 139,155
- ---------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $.10 par value per share, 80,000,000
shares authorized; shares issued, 30,235,164
in 1996 and 1995 3,024 3,024
Paid in surplus 121,878 121,840
Retained earnings 75,973 61,727
Notes receivable - stockholders (1,065) (1,071)
Foreign currency translation adjustment (386) (3,834)
- ---------------------------------------------------------------------------------------
199,424 181,686
Less - shares held in treasury, at cost (5,975,670 in 1996
and 1,495,285 in 1995) (45,397) (6,734)
- ---------------------------------------------------------------------------------------
Total stockholders' equity 154,027 174,952
- ---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $325,082 $314,107
=======================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME - Years Ended December 31
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAWN SERVICE CHARGES $ 92,591 $ 78,857 $ 105,858
============================================================================================================
GROSS PROFIT FROM SALES
Sales 188,377 174,722 156,247
Cost of sales 117,585 101,707 126,254
- ------------------------------------------------------------------------------------------------------------
Gross profit 70,792 73,015 29,993
- ------------------------------------------------------------------------------------------------------------
NET REVENUES 163,383 151,872 135,851
============================================================================================================
OPERATING EXPENSES
Operations 92,270 88,147 78,204
Administration 19,680 16,937 13,918
Amortization 3,547 3,607 3,545
Depreciation 12,573 11,688 8,814
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 128,070 120,379 104,481
- ------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 35,313 31,493 31,370
Interest expense, net 9,429 10,437 6,265
Other expense 776 440 147
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 25,108 20,616 24,958
Provision for income taxes 9,424 7,767 9,460
- ------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 15,684 12,849 15,498
Cumulative effect on prior years of change in accounting principle -- (19,772) --
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 15,684 $ (6,923) $ 15,498
============================================================================================================
Earnings (loss) per share:
Primary -
Income before cumulative effect of change in accounting principle $ .54 $ .45 $ .54
Cumulative effect of change in accounting principle -- (.69) --
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ .54 $ (.24) $ .54
- ------------------------------------------------------------------------------------------------------------
Fully diluted -
Income before cumulative effect of change in accounting principle $ .54 $ .45 $ .53
Cumulative effect of change in accounting principle -- (.69) --
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ .54 $ (.24) $ .53
- ------------------------------------------------------------------------------------------------------------
Weighted average shares:
Primary 28,806 28,863 28,930
Fully diluted 29,237 28,863 29,269
============================================================================================================
Unaudited pro forma amounts assuming retroactive
application of change in accounting principle:
Net income $ 15,684 $ 12,849 $ 11,599
Primary earnings per share $ .54 $ .45 $ .40
Fully diluted earnings per share $ .54 $ .45 $ .40
============================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Years Ended December 31
- --------------------------------------------------------------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
Notes Foreign
Common Stock Treasury Stock Receivable Currency
------------------ Paid in Retained ------------------- Stock- Translation
Shares Amount Surplus Earnings Shares Amount holders Adjustment
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 30,235,164 $ 3,024 $120,955 $ 56,004 1,832,137 $ (7,953) $ 0 $ (5,308)
Treasury shares
purchased -- -- -- -- 68,500 (552) -- --
Treasury shares
reissued -- -- 441 -- (234,538) 1,045 -- --
Tax benefit from
exercise of
option shares -- -- 85 -- -- -- -- --
Dividends declared -
$.05 per share -- -- -- (1,421) -- -- -- --
Foreign currency
translation
adjustment -- -- -- -- -- -- -- 1,616
Net income -- -- -- 15,498 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 30,235,164 3,024 121,481 70,081 1,666,099 (7,460) 0 (3,692)
Treasury shares
reissued -- -- 297 -- (170,814) 726 -- --
Tax benefit from
exercise of
option shares -- -- 62 -- -- -- --
Dividends declared -
$.05 per share -- -- -- (1,431) -- -- -- --
Increase in
notes receivable
stockholders -- -- -- -- -- -- (1,071) --
Foreign currency
translation
adjustment -- -- -- -- -- -- -- (142)
Net loss -- -- -- (6,923) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 30,235,164 3,024 121,840 61,727 1,495,285 (6,734) (1,071) (3,834)
Treasury shares
purchased -- -- -- -- 4,500,000 (38,750) -- --
Treasury shares
reissued -- -- 27 -- (19,615) 87 -- --
Tax benefit from
exercise of
option shares -- -- 11 -- -- -- -- --
Dividends declared -
$.05 per share -- -- -- (1,438) -- -- -- --
Reduction in
notes receivable
stockholders -- -- -- -- -- -- 6 --
Foreign currency
translation
adjustment -- -- -- -- -- -- -- 3,448
Net income -- -- -- 15,684 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 30,235,164 $ 3,024 $121,878 $ 75,973 5,975,670 $(45,397) $ (1,065) $ (386)
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS - Years Ended December 31
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Pawn service charges $ 89,694 $ 77,343 $ 64,525
Sales 188,377 174,722 156,247
Additions to inventory, including loans forfeited (109,065) (100,024) (104,611)
Operations and administration expense (109,486) (108,863) (91,108)
Interest paid (9,500) (9,766) (6,408)
Other expense (776) (440) (147)
Layaway deposits, net (611) (54) 759
Income taxes paid (6,761) (8,910) (9,197)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 41,872 24,008 10,060
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans forfeited and transferred to inventory 97,903 85,508 73,143
Loans repaid or renewed 250,438 226,856 201,929
Loans made, including loans renewed (365,852) (319,733) (285,818)
- -----------------------------------------------------------------------------------------------------------
Net increase in loans (17,511) (7,369) (10,746)
- -----------------------------------------------------------------------------------------------------------
Acquisitions (3,401) (1,612) (11,693)
Investments in and advances to affiliates (3,250) (2,200) (2,600)
Purchases of property and equipment (7,206) (13,467) (22,784)
Proceeds from sales of property and equipment 145 124 1,330
- -----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (31,223) (24,524) (46,493)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under bank lines of credit 27,347 (19,347) 55,533
Proceeds from issuance of long-term debt -- 20,000 --
Payments on notes payable and other obligations -- -- (15,471)
Net proceeds from reissuance of treasury shares 114 581 778
Net decrease (increase) notes receivable stockholders 6 (1,071) --
Treasury shares purchased (38,750) -- (552)
Dividends paid (1,438) (1,431) (1,421)
- -----------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (12,721) (1,268) 38,867
- -----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (29) 392 148
- -----------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (2,101) (1,392) 2,582
Cash and cash equivalents at beginning of year 3,435 4,827 2,245
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,334 $ 3,435 $ 4,827
- -----------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 15,684 $ (6,923) $ 15,498
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Cumulative effect of change in accounting principle -- 19,772 --
Amortization 3,547 3,607 3,545
Depreciation 12,573 11,688 8,814
Increase in service charges receivable (2,897) (1,514) (3,439)
Decrease (increase) in inventory 8,520 1,683 (16,251)
Decrease (increase) in prepaid expenses and other 246 1,191 (2,286)
Increase (decrease) in accounts payable and accrued expenses 2,147 (4,299) 3,157
(Decrease) increase in layaway deposits, net (611) (54) 759
Increase (decrease) in income taxes currently payable 1,038 (1,014) 1,235
Increase (decrease) in deferred income taxes 1,625 (129) (972)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 41,872 $ 24,008 $ 10,060
===========================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Cash America International, Inc. and its wholly owned subsidiaries ("Company")
and the Company's 49% investments in and share of net earnings or losses of its
unconsolidated affiliates treated as equity investments. 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 that 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.
The Company is primarily engaged in acquiring, establishing and operating
pawnshops in the United States, the United Kingdom and Sweden.
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 stores, deposits in banks and
short-term marketable securities with original maturities of 90 days or less as
cash and cash equivalents.
LOANS AND INCOME RECOGNITION
Pawn loans ("loans") are generally made on the pledge of tangible personal
property. Effective January 1, 1995, the Company changed its method of income
recognition on pawn loans. Under the new method, the Company accrues pawn
service charges 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 ("inventory") is stated at the lower
of cost (cash amount loaned) or market. Prior to 1995, pawn service charges
were accrued on all loans. For loans not repaid, the carrying value of the
forfeited collateral ("inventory") was stated at the lower of cost (cash amount
loaned plus accrued pawn service charges) or market. See Note 2 for further
discussion of the accounting change.
INVENTORY, SALES AND COST OF SALES
Inventory includes merchandise acquired from forfeited loans, merchandise
purchased directly from the public and new merchandise purchased from vendors.
Inventory 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 inventory amounted to $2,078,000 and $2,372,000, at December
31, 1996 and 1995, respectively.
Income is recognized, and inventory is reduced, at the time merchandise is
sold. Interim customer payments for layaway sales are recorded as deferred
revenue and subsequently recognized as income during the period in which final
payment is received. Cost of sales and the inventory 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 stores 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 $88,000 and $587,000 at
December 31, 1996 and 1995, respectively.
Accumulated amortization of intangible assets was $17,042,000 and
$15,431,000 at December 31, 1996 and 1995, respectively.
INCOME TAXES
The provision for income taxes is based on pretax income as reported for
financial statement purposes. Deferred income taxes result from differences in
the bases of certain assets and liabilities for income tax and financial
reporting purposes.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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 pawn service charge bears no
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 that debt approximates its carrying value. The
fair value of the 8.33%and 8.14% Senior Notes payable (See Note 7) was
estimated based on quoted 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 Notes approximates the
carrying value.
The Company's interest rate swap agreements are repriced every three and
six months. Due to their short-term nature, the fair value of interest rate
agreements approximate their 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 foreign currencies, it may enter into a short-term
currency swap at the time of the transaction to eliminate the risk of foreign
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. The Company may,
from time to time, enter into forward sale contracts with an industry buyer of
fine gold which is produced from the Company's liquidation of forfeited gold
merchandise. 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
Advertising costs are expensed the first time advertising takes place.
Advertising expense was $3,395,000, $3,867,000 and $4,932,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
SHARES, PER SHARE DATA AND EARNINGS (LOSS) PER SHARE
Earnings (loss) per share calculations assume exercise of all outstanding
stock options with appropriate adjustment to weighted average shares
outstanding using the treasury stock method of calculation.
NEW ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." FAS 121 requires that long-lived assets (i.e. property, plant and
equipment and intangible assets) will be reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of the
asset may not be recoverable. The adoption of FAS 121 had no effect on the
Company's consolidated financial position or results of operations in 1996.
Effective January 1, 1996, the Company adopted FAS No. 123, "Accounting
for Stock-Based Compensation," 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 and encourages the adoption of that
method of accounting for all employee stock option compensation plans. However,
it 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 earnings per share
as if the fair value based method of accounting defined in FAS 123 had been
applied (See Note 9).
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated
financial statements to conform to the 1996 presentation.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995, the Company changed its method of income
recognition on pawn loans. The Company accrues pawn service charges for 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 ("inventory") is stated at the lower of cost (cash amount
loaned) 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 income 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 pawn service charges, cost of
sales and related income taxes.
NOTE 3 - ACQUISITIONS
During 1996, the Company acquired a total of six pawnshops in purchase
transactions for an aggregate cash consideration of $3,401,000. Their results
of operations have been included in the Company's operations from the date 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 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 1996. The assets and liabilities of Mr. Payroll are included in
the Company's Consolidated Balance Sheet at December 31, 1996.
During 1995, the Company acquired four pawnshops in purchase transactions
occurring throughout the year for an aggregate cash consideration of
$1,612,000.
NOTE 4 - PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Land $ 4,724 $ 4,901
Buildings and leasehold improvements 56,498 57,570
Furniture, fixtures and equipment 47,199 40,400
- --------------------------------------------------------------------------------
Total 108,421 102,871
Less - accumulated depreciation 45,603 37,884
- --------------------------------------------------------------------------------
Property and equipment - net $ 62,818 $ 64,987
================================================================================
</TABLE>
NOTE 5 - INVESTMENT IN AFFILIATE
On September 20, 1995, the Company acquired, for a nominal amount, a 49%
interest in 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 $3 million from the Company. Interest is payable quarterly at a
rate reset monthly that is equivalent to LIBOR plus 4%. As of December 31,
1996, the affiliate had borrowings outstanding of $2,400,000 at an effective
interest rate of 9.31%. The affiliate granted the Company a security interest
in all of its assets. The entire unpaid principal balance is due and payable on
February 28, 1998. The amounts are included in other assets.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Trade accounts payable $ 2,864 $ 1,974
Accrued taxes, other than income 3,338 3,561
Accrued payroll and fringe benefits 3,917 1,567
Accrued interest payable 1,451 1,508
Other accrued liabilities 2,389 974
- --------------------------------------------------------------------------------
Total $ 13,959 $ 9,584
================================================================================
</TABLE>
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
U.S. Line of Credit up to $125 million due
June 30, 2001 $ 71,750 $ 44,900
U.K. Line of Credit up to(pound)5 million due
April 30, 1998 1,457 775
Swedish Kronor term loan due
September 30, 1998 27,158 27,787
8.33% senior unsecured notes due 2003 30,000 30,000
8.14% senior unsecured notes due 2007 20,000 20,000
- --------------------------------------------------------------------------------
150,365 123,462
Less current portion 4,286 --
- --------------------------------------------------------------------------------
Total long-term debt $146,079 $123,462
================================================================================
</TABLE>
Interest on the U.S. Line of Credit is paid quarterly at rates determined,
at the Company's option, of either the base rate as specified by the Agent
Bank, or a margin over LIBOR based on the Company's debt-to-total capital
ratio, measured quarterly. As of December 31, 1996, the Company had the option
of borrowing at LIBOR +75 basis points. The Company pays a fee on the unused
portion of the U.S. Line of Credit of .25% per annum. On May 5, 1995, the
Company entered into an interest rate cap agreement for the two years ending on
May 5, 1997, that limits the maximum LIBOR interest rate to 7% on $20,000,000
of debt. On December 10, 1996, the Company entered into an interest rate cap
agreement for three years ending December 10, 1999, that limits the maximum
LIBOR interest rate to 6% on an additional $20,000,000 of debt.
During 1996, the weighted average amount outstanding under the U.S. Line
of Credit was $41,555,000, with an effective interest rate of 6.63% after
taking into account the interest rate cap agreements.
Interest on the U.K. Line of Credit is payable quarterly at an interest
rate equal to the Bank's sterling cost of funds plus 60 basis points for
borrowings less than 14 days and 55 basis points for borrowings of 14 days or
more. During 1996 the weighted average amount outstanding under the U.K. Line
of Credit was (pound)1,002,000 with an effective interest rate of 6.77%. The
Company pays a fee on the unused portion of the U.K. Line of Credit of .15% per
annum.
Interest is payable on the Swedish Term Loan at the Stockholm InterBank
Offered Rate (STIBOR) plus 1% (5.55% as of December 31, 1996). On June 2, 1995,
the Company entered into a floating-to-fixed interest rate exchange agreement.
The agreement fixes the interest rate on SEK 118,750,000 (approximately
$17,432,000 as of December 31, 1996) at 10.93% through August 17, 1998. The
effective rate of interest on the Swedish Term Loan at
December 31, 1996, was 8.89% after taking into account the interest rate
exchange agreement.
All debt instruments are 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 2001 are: 1997 - $4.3
million; 1998 - $32.9 million; 1999 - $4.3 million; 2000 - $4.3 million; 2001 -
$76.0 million.
NOTE 8 - INCOME TAXES
The components of the Company's deferred tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Provision for inventory valuation allowance $ 499 $ 599
Tax over book accrual of service charges 11,003 12,134
Book over tax depreciation 461 809
Net operating loss carryforwards 1,335 337
Other 466 509
- --------------------------------------------------------------------------------
Total deferred tax assets 13,764 14,388
Valuation allowance for deferred tax assets (547) (482)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 13,217 $ 13,906
================================================================================
Deferred tax liabilities:
Deferred acquisition and start-up costs $ 200 $ 201
Amortization of acquired intangibles 589 456
Foreign tax reserves 543 303
Other 242 236
- --------------------------------------------------------------------------------
Total deferred tax liabilities $ 1,574 $ 1,196
- --------------------------------------------------------------------------------
Net deferred tax assets $ 11,643 $ 12,710
================================================================================
</TABLE>
The components of the provision for income taxes and the income to which
it relates for the years ended December 31 are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income before income taxes:
Domestic $ 16,427 $ 13,961 $ 18,625
Foreign 8,681 6,655 6,333
- --------------------------------------------------------------------------------
$ 25,108 $ 20,616 $ 24,958
================================================================================
</TABLE>
Provision for income taxes:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current portion of provision:
Federal $ 4,906 $ 6,127 $ 7,293
Foreign 2,572 1,536 2,151
State and local 440 437 428
- --------------------------------------------------------------------------------
$ 7,918 $ 8,100 $ 9,872
================================================================================
Deferred portion of provision (benefit):
Federal $ 1,376 $ (624) $ (491)
Foreign 249 351 79
State and local (119) (60) --
- --------------------------------------------------------------------------------
$ 1,506 $ (333) $ (412)
- --------------------------------------------------------------------------------
Total provision $ 9,424 $ 7,767 $ 9,460
================================================================================
</TABLE>
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
The effective tax rate differs from the federal statutory rate for the
following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Tax provision computed at the
statutory federal income tax rate $ 8,788 $ 7,216 $ 8,735
Non-deductible amortization of
intangible assets 465 465 439
Foreign tax rate difference (240) (547) (170)
Other 411 633 456
- --------------------------------------------------------------------------------
Total provision $ 9,424 $ 7,767 $ 9,460
================================================================================
Effective tax rate 37.5% 37.7% 37.9%
================================================================================
</TABLE>
As of December 31, 1996, the Company has net operating loss carryforwards
of $3,815,000 for U.S. income tax purposes. This amount consists of $629,000
from the 1993 acquisition of Express Cash International Corporation and
$3,186,000 from the 1996 acquisition of Mr. Payroll Corporation. The loss
carryforwards attributable to Express Cash expire between 2002 and 2007, while
the loss carryforwards for Mr. Payroll expire between 2009 and 2011. The losses
can be used to offset future taxable income of the companies that incurred such
losses. The amount of the Express Cash loss carryforwards which the Company can
utilize each year is limited to approximately $342,000. During 1996 the Company
re-evaluated the potential for realization of the Company's deferred tax
assets. As a result, the $482,000 valuation allowance related to the Express
Cash net operating loss carryforwards and pre-acquisition deductible temporary
differences was eliminated. The resulting tax benefit was applied to reduce
goodwill attributable to the Express Cash acquisition. The valuation allowance
remaining at December 31, 1996 relates to net operating loss carryforwards 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 $100,000.
NOTE 9 - 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.
The Company has reserved 1,500,000 shares of its common stock for issuance
under its 1987 Stock Option Plan (with appreciation rights) ("1987 Plan"),
3,000,000 shares for issuance under its 1989 Non-Employee Director
Stock Option Plan and Key Employee Stock Option Plan ("1989 Plans") and
1,400,000 shares for issuance under the 1994 Long-Term Incentive Plan ("1994
Plan").
Under the 1987 Plan, options are granted at fair market prices at the date
of the grant, and expire five years from the date of the grant. Options that
have been granted pursuant to the 1987 Plan are exercisable 25% each year
beginning one year after the date of the grant.
At December 31, 1996, 417,952 shares were reserved for future grants under
the 1987 Plan.
A summary of stock option activity for the 1987 Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
- --------------------------------------------------------------------------------
Number Option Price
Stock Option Activity of Shares per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1993 1,015,871 $3.54-$9.88
Granted 75,000 $7.75
Exercised (210,371) $3.54-$7.00
Cancelled (7,500) $7.00
- --------------------------------------------------------------------------------
December 31, 1994 873,000 $5.94-$9.88
Exercised (154,750) $5.94
Cancelled (173,318) $5.94-$9.38
- --------------------------------------------------------------------------------
December 31, 1995 544,932 $6.88-$9.88
Cancelled (199,752) $7.75-$9.38
- --------------------------------------------------------------------------------
December 31, 1996 345,180 $6.88-$9.88
- --------------------------------------------------------------------------------
Exercisable at December 31, 1996 283,997 $7.75-$9.88
================================================================================
</TABLE>
Pursuant to the 1989 Plans, options were granted in October 1989 to
purchase 3,000,000 shares at $6.34 per share. The options were granted at
market price at date of grant and expire 15 years from that date.
A summary of stock option activity for the 1989 Plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding
- --------------------------------------------------------------------------------
Number Option Price
Stock Option Activity of Shares per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Inception of plan - October 1989 3,000,000 $6.34
Cancelled 1990 (150,000) $6.34
Cancelled 1992 (30,000) $6.34
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 2,820,000 $6.34
- --------------------------------------------------------------------------------
Exercisable at December 31, 1996 2,820,000 $6.34
================================================================================
</TABLE>
The Company adopted the 1994 Plan on April 27, 1994, and reserved
1,400,000 shares of Company Common Stock to be used in the form of stock
options, performance shares and restricted stock for key employees of the
Company. The 1994 Plan will expire ten years from its effective date unless
terminated earlier or extended by the Board of Directors. Options that have
been granted pursuant to the 1994 Plan are exercisable 25% each year beginning
one year after the date of the grant.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- -------------------------------------------------------------------------------
A summary of stock option activity for the 1994 Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
- --------------------------------------------------------------------------------
Number Option Price
Stock Option Activity of Shares per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Granted 1994 449,500 $7.88
- --------------------------------------------------------------------------------
December 31, 1994 449,500 $7.88
Granted 173,000 $5.63-$7.13
Cancelled (28,500) $7.88
- --------------------------------------------------------------------------------
December 31, 1995 594,000 $5.63-$7.88
- --------------------------------------------------------------------------------
Granted 25,000 $6.63
Cancelled (25,000) $5.63-$7.88
- --------------------------------------------------------------------------------
December 31, 1996 594,000 $5.63-$7.88
- --------------------------------------------------------------------------------
Exercisable at December 31, 1996 247,113 $5.63-$7.88
================================================================================
</TABLE>
Shares issued upon exercise of options may be issued from treasury shares
or from authorized but unissued shares.
The Company has adopted the disclosure only provisions of FAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
Under APB No. 25 there was no stock-based compensation expense in 1996 and
1995. If the Company had elected to recognize compensation based on the fair
value at the grant dates for awards under its plans, consistent with the method
prescribed by FAS No. 123, net income (loss) and earnings (loss) per share
would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) As reported $15,684 $(6,923)
Pro forma 15,675 (6,974)
- --------------------------------------------------------------------------------
Earnings (loss) As reported $.54 $(.24)
per share Pro forma .54 (.24)
================================================================================
</TABLE>
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 to one
year 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 $367,000 and $207,000
in 1996 and 1995, respectively.
NOTE 11 - BUSINESS SEGMENT INFORMATION
The Company operates in a single industry. In addition to its domestic
operations, it has subsidiaries in the United Kingdom and Sweden.
<TABLE>
<CAPTION>
United
States Foreign Consolidated
- ---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
1996
- ----
Total revenues $257,381 $23,587 $280,968
Income from operations 24,058 11,255 35,313
Total assets excluding cash
and equivalents 250,847 72,901 323,748
1995
- ----
Total revenues $233,250 $20,329 $253,579
Income from operations 22,627 8,866 31,493
Total assets excluding cash
and equivalents 249,893 60,779 310,672
1994
- ----
Total revenues $248,514 $13,591 $262,105
Income from operations 24,495 6,875 31,370
Total assets excluding cash
and equivalents 265,229 54,201 319,430
=================================================================================
</TABLE>
NOTE 12 - 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:
<TABLE>
<CAPTION>
(In thousands)
<C> <C>
1997 $14,070
1998 11,145
1999 7,944
2000 4,156
2001 2,604
Later years 8,701
- --------------------------------------------------------------------------------
Total $48,620
================================================================================
</TABLE>
Rent expense was $14,936,000, $14,285,000 and $11,201,000 for 1996, 1995
and 1994, 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.
<PAGE> 15
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, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of income recognition on pawn loans effective
January 1, 1995.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
January 21, 1997
<PAGE> 16
INCOME STATEMENT QUARTERLY DATA (Unaudited)
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 68,540 $ 65,927 $ 64,674 $ 81,827
Gross profit $ 17,964 $ 16,472 $ 14,951 $ 21,405
Net income $ 3,210 $ 2,770 $ 3,463 $ 6,241
Net income per share - Fully diluted $ .11 $ .10 $ .12 $ .21
Weighted average shares - Fully diluted 28,740 28,809 28,981 29,097
1995
- ---------------------------------------------------------------------------------------------
Total revenues $ 60,265 $ 60,102 $ 57,636 $ 75,576
Gross profit $ 16,798 $ 17,482 $ 15,781 $ 22,954
Income before cumulative effect of
change in accounting principle $ 2,656 $ 3,118 $ 1,603 $ 5,472
Net (loss) income $(17,116) $ 3,118 $ 1,603 $ 5,472
Income before cumulative effect of
change in accounting principle per
share - Fully diluted $ .09 $ .11 $ .06 $ .19
Net (loss) income per share - Fully diluted $ (.59) $ .11 $ .06 $ .19
Weighted average shares - Fully diluted 29,033 28,907 28,815 28,733
=============================================================================================
</TABLE>
COMMON STOCK DATA
The New York Stock Exchange is the principal exchange on which Cash
America International, Inc. common stock is traded. There were 1,093
stockholders of record (not including individual participants in security
listings) as of February 11, 1997. 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 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
1995
- -------------------------------------------------------------------------------
High $ 9.75 $ 8.13 $ 7.63 $ 6.88
Low 6.63 6.88 6.25 4.63
Close 7.00 7.38 6.88 5.50
Cash Dividend per Share .01 1/4 .01 1/4 .01 1/4 .01 1/4
================================================================================
</TABLE>
<PAGE> 17
CASH AMERICA INTERNATIONAL, INC.
1600 WEST 7TH STREET
FORT WORTH, TEXAS 76102
(PRINCIPAL EXECUTIVE OFFICES)
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1997
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 22, 1997 at 10:00 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 14, 1997.
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, 1996 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 4, 1997
(the "Record Date"). At the close of business on March 4, 1997, there were
24,229,969 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.
Adoption of the proposal to amend the Company's Articles of Incorporation to
provide for the classification of the Board of
<PAGE> 18
Directors into three classes requires the affirmative vote of four-fifths of the
outstanding shares entitled to vote. Adoption of each of the other proposals to
amend the Company's Articles of Incorporation requires the affirmative vote of
two-thirds of the outstanding shares entitled to vote. Shares voted for a
proposal and shares represented by returned proxies that do not contain
instructions to vote against a proposal 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) Assuming the amendment described in item (3) below is adopted, the
election of ten (10) directors to terms of office expiring at the annual
meeting of shareholders in 1998 (four (4) directors), 1999 (three (3)
directors) and 2000 (three (3) directors); or if the foregoing amendment is
not adopted, the election of ten (10) directors to serve until the next
annual meeting of shareholders and until their successors are elected;
(2) Ratification of the appointment of Coopers & Lybrand L.L.P. as
independent auditors of the Company for the year 1997;
(3) A proposal to amend the Articles of Incorporation of the Company
to provide for the classification of the Board of Directors into three
classes of directors with staggered terms of office;
(4) A proposal to amend the Articles of Incorporation to provide for a
requirement that shareholders notify the Company of a nomination prior to
any meeting;
(5) A proposal to amend the Articles of Incorporation to provide for a
limitation upon who may call special meetings of shareholders;
(6) A proposal to amend the Articles of Incorporation to provide for a
minimum price and other matters, or a higher voting requirement, in
connection with certain business combinations;
(7) A proposal to amend the Articles of Incorporation to provide for
preferred stock in the Company's authorized capital stock; and
(8) Such other business as may properly come before the meeting or any
adjournments thereof.
ELECTION OF DIRECTORS
The Company's Board of Directors will consist of ten (10) members who are
to be elected for the respective terms specified below or until their successors
shall be elected and shall have qualified. If the proposed amendment to the
Company's Articles of Incorporation to provide for the classification of the
Board of Directors into three classes is adopted, the terms of the members of
the Board of Directors shall expire at the following times: Class I
Directors -- 1998 annual meeting of shareholders; Class II Directors -- 1999
annual meeting of shareholders; and Class III Directors -- 2000 annual meeting
of shareholders. If such proposed amendment is not adopted, the members will be
elected for a term expiring at the next annual meeting of shareholders. The
following slate of ten 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
2
<PAGE> 19
persons named in such proxy intend to vote for the election of the following
nominees for the office of director. All of such nominees are presently serving
as directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AND AGE DURING PAST FIVE YEARS SINCE
------------ ---------------------- --------
<S> <C> <C>
CLASS I DIRECTORS
Jack Daugherty Chairman of the Board and Chief Executive Officer of the 1983
(49) 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 and 1988
(61) 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 and
President of Willis Corroon Life, Inc. (Fort Worth, Texas)
since September 1991.
Daniel R. Feehan President and Chief Operating Officer of the Company since 1984
(46) January 1990.
James H. Graves Managing Director of J. C. Bradford & Co., a Nashville based 1996
(48) securities firm, where he has worked for more than five years.
CLASS II DIRECTORS
B. D. Hunter Mr. Hunter is the founder of Huntco, Inc., an intermediate 1984
(67) 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 investment 1996
(48) 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.
Alfred M. Micallef President since 1974, and currently Chief Executive Officer, 1996
(54) of JMK International, Inc., a holding company of rubber and
plastics manufacturing businesses.
CLASS III DIRECTORS
Carl P. Motheral Mr. Motheral has served over twenty-five years as President 1983
(70) 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 to that 1994
(61) 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 principal 1996
(46) with the brokerage firm of Financial First, Inc. in New York,
New York.
</TABLE>
3
<PAGE> 20
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, Dike,
Rizzo and Graves are directors of Hallmark Financial Services, Inc. Mr. Feehan
is a director of KBK Capital Corporation. 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, 1996. 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 1996.
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 1996.
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 1996.
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 and Motheral) 150,000 shares to each other
non-employee director with at least 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
4
<PAGE> 21
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.
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ---------- --------
<S> <C> <C>
David L. Babson & Co., Inc.................................. 2,322,500(1) 9.57%
One Memorial Drive
Cambridge, Massachusetts 02142
Eagle Asset Management, Inc................................. 1,354,485(2) 5.58%
880 Carillon Parkway
St. Petersburg, Florida 33716
Shufro, Rose & Ehrman....................................... 1,249,936(3) 5.15%
745 Fifth Avenue
New York, New York 10151-2600
</TABLE>
- ---------------
(1) 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 738,500 shares and the sole right to dispose of all 2,322,500
shares.
(2) 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 1,354,485 shares and the sole right to dispose of all
1,354,485 shares.
(3) Based upon information contained in a Schedule 13G, filed with the Company,
which indicates that Shufro, Rose & Ehrman has sole voting power with regard
to 128,230 shares and the sole right to dispose of all 1,249,936 shares.
5
<PAGE> 22
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock, as of February 24, 1997, by its
directors, nominees for election as directors, named executive officers, and all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1)(2) OF CLASS
---- -------------------------- --------
<S> <C> <C>
Jack Daugherty....................................... 997,635 3.97%
A. R. Dike........................................... 136,000 .56%
Daniel R. Feehan..................................... 482,111(3) 1.96%
James H. Graves...................................... 3,200 *
B. D. Hunter......................................... 165,000(4) .68%
Timothy J. McKibben.................................. 2,900 *
Alfred M. Micallef................................... 10,000 *
Carl P. Motheral..................................... 444,065 1.82%
Samuel W. Rizzo...................................... 306,710(5) 1.25%
Rosalin Rogers....................................... 10,000 *
Robert D. Brockman................................... 4,375 *
Don R. Blevins....................................... 15,620 *
Gregory W. Trees..................................... 42,992 .18%
All Directors and Executive Officers as
a group (17 persons)............................... 2,687,073(6) 10.21%
</TABLE>
- ---------------
* 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 24, 1997, as indicated below, the
percentages indicated are based on 24,229,969 shares of Common Stock issued
and outstanding on February 24, 1997. 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 24, 1997 are as follows: Mr.
Daugherty -- 901,625 shares; Messrs. Motheral and Rizzo -- 225,000 shares
each; Mr. Dike -- 120,000 shares; Mr. Feehan -- 352,125 shares; Mr.
Hunter -- 150,000 shares; Mr. Brockman -- 4,375 shares; Mr.
Blevins -- 14,625 shares and Mr. Trees -- 37,125 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 18,600 shares owned by trusts of which Mr. Rizzo is
trustee and 4,000 shares owned by Mr. Rizzo's wife.
(6) This amount includes 2,071,375 shares that directors and executive officers
have the right to acquire within the next sixty days through the exercise of
stock options.
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, 1996 all filing
requirements applicable to executive officers and directors have been complied
with.
6
<PAGE> 23
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
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION --
AWARDS
---------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
NAME AND -------------------- OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) ($)(1)
------------------ ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Jack R. Daugherty, 1996 378,000 196,727 -- 40,628
Chairman and CEO 1995 378,000 -- -- 48,534
1994 360,000 36,000 175,000 42,202
Daniel R. Feehan, 1996 341,750 177,834 -- 30,953
President and Chief 1995 315,000 -- -- 30,464
Operating Officer 1994 300,000 28,500 145,000 29,242
Robert D. Brockman, 1996 169,200 70,447 -- 10,515
Executive Vice President -- 1995 87,500 21,045 7,500 33,534
Administration(2)
Don R. Blevins, Executive 1996 150,000 62,453 -- 10,385
Vice President -- European 1995 120,000 -- 7,500 2,674
Operations(3)
Gregory W. Trees, 1996 150,000 40,204 -- 4,922
Division Vice President 1995 150,000 -- 5,000 3,515
1994 137,500 12,500 7,000 2,576
</TABLE>
- ---------------
(1) The amounts disclosed in this column for 1996 include:
(a) Company contributions of the following amounts under the Company's
401(k) Savings Plan on behalf of Mr. Daugherty: $4,236; Mr. Feehan:
$4,442; Mr. Brockman: $2,320; Mr. Blevins: $2,072 and Mr. Trees:
$3,232.
(b) Payment by the Company of premiums for term life insurance on behalf of
Mr. Daugherty: $1,392; Mr. Feehan: $1,531; Mr. Brockman: $1,424; Mr.
Blevins: $3,767 and Mr. Trees: $1,690.
(c) Annual premium payments under split-dollar life insurance policies on
Mr. Feehan ($25,000) and on Mr. Daugherty's spouse ($35,000).
(d) Relocation expenses for Mr. Brockman: $6,771; and Mr. Blevins: $4,546.
(2) Mr. Brockman joined the Company on June 21, 1995.
(3) Mr. Blevins did not serve in an executive officer capacity prior to 1995.
7
<PAGE> 24
The following table provides information concerning option exercises in
fiscal 1996 and the value of unexercised options held by each of the named
executive officers at the end of the Company's last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END(#)(1) AT FY-END($)(2)
--------------- -----------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- --------------- -----------------
<S> <C> <C>
Jack R. Daugherty 901,625/68,875 1,719,375/46,875
Daniel R. Feehan 352,125/56,875 569,813/38,813
Robert D. Brockman 4,375/13,125 8,516/25,547
Don R. Blevins 14,625/9,875 11,766/18,047
Gregory W. Trees 37,125/8,875 11,406/12,969
</TABLE>
- ---------------
(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 $8.50 per share of the
Company's Common Stock on the New York Stock Exchange on December 31, 1996,
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 set the annual salary of the Company's Chief Executive
Officer and the President and reviewed the annual salaries of the Company's
other executive officers for fiscal 1996. 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
8
<PAGE> 25
performance incentives, at the 75th percentile of the competitive market. The
Committee believes that very few of the 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 annual long-term incentive grants in the form of restricted stock and/or
stock options, with the aggregate grant date value of the 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 Committee uses the Black-Scholes model
to determine the grant date value of options. 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. Because the Committee believed the beginning of the Company's
fiscal year to be the appropriate time for the grant of these long-term
incentive awards, none were granted in 1996.
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.
- -- CEO'S COMPENSATION FOR FISCAL 1996
The fiscal 1996 salary of Mr. Jack R. Daugherty, Chief Executive Officer of
the Company, was based primarily on his rights under his ten-year employment
agreement with the Company dated April 25, 1990, which is described elsewhere in
this Proxy Statement. Under that agreement, Mr. Daugherty's minimum base salary
is $225,000. For fiscal 1996, the Committee set Mr. Daugherty's base salary at
$378,000. The Committee believes that the total cash compensation paid to Mr.
Daugherty was appropriate in light of the Company's accomplishments in 1996,
including (i) a 22% increase in net income, (ii) a 23% increase in total
9
<PAGE> 26
loan balances, (iii) a 14% decrease in year-end inventory, (iv) a 29% increase
in inventory turns, and (v) the successful implementation of the Company's field
incentive compensation program.
These 1996 accomplishments also support the Committee's belief that the
fiscal 1996 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.
Upon the expiration of the initial terms of the agreements (ten years in the
case of Mr. Daugherty and five years in the case of Mr. Feehan), they
automatically renew for additional one-year periods until one party notifies the
other to the contrary. Under these agreements, compensation is determined
annually by the Company's Board of Directors, subject to minimum annual
compensation for Messrs. Daugherty and Feehan of $225,000 and $190,000,
respectively. 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 (undiscounted) plus
the discounted present value (employing an interest rate of 8%) of two
additional years' salary. 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 two 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). The Company also entered into a similar employment
agreement effective March 30, 1992 with Mr. Trees. It provides for minimum
annual compensation of $125,000. The primary term of the agreement had an
expiration date of March 31, 1995 and is followed by two one-year renewal terms.
10
<PAGE> 27
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 two peer groups 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
first peer group (the "New Peer Group") consists of the other companies in the
pawnbroking industry with publicly traded common stock. The second peer group
(the "Old Peer Group") consists of the following companies, whose businesses
comprise a combination of consumer lending and retail activities: Beneficial
Corp., Household International, Circuit City Stores, Jewelmaster, Inc., Peoples
Jewellers, MacFrugal's Bargains, Luria (L.) & Sons, Inc., Oshman's Sporting
Goods, Lowe's Corp., and Tandy Corp. The Company previously utilized the Old
Peer Group in the Performance Graph. However, factors such as the recent change
in the Company's revenue recognition method for pawn loans, the adoption of a
new incentive compensation program for field operations personnel, and increased
emphasis on cash returns on capital employed have heightened the focus on the
Company's core consumer finance business. On this basis, the Company concluded
that the continued use of the Old Peer Group would be inappropriate and that the
New Peer Group constitutes a more representative mix of comparable companies.
TOTAL SHAREHOLDER RETURNS -- DIVIDENDS REINVESTED
<TABLE>
<CAPTION>
CASH
MEASUREMENT PERIOD AMERICA IN- NEW PEER OLD PEER
(FISCAL YEAR COVERED) TERNATIONAL S&P 500 GROUP GROUP
<S> <C> <C> <C> <C>
DEC 91 100 100 100 100
DEC 92 113.50 107.62 163.62 125.43
DEC 93 96.44 118.46 100.33 176.82
DEC 94 104.30 120.03 68.90 194.65
DEC 95 58.52 165.13 38.03 224.25
DEC 96 91.14 203.05 56.12 287.46
</TABLE>
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
11
<PAGE> 28
$5,000,000 at any time. As of December 31, 1996, Messrs. Daugherty and Feehan
had stock loans outstanding under this program in the aggregate principal
amounts of $698,539, and $1,005,729, respectively.
PROPOSALS TO AMEND THE COMPANY'S
ARTICLES OF INCORPORATION
INTRODUCTION
The Company's Board of Directors has determined that it is advisable to
adopt the Amendments to the Company's Articles of Incorporation ("Amendments").
It has voted to recommend them to the Company's shareholders for adoption. The
Amendments are discussed generally below under the caption "The Procedural
Amendments" and in detail below under the captions (i) "Proposal regarding the
Board of Directors," (ii) "Proposal regarding the Shareholders," (iii) "Proposal
regarding the Fair Price Amendment to the Articles of Incorporation," and (iv)
"Proposal regarding Authorization of Preferred Stock," which shareholders are
urged to read carefully. The Amendments are expected to have an antitakeover
effect.
Corporate takeover attempts have become increasingly common in recent
years. Takeover attempts that have not been negotiated with, and approved by,
the board of directors of a company can seriously disrupt a company's long-term
plans, distract management and cause great expense. These attempts may take
place at inopportune times and may involve terms that are less favorable to all
of the shareholders than would be available in a transaction negotiated and
approved by the board of directors. On the other hand, board-approved
transactions can be carefully planned and undertaken at an opportune time in
order to obtain maximum value for a company and its shareholders. In addition,
in the case of a proposal that is presented to the board of directors, there is
an opportunity for the board to thoroughly analyze the proposal and present its
analysis to the shareholders in an effective manner.
Hostile takeover attempts are frequently structured in ways that the Board
of Directors believes are not in the best interest of all shareholders. Although
a takeover attempt may be made at a price substantially above then current
market prices, these offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, shareholders may be
presented with the alternatives of partially liquidating their investment at a
time that may be disadvantageous or retaining their investment in an enterprise
with new management whose objectives may be different from those of the
remaining shareholders. There have also been "two-tiered" offers in which cash
is offered for a controlling interest in a company followed by a merger or other
transaction in which the remaining shares are acquired in exchange for cash or
securities reflecting a lesser value for the shares acquired in the second stage
transaction. The Board considers that tactics such as these can be highly
disruptive to a company and can result in dissimilar treatment of a company's
shareholders. The Amendments are being submitted for shareholder approval in
response to these kinds of tactics.
Some of the amendments (the "Procedural Amendments") to the Company's
Articles of Incorporation, consisting of Articles Seven and Twelve of the
proposed Amendments attached as Appendix A to this Proxy Statement, will, by
making it more time-consuming for a substantial shareholder to gain control of
the Board, strengthen the position of the Board in dealing with the substantial
shareholder, enable the Board to more effectively protect the interests of all
shareholders, enhance continuity in the management of the business and affairs
of the Company, and provide the Board with sufficient time to review any
proposal from the substantial shareholder and consider appropriate alternatives
to the proposal. However, the Procedural Amendments also may deter some mergers,
tender offers or other future takeover attempts which some or a majority of the
shareholders may deem to be in their best interest.
The business combination provisions (Article Thirteen of the proposed
Amendments) are designed to achieve some assurance that any multi-step attempt
to take over the Company is made on terms which offer similar treatment to all
shareholders.
The preferred stock provision (Article Four of the proposed Amendments) is
designed to permit the Company to issue both Common Stock and Preferred Stock.
The authorization of Preferred Stock also will
12
<PAGE> 29
enable the Board to issue new classes of preferred stock for a variety of
possible equity financing transactions, including acquisitions. Such preferred
stock could also be utilized to make more difficult or discourage an attempt to
obtain control of the Company by means of a merger, tender offer or otherwise
should the Board of Directors consider the actions of the person or entity
seeking control not to be in the best interests of the shareholders of the
Company.
The Amendments are being submitted separately. The adoption of any
Amendment is not contingent upon the adoption of any other Amendments.
The Amendments are not being recommended in response to any specific effort
of which the Company is aware to accumulate the Company's common stock or to
obtain control of the Company. They are being recommended to ensure fair
treatment of the Company's shareholders in takeover situations. They are being
submitted to the shareholders by the Board in response to the use of the tactics
outlined above. The Board has no present intention of soliciting a shareholder
vote on any other proposals relating to a possible takeover of the Company.
The Board of Directors believes that the Amendments are necessary to
safeguard the Company's stability, so that management can pursue its long-term
strategy for the Company. The Board also believes that the benefits provided by
the Amendments -- essentially the protection of the Company's ability to
negotiate with the proponent of an unsolicited takeover proposal and to consider
alternatives -- outweigh the disadvantages of discouraging such proposals.
ACCORDINGLY, THE BOARD BELIEVES THAT ADOPTION OF THE AMENDMENTS IS IN THE BEST
INTERESTS OF ALL SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENTS TO THE ARTICLES OF
INCORPORATION.
The Amendments would become effective upon the filing of Articles of
Amendment with the Secretary of State of Texas. This filing is expected to be
made shortly following the adoption of the Amendments at the Annual Meeting. If
the Amendments are approved, then the Company's Bylaws will be amended to carry
out the purposes of the Amendments. In the event of a conflict between the
Company's Articles of Incorporation, as amended by the Amendments, and the
amended Bylaws, the Articles of Incorporation will control.
THE PROCEDURAL AMENDMENTS
The Procedural Amendment contained in the Proposal regarding the Board of
Directors is to classify the Board of Directors into three classes of directors
as nearly equal in number as possible, each of which, after an interim
arrangement, will serve for three years, with one class of directors being
elected each year.
The Procedural Amendments contained in the Proposal regarding the
Shareholders:
(i) provide that special meetings of shareholders may be called only
by the Chairman of the Board, the President, the Board of Directors or
shareholders owning not less than a majority of the voting power of the
Voting Stock (as defined in the next paragraph) that would be entitled to
vote at such meeting; and
(ii) require shareholders desiring to propose to nominate a person to
the Board of Directors to give prior notice of intent to make nomination.
The term "Voting Stock" in this part of the Proxy Statement means all
issued and outstanding shares of the Company's capital stock entitled to vote
generally in the election of directors or that otherwise are entitled to vote
with the stock on the specific matter in question.
The Procedural Amendments may have significant effects on the ability of
shareholders of the Company to effect immediate changes in the composition of
the Board of Directors and otherwise to exercise their voting power to affect
the composition and certain other aspects of the Board of Directors.
Accordingly, before voting on the Amendments, shareholders are urged to read
carefully the following portions of this section of the Proxy Statement which
describe the Procedural Amendments and their purposes and effects, and the
relevant portions of Appendix A attached to the Proxy Statement. The Appendix
gives the full text of the Procedural Amendments. The description of the
Procedural Amendments is qualified in its entirety by reference to Appendix A.
13
<PAGE> 30
Purposes and Effects of the Procedural Amendments. The Board of Directors
is recommending that shareholders adopt the Procedural Amendments to discourage
certain types of transactions that involve an actual or threatened change of
control of the Company. The Procedural Amendments are designed to make it more
time-consuming to change majority control of the Board without its consent and
thus to reduce the vulnerability of the Company to an unsolicited takeover
proposal. The Board believes that the Procedural Amendments will encourage any
person intending to attempt such a takeover to negotiate with the Board, and
that the Board will therefore be better able to protect the interests of the
shareholders.
Persons routinely accumulate substantial stock positions in public
companies as a prelude to proposing a takeover or a restructuring or sale of all
or any part of the corporation or other similar extraordinary corporate action.
Such actions are often undertaken without advance notice to or consultation with
the corporation's board of directors or management. In many cases, the purchaser
seeks representation on the corporation's board in order to increase the
likelihood that any proposal will be implemented by the corporation. If a
corporation resists its efforts to obtain board representation, the purchaser
may commence a proxy contest to have itself or its nominees elected to the board
in place of certain directors or the entire board. In some cases, the purchaser
may not truly be interested in taking over the corporation, but uses the threat
of a proxy fight or a bid to take over the corporation as a means of forcing the
corporation to repurchase its equity position at a substantial premium over the
market price.
The Board of Directors believes that if such a purchaser acquired a
significant or controlling interest in the Voting Stock, the purchaser's ability
to remove the entire Board without its consent would severely curtail the
Company's ability to negotiate effectively with the purchaser. The threat of
removal would deprive the Board of the time, information and negotiating
leverage necessary to evaluate the takeover proposal, to study responses and
alternatives, to help ensure that the best price would be obtained in any
transaction involving the Company which might ultimately be undertaken, or
determine not to pursue such a transaction but instead to pursue the Company's
long-term strategy without disruption. If the real purpose of the purchases was
to enable the purchaser to make or threaten a takeover bid to force the Company
to repurchase the purchaser's accumulated stock interest at a premium price,
then the Company would face the risk that if it did not do so its business and
management would be disrupted, perhaps irreparably. Conversely, such a
repurchase would divert valuable corporate resources to the benefit of a single
shareholder.
Takeovers or changes in the board of directors of a company that are
proposed and effected without prior consultation and negotiation with a company
are not necessarily detrimental to that company and its shareholders. However,
the Board believes that the benefits of seeking to protect the Company's ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to
effect a partial takeover of, or to restructure, the Company, through directors
who have been previously elected by the shareholders as a whole and are familiar
with the Company, outweigh the disadvantages of discouraging such proposals. The
Procedural Amendments could make more difficult or discourage a proxy contest or
the assumption of control by the holder of a substantial block of the Voting
Stock or the removal of the incumbent Board, and could thus increase the
likelihood that incumbent directors will retain their positions.
The Procedural Amendments could have the effect of discouraging a third
party from making a partial tender offer (including an offer at a substantial
premium over the then-prevailing market value of the Voting Stock) or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its shareholders. In addition, since the
Procedural Amendments are designed to discourage accumulations of large blocks
of the Voting Stock by purchasers whose objective is to have such Voting Stock
repurchased by the Company at a premium, adoption of the Procedural Amendments
could tend to reduce the temporary fluctuations in the market price of the
Voting Stock that are caused by such accumulations. Accordingly, shareholders
could be deprived of some opportunities to sell their stock at a temporarily
higher market price. The Procedural Amendments also may discourage or make more
difficult or expensive a proxy contest or merger involving the Company or a
tender offer, open market purchase program or stock purchase of Company Common
Stock that a majority of shareholders may deem to be in their best interests or
that may give shareholders the opportunity to realize a premium over the
prevailing market price of their stock.
14
<PAGE> 31
- -- PROPOSAL REGARDING THE BOARD OF DIRECTORS
The Procedural Amendments contained in this proposal relate to
classification of the Board of Directors. The Bylaws currently provide that all
directors are to be elected to the Company's Board of Directors annually for a
term of one year. The Procedural Amendments provide that the Board will be
divided into three classes of directors, each class to be as nearly equal in
number of directors as possible. If the Amendments are adopted by the
shareholders, the shareholders will be asked to elect the nominees described in
this Proxy Statement and classify them into three separate classes of directors.
Four directors will be elected for a term expiring at the Annual Meeting in
1998, three directors will be elected for a term expiring at the Annual Meeting
in 1999, and three directors will be elected for a term expiring at the Annual
Meeting in 2000. Any new director elected to fill a vacancy on the Board will
serve for the remainder of the full term of the class in which the vacancy
occurred, rather than until the next election of directors. For information
regarding the nominees and the class of directors in which they will serve,
please refer to the section of this Proxy Statement entitled "Election of
Directors."
The classification of directors will have the effect of making it more
difficult to effect an immediate change in, and otherwise to affect, through the
voting power of the Voting Stock, the composition of the Board of Directors. It
is common for various individuals and entities to acquire significant minority
positions in certain corporations with the intent of obtaining actual control of
the corporations by electing their own slate of directors, or to achieve some
other goal, such as the repurchase of their shares at a premium, by threatening
to obtain such control. These insurgents often can elect a majority or more of a
corporation's board of directors through a proxy contest or otherwise, even
though they do not own a majority of the corporation's outstanding shares
entitled to vote.
Under the Board classification provisions of the Procedural Amendments, at
least two annual shareholder meetings, instead of one, will be required to
effect a change in the majority control of the Board. Although the Company has
experienced no problems with respect to the continuity and stability of the
Board, the Board believes that the longer time required to elect a majority of a
classified board will help to ensure continuity and stability in the future,
because the majority of directors at any given time will have prior experience
as members of the Board. The longer time required to elect a majority of a
classified board also may deter certain mergers, tender offers or other future
takeover attempts which some or a majority of holders of the Voting Stock may
deem to be in their best interests. The proposed Board classification provisions
will apply to every election of directors, whether or not a change in the Board
would be beneficial to the Company and its shareholders and whether or not a
majority of the Company's shareholders believe that such a change would be
desirable. Finally, since neither Texas law nor the Company's Articles of
Incorporation or Bylaws allows cumulative voting, a purchaser of a block of
Company stock constituting less than a majority of the voting power of the
Voting Stock will have no assurance of proportional representation on the
Company's Board of Directors.
Vote Required. The Company's Bylaws requires the affirmative vote of
four-fifths ( 4/5) of the outstanding shares of Common Stock to adopt the
Amendment described above.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE FOREGOING AMENDMENT.
- -- PROPOSALS REGARDING THE SHAREHOLDERS
The Procedural Amendments contained in these two proposals relate to
shareholder action by calling special meetings and proposing nominees at
shareholder meetings.
Limitations on Calling Special Meetings. The Company's Bylaws currently
provide that special meetings of the shareholders may be called by holders of at
least ten percent (10%) of the outstanding stock entitled to vote at such
meeting, by the Board of Directors, by the Chairman of the Board or the
President. The Procedural Amendments permit special meetings to be called only
by the Chairman of the Board, the President, the Board of Directors or
shareholders owning not less than a majority of the voting power of the Voting
Stock that would be entitled to vote at such meeting.
15
<PAGE> 32
The provisions of the Procedural Amendments that deny minority shareholders
the power to call special meetings are intended to prevent a minority
shareholder from calling a special meeting that is not deemed to be important by
a majority of the shareholders or the Board. Minority shareholders may, however,
submit proposals at duly convened shareholder meetings.
Proposing Shareholder Nominees. The Procedural Amendments provide that a
shareholder may nominate a person for election to the Board of Directors at a
meeting of the Company's shareholders only if written notice is delivered to the
Company by such shareholder at least 60 days in advance of the meeting, or
within ten days after the date of notice or public disclosure if such notice is
given less than 70 days before the meeting. This notice must contain certain
information, including the name and address of the nominating shareholder, the
nominee's name, address and principal occupation, and any other information
relating to the nominee that the Company reasonably requires or is required to
be disclosed in a proxy statement or Schedule 13D filing. No person will be
eligible for election as a director of the Company unless nominated in
accordance with the Procedural Amendments.
The purpose of this Procedural Amendment is to avoid the possibility of
surprise nominations from the floor that would preclude management from
investigating, and the shareholders from adequately assessing the competence,
experience, integrity and other relevant factors concerning the qualifications
of the proposed nominee. In the absence of such provisions, nominations could be
made from the floor without information concerning nominees being furnished in
advance to shareholders. The federal securities laws do not currently require
such advance information if proxies are not solicited or if proxies are being
solicited from fewer than ten persons. Management believes that the Company's
shareholders are entitled to know certain basic information about the merit of
matters presented to shareholders for a vote and the qualifications of persons
nominated for election as directors, and that these Procedural Amendments
substantially assist management in assuring that such information is made
available to the shareholders in a timely fashion.
Vote Required. The affirmative vote of two-thirds ( 2/3) of the outstanding
shares of Common Stock is required to adopt each of the foregoing Amendments.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE FOREGOING AMENDMENTS.
PROPOSAL REGARDING THE FAIR PRICE AMENDMENT
TO THE ARTICLES OF INCORPORATION
In general, the Fair Price Amendment would require the approval of the
holders of at least eighty percent (80%) of the voting power of the Voting
Stock, voting together as a single class, as a condition for any "Business
Combination" (defined below) proposed by or on behalf of any "Interested
Shareholder" (defined below), unless (i) the transaction is approved by at least
the majority of the members of the Board who are unaffiliated with the
Interested Shareholder and certain of their successors ("Disinterested
Directors"); or (ii) the transaction satisfies certain minimum price, form of
consideration and other requirements.
The term "Business Combination" means (i) any merger or consolidation of
the Company involving the Interested Shareholder, (ii) certain transactions
involving assets, cash flow, earning power, securities or commitments of the
Company or the Interested Shareholder, which meet certain threshold amounts,
(iii) the adoption of any plan of liquidation or dissolution of the Company,
(iv) any issuance or reclassification of securities of the Company,
recapitalization, merger or other transaction having the effect of increasing
the proportionate share of ownership of the Interested Shareholder and (v) any
agreement, arrangement or other understanding providing for one or more of the
actions listed above. An "Interested Shareholder" is any person (other than the
Company, a Company subsidiary, or a Company benefit plan or its fiduciary and
certain of their successors) who is the beneficial owner of more than 15% of the
voting power of Voting Stock. A person is deemed to be the "beneficial owner" of
those shares of capital stock that the person and any of its affiliates or
associates directly or indirectly own or have the right to acquire or vote, or
have an agreement arrangement or understanding to acquire, hold, vote or dispose
of.
16
<PAGE> 33
Although, as discussed below, the Fair Price Amendment is designed to help
ensure fair treatment of each shareholder in comparison to every other
shareholder in the event of a takeover of the Company, it is not the purpose of
the Fair Price Amendment to ensure that shareholders will receive a premium
price for their shares in a takeover. Accordingly, the Board believes that the
adoption of the Fair Price Amendment would not preclude the Board's opposition
to any future takeover proposal that it believes not to be in the best interest
of the Company and its shareholders, whether or not such a proposal satisfies
the minimum price, form of consideration and other requirements of the Fair
Price Amendment.
The Fair Price Amendment is permitted under Texas corporation law and is
consistent with the rules of the New York Stock Exchange, upon which the
Company's Common Stock is listed and traded.
Adoption of the Fair Price Amendment may have a significant effect on the
ability of shareholders of the Company to benefit from certain transactions that
are opposed by the incumbent Board of Directors. Accordingly, shareholders are
urged to read carefully the following sections of this Proxy Statement and
Article Thirteen of Appendix A attached to this Proxy Statement, which presents
the full text of the Fair Price Amendment. The description of the Fair Price
Amendment is qualified in its entirety by reference to Appendix A.
Purposes and Effects of the Fair Price Amendment. It has become a
relatively common practice in corporate takeovers for a purchaser to pay or
threaten to pay cash to acquire a controlling equity interest in a company, by
tender offer or other transaction, and then to acquire the remaining equity
interest in the company by paying the remaining shareholders a price for their
shares that is lower than the price the purchaser paid to acquire its original
interest in the company or by paying a different and possibly less desirable
form of consideration (such as securities of the purchaser instead of cash).
Generally, in a two-step acquisition involving a tender offer followed by a
business combination that is effected for a lower price or different form of
consideration, arbitrageurs and other professional investors, because of their
sophistication and expertise in the takeover area, may be better able to take
advantage of the more lucrative first-step tender offer than other shareholders.
The Fair Price Amendment is designed to prevent a purchaser from utilizing
two-tier pricing and similar inequitable tactics in the event of an attempt to
take over the Company. This would be accomplished by requiring that to complete
a combination that involves two or more steps which is not approved by a
majority of Disinterested Directors, the purchaser must obtain the affirmative
vote of at least 80% of the voting power of the Voting Stock prior to the
business combination or be prepared to meet the minimum price, form of
consideration and other requirements of the Fair Price Amendment. The Fair Price
Amendment, however, is not designed to prevent or discourage tender offers for
the Company. It does not limit the ability of a third party that owns or can
obtain the affirmative vote of at least 80% of the voting power of the Voting
Stock to effect a business combination involving the Company in which the equity
interest of the minority shareholders is eliminated. It also does not impede an
offer for shares representing at least 80% of the voting power of the Voting
Stock of the Company or an offer which the Board of Directors has approved in
the manner described in this section of the Proxy Statement. Except for the
restrictions on business combinations, the Fair Price Amendment will not prevent
a holder of a controlling interest of the Company's Common Stock from exercising
control over or increasing its interest in the Company. The Fair Price Amendment
is designed to help ensure that if the Company is taken over, each shareholder
will be treated fairly in comparison to every other shareholder.
Federal securities laws and regulations applicable to business combinations
govern the disclosure required to be made to shareholders to consummate such a
transaction, but do not ensure that the terms of the business combination (that
is, the type and amount of consideration that shareholders will receive for
their shares) will be fair to shareholders or that shareholders can effectively
prevent its consummation.
Under Texas law, most mergers and consolidations, the sale of all or
substantially all of the Company's assets, the reclassification of securities or
a plan for the dissolution of the Company must be approved by the vote of the
holders of two-thirds ( 2/3) of the outstanding shares entitled to vote on the
matter. Moreover, the statutory right of the shareholders of a company who elect
not to tender their shares of stock or to dissent in connection with certain
business combinations and to receive the "fair value" of their shares in cash
may
17
<PAGE> 34
involve significant expense, delay and uncertainty to dissenting shareholders.
Dissenting shareholders have no assurance that such "fair value" would be as
high as the minimum price determined pursuant to the Fair Price Amendment. In
the case of many business combinations, including reclassification or
recapitalization of the outstanding shares of any class of a company's stock,
the statutory right of dissent may not be available at all.
Texas has no statutes or regulations imposing restrictions on business
combinations with an interested shareholder, as do some other states. The Fair
Price Amendment is intended partially to fill gaps in the federal and Texas law
and to prevent certain of the potential inequities of business combinations that
involve two or more steps.
The Fair Price Amendment is designed to eliminate the pressure on
shareholders faced with the decision whether to accept an offer for the purchase
of their shares of stock, or to risk being relegated to the status of minority
shareholders in a controlled corporation or being forced to accept a lower price
for all of their shares of stock, without having the opportunity to make a
considered investment choice between remaining a shareholder of the Company or
disposing of their stock. If the tender offer is over-subscribed for this
reason, even shareholders who wish to tender their shares may be compelled to
accept the less valuable consideration for some or all of their shares. The Fair
Price Amendment also is designed to protect those shareholders who have not
tendered or otherwise sold their shares to a purchaser who is attempting to
acquire control by ensuring that at least the same price and form of
consideration are paid to such shareholders in a business combination as were
paid to shareholders in the initial step of the acquisition. In the absence of
the Fair Price Amendment, a successful purchaser who acquired control of the
Company could subsequently, by virtue of such control, force minority
shareholders to sell or exchange their shares at a price that would not reflect
any premium the purchaser may have paid in order to acquire its controlling
interest, but at a price that would instead effectively be set by the purchaser.
The price established by the purchaser may be lower than the price paid by the
purchaser in acquiring control or may be in a less desirable form of
consideration.
In many situations, the minimum price, form of consideration and other
requirements of the Fair Price Amendment would require that a purchaser pay
shareholders a higher price for their shares or structure the transaction
differently. Accordingly, the Board believes that to the extent a business
combination were involved as part of a plan to acquire control of the Company,
adoption of the Fair Price Amendment will increase the likelihood that a
purchaser would negotiate directly with the Company. The Board believes that it
is in a better position than the individual shareholders of the Company to
negotiate effectively on behalf of any shareholders because the Board is likely
to be in a better position than any individual shareholder to assess the
business and prospects of the Company. Accordingly, the Board also believes that
negotiations between the Company and the purchaser will increase the likelihood
that shareholders would receive a higher price for their shares from anyone
desiring to obtain control of the Company through a business combination or
otherwise.
Although not all acquisitions of the Company's stock are made with the
objective of acquiring control of the Company through a subsequent business
combination, in most cases a purchaser desires to have the option to consummate
such a business combination. Assuming that to be the case, the Fair Price
Amendment would tend to discourage purchasers whose objective is to seek control
of the Company at a relatively low price, because acquiring the remaining equity
interest would not be assured unless the minimum price, form of consideration
and other requirements were satisfied or a majority of the Disinterested
Directors approved the transaction. The Fair Price Amendment may also discourage
the accumulation of large blocks of the Company's stock, which the Board
believes could precipitate a change of control of the Company on terms
unfavorable to the Company's other shareholders.
Tender offers or other non-open market acquisitions of stock are usually
made at prices above the prevailing market price of a company's stock. In
addition, acquisitions of stock by persons attempting to acquire control through
market purchases may cause the market price of the stock to reach levels that
are higher than would otherwise be the case. The Fair Price Amendment may
discourage such purchases, particularly those representing less than 80% of the
voting power of the Voting Stock, and may thereby deprive holders of the
Company's Stock of an opportunity to sell their stock at a temporarily higher
market price. Because of the higher percentage requirements for shareholder
approval of any subsequent business
18
<PAGE> 35
combination and the possibility of having to pay a higher price to other
shareholders in such a business combination, it may become more costly for a
purchaser to acquire control of the Company. The Fair Price Amendment may
therefore decrease the likelihood that a tender offer will be made for less than
80% of the voting power of the Voting Stock and, as a result, may adversely
affect those shareholders who would desire to participate in such a tender
offer. A potential purchaser of stock seeking to obtain control may also be
discouraged from purchasing stock because a 80% shareholder vote would be
required to change or eliminate these provisions. It should be noted that the
provisions of the Fair Price Amendment would not necessarily discourage persons
who might be willing to seek control of the Company by acquiring 80% of the
voting power of the outstanding Voting Stock even though they have no intention
of acquiring the remaining 20%. However, these kinds of transactions are rare.
The provisions of the Fair Price Amendment may produce a series of other
effects on potential purchasers of the Company's securities. In some cases, the
Fair Price Amendment's minimum price provisions, while providing objective
pricing criteria, could be arbitrary and not indicative of value. In addition,
an Interested Shareholder may be unable, as a practical matter, to comply with
all of the additional requirements of the Fair Price Amendment. Under these
circumstances, unless a potential purchaser were willing to purchase 80% of the
voting power of the Voting Stock as the first step in a business combination, it
would be forced either to negotiate with the Board and offer terms acceptable to
it or to abandon the proposed business combination.
Another effect of adoption of the Fair Price Amendment would be to give
veto power to the holders of an aggregate of 20.1% of the voting power of the
Voting Stock with respect to a business combination which is opposed by the
Board, but which a majority of shareholders may believe to be desirable and
beneficial. In addition, since only the Disinterested Directors will have the
authority to reduce to a simple majority or eliminate the 80% shareholder vote
required for business combinations, the Fair Price Amendment may tend to
insulate current management against the possibility of removal in the event of a
takeover bid.
Shareholder Vote Required for Certain Business Combinations. Under Texas
law, mergers, consolidations, sales of all or substantially all of the assets of
the Company, the adoption of a plan of dissolution of the Company, and
reclassification of securities and recapitalizations of the Company involving
amendments to the Articles of Incorporation must be approved by the vote of the
holders of two-thirds ( 2/3) of the stock entitled to vote. Certain other
transactions, such as sales of less than substantially all of the assets of the
Company, certain mergers involving a wholly owned subsidiary of the Company, and
recapitalizations not involving any amendments to the Articles of Incorporation
do not require shareholder approval.
The Fair Price Amendment would require the approval of the holders of 80%
of the voting power of the Voting Stock, voting together as a single class, as a
condition to business combinations, except in cases in which either (i) certain
price, form of consideration and other requirements are satisfied or (ii) there
is at least one Disinterested Director and the transaction or category of
transactions is recommended to the shareholders by a majority of the
Disinterested Directors. If either of such alternatives were applicable and were
satisfied with respect to a particular business combination, the normal
shareholder approval requirements of Texas law would apply and, accordingly, a
vote of the holders of two-thirds ( 2/3) of the stock entitled to vote would be
required or, for certain transactions, as noted above, no shareholder vote would
be necessary. Thus, depending upon the circumstances, the Fair Price Amendment
would require a 80% shareholder vote for a business combination in cases in
which either two-thirds ( 2/3) vote or no vote currently would be required under
Texas law and under the Articles of Incorporation.
If any shares of Preferred Stock were issued in the future (assuming the
shareholders approved the Preferred Stock Amendment discussed below), the terms
of such Preferred Stock might require the approval of a business combination by
its holders, voting as a separate class. That requirement would be in addition
to, and would not be affected by, the Fair Price Amendment.
Even if an Interested Shareholder could assure itself of an 80% affirmative
shareholder vote in favor of a business combination (so that neither the
approval of the business combination by a majority of the Disinterested
Directors nor the satisfaction of the minimum price, form of consideration and
other requirements would be necessary to effect the business combination), under
Texas law such business combination may nevertheless require approval by the
Board of Directors of the Company prior to its
19
<PAGE> 36
submission to a shareholder vote. This would be the case, for example, with
respect to a merger or consolidation involving the Company. In that case, the
Interested Shareholder could not effect the business combination, regardless of
its ability to assure a 80% shareholder vote, without Board action. As discussed
under "Proposal regarding the Board of Directors," if the Amendment to the
Articles of Incorporation described under that caption is adopted, the
Interested Shareholder could not be assured of gaining control of the Board
until at least two annual shareholder meetings had been held.
Exceptions to Higher Vote Requirement. In the case of a business
combination that involved the receipt of cash or other consideration by the
Company's shareholders, the 80% affirmative shareholder vote requirement would
not apply if either (1) the business combination were approved by a majority of
the Disinterested Directors, or (2) all of the requirements described in
paragraphs (a), (b) and (c) below were satisfied.
If the business combination did not involve the receipt of consideration by
the Company's shareholders (which would be the case if, for example, the
business combination took the form of a sale of assets or an original issuance
of the Company's securities to an Interested Shareholder), only approval by a
majority of any Disinterested Directors would avoid the requirement for such 80%
shareholder vote.
If there were no Disinterested Directors, the business combination would
require the 80% affirmative shareholder vote. On the other hand, approval of a
majority of the Disinterested Directors would, in every case, avoid both the
need for such 80% shareholder vote and the need to satisfy all of the minimum
price, form of consideration and other requirements described below.
(a) Minimum Price Requirements. The aggregate of (1) the cash and (2) the
Fair Market Value (as defined below), as of the date of consummation of the
business combination (the "Consummation Date"), of any consideration other than
cash to be received per share by a holder of Common Stock in the business
combination would have to be at least equal to the higher of (i) the highest per
share price paid by the Interested Shareholder in acquiring any share of Common
Stock during the two years immediately prior to the date of the first public
announcement of the proposed business combination (the "Announcement Date") or
in the transaction in which it became an Interested Shareholder, whichever is
higher, and (ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date (as defined below), whichever is
higher.
"Fair Market Value" is (1) in the case of cash, the amount of the cash, (2)
in the case of stock, the highest closing sale price with respect to such stock
during the 30 day period preceding the date in question, or fair market value,
and (3) in the case of property other that cash or stock, the fair market value
of such property on the date in question as determined by a majority of the
Disinterested Directors. The "Determination Date" is the date, with respect to
each Interested Shareholder, on which the Interested Shareholder became an
Interested Shareholder.
The higher of (i) or (ii) in the first paragraph of this sub-section (a)
above would have to be paid in respect of all outstanding shares of Common Stock
whether or not the Interested Shareholder had previously acquired any shares of
Common Stock. If the Interested Shareholder did not purchase any shares of
Common Stock during the two-year period prior to the Announcement Date or in the
transaction on the Determination Date in which it became an Interested
Shareholder (for instance, if it became an Interested Shareholder by purchasing
shares of any then-outstanding series of voting Preferred Stock), the minimum
price would be as determined under (ii) above.
Because the market price of the Company's Common Stock varies over time,
the provisions of the Fair Price Amendment and the determination of the minimum
price thereunder do not ensure any fixed minimum price. If the minimum price is
determined under clause (ii) of the first paragraph of sub-section (a) above,
for example, it would be equal to the highest price during such period and could
be substantially less than the historic highest price at which the Company's
Common Stock has been sold.
The following example illustrates the application of the minimum price
requirement to a business combination with an Interested Shareholder that (1)
acquired in the open market, during the two-year period prior to the
Announcement Date, 4.9% of the outstanding Common Stock of the Company (the only
presently
20
<PAGE> 37
outstanding class of capital stock), for which its highest per share price was
$10, (2) became an Interested Shareholder by purchasing 62% of the outstanding
Common Stock in a cash tender offer at $14 per share, which was equal to the
Fair Market Value on that date, and (3) then announced a proposed business
combination with the Company at a time when the Common Stock was trading at $16
per share.
(i) The highest price paid by the Interested Shareholder per share of
Common Stock during the two-year period prior to the Announcement Date ($10) or
in the transaction in which the Interested Shareholder became such ($14),
whichever is higher.
(ii) The higher of the Fair Market Value per share of Common Stock on the
Announcement Date ($16) and on the Determination Date ($14).
Accordingly, in the above example, to comply with the Fair Price Amendments
minimum price requirement the Interested Shareholder would be required to pay at
least $16 per share (the higher of the two alternatives above).
If the transaction does not involve the receipt of any cash or other
property by any of the Company's shareholders, such as a sale of assets or an
issuance of the Company's securities to an Interested Shareholder, then the
price criteria discussed above would not apply and the 80% shareholder vote
would be required, unless the transaction were approved by a majority of the
Disinterested Directors.
If any class or series of capital stock, other than Common Stock, is
outstanding on the Consummation Date, then the payments to holders of shares of
such class or series of capital stock would have to be at least equal to the
higher of (1) the highest price per share as determined with respect to such
class or series of capital stock in the same manner as described above with
respect to Common Stock, and (2) the highest preferential amount per share, if
any, to which the holders of such class or series of capital stock would be
entitled in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company. The minimum price requirement would have to be met
with respect to each class or series of outstanding capital stock whether or not
the Interested Shareholder owned shares of that class or series prior to the
business combination.
Under the minimum price requirements, the Fair Market Value of non-cash
consideration to be received by holders of shares of any class of capital stock
in a business combination is to be determined as of the Consummation Date. Where
the definitive terms of the non-cash consideration were established in advance
of the Consummation Date, intervening adverse developments, either in the
economy or the market generally or in the financial condition or business of the
Interested Shareholder, could result in a decline in the originally anticipated
Fair Market Value of such consideration, so that on the date scheduled for its
consummation the business combination (which had theretofore been considered as
not requiring the 80% shareholder vote or approval by a majority of any
Disinterested Directors) could not be consummated because it failed to meet the
minimum price criteria. An Interested Shareholder could avoid such a situation,
however, by establishing, in advance, terms for the business combination whereby
the non-cash consideration was to be determined by reference to its Fair Market
Value on the Consummation Date. Such an approach would ensure that the
Interested Shareholder, rather than the other shareholders of the Company, would
bear the risk of a decline in the market value of the offered consideration
prior to the consummation of the business combination.
(b) Form of Consideration Requirement. The consideration to be received by
holders of a particular class or series of capital stock in the business
combination is required to be either cash or the same type of consideration used
by the Interested Shareholder in acquiring the largest number of shares of such
class or series of capital stock.
(c) Other Requirements. In order to avoid the requirement of the 80%
affirmative shareholder vote or approval by a majority of the Disinterested
Directors, an Interested Shareholder would have to comply with all of the
following additional requirements.
The first additional requirement would be that the Company, after the
Determination Date and prior to the Consummation Date, had (1) not failed to
declare or pay full regular dividends on any outstanding capital stock, other
than Common Stock, (2) not reduced the amount or changed the frequency of
payment of any
21
<PAGE> 38
dividends regularly paid on Common Stock (except as necessary to reflect any
stock split, stock dividend, subdivision or reclassification of the Common
Stock), and (3) increased the amount of any dividends regularly paid on the
Common Stock as necessary to reflect any reverse stock split or reclassification
of the Common Stock or other transaction that has the effect of reducing the
number of outstanding shares of Common Stock, unless any failure or reduction
was approved by a majority of the Disinterested Directors. This provision is
designed to prevent an Interested Shareholder from attempting to depress the
market price of the capital stock prior to proposing a business combination by
reducing dividends on the capital stock, and thereby reducing the consideration
required to be paid pursuant to the minimum price requirements of the Fair Price
Amendment.
The second additional requirement would be that, after the Determination
Date and prior to the Consummation Date, the Interested Shareholder had not
acquired any additional shares of the capital stock, directly from the Company
or otherwise, in any transaction subsequent to the transaction pursuant to which
it became an Interested Shareholder (for the purpose of the Fair Price Amendment
all purchases made pursuant to a single tender or exchange offer would be
considered part of the same transaction). This provision is intended to prevent
an Interested Shareholder from purchasing additional shares of Voting Stock at
prices that are lower than those set by the minimum price requirements of the
Fair Price Amendment.
The third additional requirement would be that, after the Determination
Date and prior to the Consummation Date, the Interested Shareholder had not
received, whether in connection with the business combination or otherwise, the
benefit of any loans, other financial assistance or tax advantages provided by
the Company (other than proportionately as a shareholder). This provision is
intended to deter an Interested Shareholder from self-dealing or otherwise
taking advantage of its equity position in the Company by using the Company's
resources to finance the business combination or otherwise for its own purposes
in a manner not proportionately available to all shareholders.
The fourth additional requirement would be that, after the Determination
Date and prior to the Consummation Date, the Interested Shareholder shall not
have made any major change in the Company's business or capital structure
without the approval of a majority of the Disinterested Directors. This
provision is intended to deter an Interested Shareholder from making major
changes in the Company that may involve self-dealing by the Interested
Shareholder, or otherwise exerting influence that may not be to the benefit of
the other shareholders or consistent with the objectives of the Board.
The final additional requirement would be that a proxy or information
statement disclosing the terms and conditions of the business combination and
complying with the requirements of the proxy rules promulgated under the 1934
Act would have to be mailed to all shareholders of the Company at least 30 days
prior to the consummation of the business combination.
The Fair Price Amendment further provides that a majority of the
Disinterested Directors have the power and duty to determine all questions
arising under the Fair Price Amendment and that any such determination made in
good faith shall be binding and conclusive upon all parties. The Fair Price
Amendment also provides that nothing in it will be interpreted to relieve any
Interested Shareholder from any fiduciary obligation imposed by law, and the
fact that a business combination complies with certain provisions of the Fair
Price Amendment will not be interpreted to impose any fiduciary duty, obligation
or responsibility on the Board of Directors to approve the business combination
or recommend it to the shareholders. Further, this compliance does not limit in
any manner the Board of Directors with respect to evaluations of other actions
and responses taken with respect to such business combination.
Vote Required. The affirmative vote of two-thirds ( 2/3) of the outstanding
shares of Common Stock is required to adopt the Fair Price Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE FAIR PRICE AMENDMENT.
22
<PAGE> 39
PROPOSAL REGARDING AUTHORIZATION OF PREFERRED STOCK
The Board of Directors has adopted and submitted to the shareholders for
approval an amendment to the Company's Articles of Incorporation (the "Preferred
Stock Amendment") to authorize for issuance preferred stock ("Preferred Stock").
The Preferred Stock Amendment is contained in Article Four of the proposed
Amendments attached hereto as Appendix A.
The Articles of Incorporation currently authorizes the issuance of up to
80,000,000 shares of stock, without distinguishing between Common Stock and
Preferred Stock. The Company has issued 30,235,164 shares of Common Stock, of
which 24,229,969 were outstanding on February 24, 1997. If the Preferred Stock
Amendment is approved, the Articles of Incorporation will authorize an
additional 15,000,000 shares of Preferred Stock. The Preferred Stock Amendment
will not change the authorized number of shares of Common Stock which may be
issued, and this authorization will remain at 80,000,000. The existing Articles
of Incorporation provide that shareholders are not entitled to preemptive rights
and do not have any right to cumulate votes. The Articles of Incorporation
provides that holders of Common Stock do not have preemptive or cumulative
voting rights, but does not prohibit holders of Preferred Stock from having such
rights.
The Board of Directors believes that the Preferred Stock Amendment is in
the best interest of the Company and its shareholders. The Board believes that
it is advisable to have both Common Stock and Preferred Stock available in
connection with possible future transactions, such as financings, strategic
alliances, corporate mergers, acquisitions, possible funding of new product
programs or businesses and other uses not presently determinable, and as may be
deemed to be feasible and in the best interests of the Company. In addition, the
Board of Directors believes that it is desirable that the Company have the
flexibility to issue shares of both Common Stock and Preferred Stock without
further shareholder action, except as otherwise provided by law.
Whether or not the Preferred Stock Amendment is approved by the Company's
shareholders, unissued shares of Common Stock will continue to be available for
issuance, including by means of an unregistered private placement, without
further action of the shareholders, unless required by the Company's Articles of
Incorporation or Bylaws, applicable laws, or the policy of any stock exchange or
registered securities association on which the shares of stock of the Company
are listed, if any.
If the Preferred Stock Amendment is approved by the Company's shareholders,
then the Board of Directors of the Company will be entitled to approve the
creation and issuance of up to 15,000,000 shares of Preferred Stock in one or
more series, with such rights, designations, preferences, conversion rights,
exchange rights, cumulative, relative, participating, optional or other rights,
including voting rights, qualifications, limitations or restrictions thereof as
are determined by a corporation's board of directors with no further
authorization required of the shareholders. The issuance of shares of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders.
The Board of Directors does not currently intend to seek shareholder
approval prior to any issuance of Common Stock or Preferred Stock, unless
otherwise required by law or the regulations of the stock market where the
capital stock is traded.
The Board of Directors is required to make any determination to issue
shares of the Common Stock and shares of Preferred Stock based on its judgment
as to the best interests of the shareholders and the Company. Although the Board
of Directors has no present intention of doing so, it could issue shares of the
Preferred Stock that could, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest, or other means. For example, these shares
could be used to create voting or other impediments or to discourage persons
seeking to gain control of the Company. Such shares could be privately placed
with purchasers favorable to the Board of Directors in opposing the action. The
issuance of new shares also could be used to dilute the stock ownership of a
person or entity seeking to obtain control of the Company should the Board of
Directors consider the action of the entity or person not to be in the best
interests of the shareholders and the Company. In addition, the Board of
Directors could authorize holders of a series of Preferred Stock to vote either
separately as a class
23
<PAGE> 40
or with the holders of the Company's Common Stock, on any merger, sale, or
exchange of assets by the Company or any other extraordinary corporate
transaction.
The Company currently has no agreements or understandings with any third
party to effect any offering of Preferred Stock or to purchase any shares
offered in connection with an offer. No assurances are given that any offering
will in fact be effected. Therefore, the terms of any of the Preferred Stock
cannot be stated or estimated with respect to any or all of the securities
authorized.
Vote Required. The affirmative vote of two-thirds ( 2/3) of the outstanding
shares of Common Stock is required to adopt the Preferred Stock Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE PREFERRED STOCK AMENDMENT.
EXISTING DEFENSES
Articles of Incorporation and Bylaws. Neither the Company's Articles of
Incorporation nor its Bylaws presently contain any provisions that may have an
antitakeover effect.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. of Fort Worth, Texas served as independent public
accountants for the Company for fiscal 1996 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, 1997 and recommends to the shareholders that they ratify this
selection for the ensuing fiscal year ending December 31, 1997. 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 1997 FISCAL
YEAR.
24
<PAGE> 41
OTHER BUSINESS
Any proposal to be presented by a shareholder at the Company's 1998 Annual
Meeting of Shareholders must be presented to the Company by no later than
November 14, 1997.
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 14, 1997
25
<PAGE> 42
APPENDIX A
TEXT OF PROPOSED AMENDMENTS TO
THE ARTICLES OF INCORPORATION
OF
CASH AMERICA INTERNATIONAL, INC.
The following Amendments to the Articles of Incorporation are proposed for
adoption by the shareholders of the Corporation on April 22, 1997:
I. The Amendments alter or change Article Four of the original Articles of
Incorporation, and Article Four is hereby amended so as to read as follows:
"ARTICLE FOUR
CAPITAL STOCK
The total number of authorized shares of capital stock of the
Corporation shall be 90,000,000 which shall consist of 15,000,000 shares of
Preferred Stock of the par value of $0.10 per share and 80,000,000 shares
of Common Stock of the par value of $0.10 per share.
The following is a statement fixing certain of the designations and
powers, voting powers, preferences, and relative, participating, optional
or other rights of the Preferred Stock and the Common Stock of the
Corporation, and the qualifications, limitations or restrictions thereof,
and the authority with respect thereto expressly granted to the Board of
Directors of the Corporation to fix any such provisions not fixed hereby:
A. Preferred Stock
The Board of Directors is hereby expressly vested with the authority
to adopt a resolution or resolutions providing for the issue of authorized
but unissued shares of Preferred Stock. These shares of Preferred Stock may
be issued from time to time in one or more series and in such amounts as
may be determined by the Board of Directors in such resolution or
resolutions. The powers, voting powers, designations, preferences, and
relative, participating, optional or other rights, if any, of each series
of Preferred Stock and the qualifications, limitations or restrictions, if
any, of such preferences and/or rights (collectively the "Series Terms"),
shall be such as are stated and expressed in a resolution or resolutions
providing for the creation or revision of such Series Terms (a "Preferred
Stock Series Resolution") adopted by the Board of Directors or a committee
of the Board of Directors to which such responsibility is specifically and
lawfully delegated. The powers of the Board with respect to the Series
Terms of a particular series (any of which powers, other than voting
powers, may by resolution of the Board of Directors be specifically
delegated to one or more of its committees, except as prohibited by law)
shall include, but not be limited to, determination of the following:
(1) The number of shares constituting that series and the
distinctive designation of that series, or any increase or decrease (but
not below the number of shares thereof then outstanding) in such number;
(2) The dividend rate on the shares of that series, whether such
dividends, if any, shall be cumulative, and, if so, the date or dates
from which dividends payable on such shares shall accumulate, and the
relative rights of priority, if any, of payment of dividends on shares
of that series;
A-1
<PAGE> 43
(3) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights; provided, however, that if resolutions authorize the holders of
Preferred Stock to elect directors upon certain events, those directors
elected by the holders of Preferred Stock shall be in addition to those
directors authorized from time to time pursuant to Article Seven of
these Articles of Incorporation.
(4) Whether that series shall have conversion privileges with
respect to shares of any other class or classes of stock or of any other
series of any class of stock, and, if so, the terms and conditions of
such conversion, including provision for adjustment of the conversion
rate upon occurrence of such events as the Board of Directors shall
determine;
(5) Whether the shares of that series will be exchangeable, subject
to Article 2.38 of the Texas Business Corporation Act, as amended from
time to time, at the option of the Corporation, the shareholders or
another person or upon the occurrence of a designated event, for shares,
obligations, indebtedness, evidence of ownership, rights to purchase
securities or other securities of the Corporation or one or more other
domestic or foreign corporations or other entities or for other property
or any combination of the foregoing;
(6) Whether the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including their
relative rights of priority, if any, of redemption, the date or dates
upon or after which they shall be redeemable, provisions regarding
redemption notices, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;
(7) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(8) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series;
(9) The conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith, or
prior thereto, with respect to dividends or distribution of assets upon
liquidation;
(10) The conditions or restrictions with respect to the issuance
of, payment of dividends upon, or the making of other distributions to,
or the acquisition or redemption of, shares ranking junior to the
Preferred Stock or to any series thereof with respect to dividends or
distribution of assets upon liquidation; and
(11) Any other designations, powers, preferences, and rights,
including, without limitation, any qualifications, limitations, or
restrictions thereof.
Any of the Series Terms, including voting rights, of any series may be
made dependent upon facts ascertainable outside the Articles of
Incorporation and the Preferred Stock Series Resolution, provided that the
manner in which such facts shall operate upon such Series Terms is clearly
and expressly set forth in the Articles of Incorporation or in the
Preferred Stock Series Resolution.
Subject to the provisions of this Article Four, shares of one or more
series of Preferred Stock may be authorized or issued from time to time as
shall be determined by and for such consideration as shall be fixed by the
Board of Directors or a designated committee thereof, in an aggregate
amount not exceeding the total number of shares of Preferred Stock
authorized by these Articles of Incorporation. Except in respect of series
particulars fixed by the Board of Directors or its committee as permitted
hereby, all shares of Preferred Stock shall be of equal rank and shall be
identical. All shares of any one series of Preferred Stock so designated by
the Board of Directors shall be alike in every particular, except that
shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative.
A-2
<PAGE> 44
B. Common Stock
1. Distributions. Subject to the provisions of any Preferred Stock
Series Resolution, the Board of Directors may, in its discretion, out of
funds legally available for distribution and at such times and in such
manner as determined by the Board of Directors, declare and pay a
distribution on the Common Stock of the Corporation.
No distribution (other than a dividend in capital stock ranking on a
parity with the Common Stock or cash in lieu of fractional shares with
respect to such stock dividend) shall be declared or paid on any share or
shares of any class of stock or series thereof ranking on a parity with the
Common Stock in respect of payment of a distribution for any distribution
period unless there shall have been declared, for the same distribution
period, a like proportionate distribution on all shares of Common Stock
then outstanding.
2. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Corporation and payment or setting aside for payment of any preferential
amount due to the holders of any other class or series of stock, the
holders of the Common Stock shall be entitled to receive ratably any or all
assets remaining to be paid or distributed.
3. Voting Rights. Subject to any special voting rights set forth in
any Preferred Stock Series Resolution, the holders of the Common Stock of
the Corporation shall be entitled at all meetings of the shareholders to
one vote for each share of such stock held by them.
C. Prior, Parity or Junior Stock
Whenever reference is made in this Article Four to shares "ranking
prior to" another class of stock or "on a parity with" another class of
stock, such reference shall mean and include all other shares of the
Corporation in respect of which the rights of the holders thereof as to the
payment of distributions or as to distributions in the event of a voluntary
or involuntary liquidation, dissolution, or winding up of the affairs of
the Corporation are given preference over, or rank on an equality with, as
the case may be, the rights of the holders of such other class of stock.
Whenever reference is made to shares "ranking junior to" another class of
stock, such reference shall mean and include all shares of the Corporation
in respect of which the rights of the holders thereof as to the payment of
distributions and as to distributions in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation are junior or subordinate to the rights of the holders of such
class of stock.
Except as otherwise provided herein or in any Preferred Stock Series
Resolution, each series of Preferred Stock ranks on a parity with each
other and each ranks prior to the Common Stock. Common Stock ranks junior
to the Preferred Stock.
D. Liquidation
For the purposes of sub-section 2 of Section B of this Article Four
and for the purpose of the comparable sections of any Preferred Stock
Series Resolution, the merger or consolidation of the Corporation into or
with any other Corporation, or the merger of any other Corporation into it,
or the sale, lease, or conveyance of all or substantially all the assets,
property or business of the Corporation, shall not be deemed to be a
liquidation, dissolution, or winding up of the Corporation.
E. Reservation and Retirement of Shares
The Corporation shall at all times reserve and keep available, out of
its authorized but unissued shares of Common Stock or out of shares of
Common Stock held in its treasury, the full number of shares of Common
Stock into which all shares of any series of Preferred Stock having
conversion privileges from time to time outstanding are convertible.
Unless otherwise provided in a Preferred Stock Series Resolution with
respect to a particular series of Preferred Stock, all shares of Preferred
Stock redeemed or acquired (as a result of conversion or otherwise) shall
be retired and restored to the status of authorized but unissued shares.
A-3
<PAGE> 45
No holder of shares of stock of the Corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class,
or series thereof, of stock of the Corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures, or other
securities convertible into, exchangeable for or carrying any right to
purchase any shares of any class, or series thereof, of stock; but such
additional shares of stock and such warrants, options, bonds, debentures,
or other securities convertible into, exchangeable for or carrying any
right to purchase any shares of any class, or series thereof, of stock may
be issued or disposed of by the Board of Directors to such persons, and on
such terms and for such lawful considerations, as in its discretion it
shall deem advisable or as to which the Corporation shall have by binding
contract agreed.
Cumulative voting shall not be allowed in the election of directors or
for any other purpose."
II. The Amendments alter or change Article Seven of the original Articles
of Incorporation, and Article Seven is hereby amended so as to read as follows:
"ARTICLE SEVEN
BOARD OF DIRECTORS
A. Number. Except as otherwise fixed by the provisions of a resolution
adopted pursuant to Article Four A.(3) of these Articles of Incorporation
relating to the rights of the holders of the Preferred Stock to elect
additional directors under specified circumstances, the number of directors
which shall constitute the whole Board of Directors shall be as provided in
the Corporation's Bylaws.
B. Staggered Board. The directors of the Corporation shall be divided
into three classes, designated Class I, Class II and Class III (which at
all times shall be as nearly equal in number as possible), with the term of
office of Class I directors to expire at the 1998 Annual Meeting of
Shareholders, the term of office of Class II directors to expire at the
1999 Annual Meeting of Shareholders, and the term of office of Class III
directors to expire at the 2000 Annual Meeting of Shareholders, upon
election and qualification of their successors. At each annual meeting of
shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
shareholders after their election, upon election and qualification of their
successors.
C. Director Nominations. Nominations, other than those made by, or at
the direction of, a majority of the Board of Directors of the Corporation
or a committee thereof shall be made only if timely written notice of such
nomination or nominations has been given to the Secretary of the
Corporation. To be timely, such notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less
than 60 days prior to the meeting, irrespective of any deferrals,
postponements or adjournments thereof to a later meeting date; provided,
however, that in the event that less than 70 days notice or prior public
disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than
the close of business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure of
the date of the meeting was made, whichever first occurs. Each such notice
to the Secretary shall set forth:
(i) the name, business address and residence address of the
shareholder who intends to make the nomination;
(ii) a representation that the shareholder is a holder of record of
shares of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
(iii) the name, age, business and residence addresses, and
principal occupation or employment of each nominee;
A-4
<PAGE> 46
(iv) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the shareholder;
(v) any other information relating to each nominee proposed by such
shareholder that is or would be required to be included in a proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934
(the "1934 Act");
(vi) any other information that is or would be required to be
disclosed in a Schedule 13D promulgated under the 1934 Act, regardless
of whether such person would otherwise be required to file a Schedule
13D; and
(vii) the consent of each nominee to serve as a director of the
Corporation if so elected.
In addition, a person providing notice under Section C of this Article
Seven shall promptly provide such other supplemental information as the
Corporation otherwise reasonably requests.
A majority of the Board of Directors may reject any nomination by a
shareholder that is not timely made or otherwise not made in accordance
with the terms of Section C of this Article Seven. If a majority of the
Board of Directors reasonably determines that the information provided in a
shareholder's notice does not satisfy the informational requirements of
Section C of this Article Seven in any material respect, the Secretary of
the Corporation shall promptly notify such shareholder of the deficiency in
writing. The shareholder shall have an opportunity to cure the deficiency
by providing additional information to the Secretary within such period of
time as a majority of the Board of Directors shall reasonably determine,
which period shall not exceed 10 days from the date such deficiency notice
is given to the shareholder. If the deficiency is not cured within such
period, or if a majority of the Board of Directors reasonably determines
that the additional information provided by the shareholder, together with
the information previously provided, does not satisfy the requirements of
this paragraph in any material respect, then a majority of the Board of
Directors may reject such shareholder's nomination. The Secretary of the
Corporation shall notify a shareholder in writing whether his or her
nomination has been made in accordance with the time and information
requirements of Section C of this Article Seven.
The chair of a meeting of shareholders may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedure prescribed by Section C of this Article
Seven, and if the chair should so determine, he or she shall so declare to
the meeting and such nomination shall be disregarded.
D. Ballots, Cumulative Voting. Election of directors need not be by
written ballot unless the Bylaws shall so provide. No holders of shares of
capital stock of the Corporation shall have any rights to cumulate votes in
the election of directors.
E. Preferred Stock, Directors. Notwithstanding the foregoing, whenever
the holders of Preferred Stock shall have the right to elect directors at
an annual or special meeting of Shareholders, the election, term of office,
filling of vacancies, and other features of such directorships shall be
governed by the terms of any resolution adopted pursuant to Article Four of
these Articles of Incorporation, and such Directors so elected shall not be
divided into classes pursuant to this Article Seven, unless expressly
provided by such terms."
A-5
<PAGE> 47
III. The Amendments add Article Twelve to the Articles of Incorporation,
and such new Article Twelve shall read as follows:
"ARTICLE TWELVE
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of shareholders of the Corporation may be called
only by the Chairman of the Board of Directors, if there is one, by the
President, by the Board of Directors or by holders of not less than a
majority of the voting power of the Voting Stock (as defined in Article
Thirteen of these Articles of Incorporation) that would be entitled to
vote at such meeting."
IV. The Amendments add Article Thirteen to the Articles of Incorporation,
and such new Article Thirteen shall read as follows:
"ARTICLE THIRTEEN
FAIR PRICE
A. Special Vote Required For Certain Business Combinations. In
addition to any affirmative vote required by law or these Articles of
Incorporation or the Bylaws of the Corporation and except as otherwise
expressly provided in Section B. of this Article Thirteen, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of
any Interested Shareholder (as hereinafter defined) or any Affiliate or
Associate (as hereinafter defined) of any Interested Shareholder or any
person who after such Business Combination would be an Affiliate or
Associate of such Interested Shareholder shall require the affirmative vote
of the holders of not less than 80% of the voting power of the Voting Stock
(as hereinafter defined), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage or separate class vote may be
specified, by law, by any other provision of these Articles of
Incorporation or the Bylaws of the Corporation, by any agreement with any
national securities exchange or otherwise.
B. When Special Vote Not Required. The provisions of Section A of this
Article Thirteen shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such
affirmative vote, if any, as is required by law, by any other provision of
these Articles of Incorporation or the Bylaws of the Corporation, by any
agreement with any national securities exchange or otherwise if, in the
case of a Business Combination involving the receipt of consideration by
the holders of the Corporation's outstanding Capital Stock (as hereinafter
defined), the condition specified in paragraph (i) below is met or all of
the conditions specified in paragraph (ii) below are met or if, in the case
of a Business Combination not involving the receipt of consideration by the
holders of the Corporation's outstanding Capital Stock, the condition
specified in paragraph (i) below is met:
(i) Approval by Disinterested Directors. The Business Combination
(either specifically or as a transaction which is within an approved
category of transactions) shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined), it being understood
that this condition shall not be capable of satisfaction unless there is
at least one Disinterested Director.
(ii) Minimum Price, Form of Consideration and Other Requirements.
All of the following conditions shall have been met:
(A) Minimum Price Requirements. With respect to every class or
series of outstanding Capital Stock of the Corporation, whether or not
the Interested Shareholder has previously acquired beneficial ownership
of any shares of such class or series of Capital Stock:
(1) The aggregate amount of cash plus the Fair Market
Value (as hereinafter defined), as of the date of the consummation of
the Business Combination, of consideration other
A-6
<PAGE> 48
than cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the higher of the
amounts determined pursuant to clauses (aa) and (bb) below:
(aa) the highest per-share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
by or on behalf of the Interested Shareholder for any share of Common
Stock in connection with the acquisition by the Interested Shareholder
of beneficial ownership of shares of Common Stock (x) within the
two-year period immediately prior to the Announcement Date (as
hereinafter defined) or (y) in the transaction or series of related
transactions in which it became an Interested Shareholder, whichever is
higher, in either case as adjusted for any subsequent stock split stock
dividend, subdivision or reclassification with respect to Common Stock;
and
(bb) the Fair Market Value per share of Common Stock
(x) on the Announcement Date or (y) on the Determination Date (as
hereinafter defined), whichever is higher, as adjusted for any
subsequent stock split, stock dividend, subdivision or reclassification
with respect to Common Stock.
(2) The aggregate amount of cash plus the Fair Market
Value, as of the date of the consummation of the Business Combination,
of consideration other than cash to be received per share by holders of
shares of any class or series of outstanding Capital Stock, other than
Common, shall be at least equal to the highest of the amounts determined
pursuant to clauses (aa), (bb) and (cc) below:
(aa) the highest per-share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
by or on behalf of the Interested Shareholder for any share of such
class or series of Capital Stock in connection with the acquisition by
the Interested Shareholder of beneficial ownership of shares of such
class or series of Capital Stock (x) within the two-year period
immediately prior to the Announcement Date or (y) in the transaction or
series of related transactions in which it became an Interested
Shareholder, whichever is bigger, in either case as adjusted for any
subsequent stock split, stock dividend, subdivision or reclassification
with respect to such class or series of Capital Stock;
(bb) the Fair Market Value per share of such class
or series of Capital Stock (x) on the Announcement Date or (y) on the
Determination Date, whichever is higher, as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock; and
(cc) the highest preferential amount per share, if
any, to which the holders of shares of such class or series of Capital
Stock would be entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation
regardless of whether the Business Combination to be consummated
constitutes such an event.
(B) Form of Consideration and Other Requirements.
(1) The consideration to be received by holders of a
particular class or series of outstanding Capital Stock shall be in cash
or in the same form as previously has been paid by or on behalf of the
Interested Shareholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or series of
Capital Stock. If the consideration so paid for shares of any class or
series of Capital Stock varies as to form, the form of consideration of
such class or series of Capital Stock shall be in cash or the form paid
by or on behalf of the Interested Shareholder in connection with its
direct or indirect acquisition of beneficial ownership of the largest
number of shares of such class or series of Capital Stock.
A-7
<PAGE> 49
(2) After the Determination Date and prior to the
consummation of such Business Combination:
(aa) there shall have been no failure to declare and
pay at the regular date therefor any full regular dividends (whether or
not cumulative) payable in accordance with the terms of any outstanding
Capital Stock, other than the Common Stock, except as approved by a
majority of the Disinterested Directors;
(bb) there shall have been no reduction in the
amount, or change in the frequency of payment of any dividends regularly
paid on the Common Stock (except as necessary to reflect any stock
split, stock dividend, subdivision or reclassification of the Common
Stock), except as approved by a majority of the Disinterested Directors;
and
(cc) there shall have been an increase in the amount
of all dividends regularly paid on the Common Stock as necessary to
reflect any reverse stock split or reclassification of the Common Stock,
or any split, recapitalization, reorganization or any similar
transaction that has the effect of reducing the number of outstanding
shares of Common Stock, unless the failure so to increase the amount of
such dividends is approved by a majority of the Disinterested Directors.
(3) After the Determination Date and prior to the
consummation of such Business Combination, such Interested Shareholder
shall not have become the beneficial owner of any additional shares of
Capital Stock except as part of or otherwise in connection with the
transaction or series of related transactions that resulted in such
Interested Shareholder becoming an Interested Shareholder.
(4) After the Determination Date and prior to the
consummation of such Business Combination, such Interested Shareholder
shall not have received the benefit, directly or indirectly (except
proportionately as a Shareholder of the Corporation), of any loans,
advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(5) After the Determination Date and prior to the
consummation of such Business Combination, such Interested Shareholder
shall not have made any major change in the Corporation's business or
capital structure without the approval of a majority of the
Disinterested Directors.
(6) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Act of 1934 Act (the "1934 Act") shall be mailed to all
shareholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to the 1934
Act). Such proxy or information statement shall contain, in a prominent
place, any statement as to the advisability (or inadvisability) of the
Business Combination that the Disinterested Directors, or any of them,
may choose to make and, if deemed advisable by a majority of the
Disinterested Directors, the opinion of an investment banking firm
selected by a majority of the Disinterested Directors as to the fairness
(or not) of the terms of the Business Combination from a financial point
of view to the holders of the outstanding shares of Capital Stock other
than the Interested Shareholder and its Affiliates or Associates, such
investment banking firm to be paid a reasonable fee for its services by
the Corporation.
C. Certain Definitions. The following definitions shall apply with
respect to this Article Thirteen:
(i) The term "Business Combination" shall mean:
(A) any merger or consolidation of the Corporation or any
subsidiary (as hereinafter defined) with (1) any Interested Shareholder
or (2) any other company (whether or not itself an Interested
Shareholder) that is or after such merger or consolidation would be an
Affiliate or Associate of an Interested Shareholder; or
A-8
<PAGE> 50
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, or any security arrangement investment, loan,
advance, guarantee, agreement to purchase, agreement to pay, extension
of credit, joint venture participation or other arrangement, in one
transaction of in a series of transactions, with or for the benefit of
any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder involving any assets, cash flow, earning power,
securities or commitments of the Corporation, any subsidiary, any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder that, together with all other such arrangements, has an
aggregate Fair Market Value or involves aggregate commitments equal to
10% or more of the assets, cash flow or earning power (in the case of
transactions involving assets or commitments other than capital stock)
or 10% of the shareholders' equity (in the case of transactions in
capital stock) of the entity in question (the "Substantial Part"), as
reflected in the most recent fiscal year-end consolidated balance sheet
of such entity existing at the time the shareholders of the Corporation
would be required to approve or authorize the Business Combination
involving the assets, cash flow, earning power, securities or
commitments constituting any Substantial Part; or
(C) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation; or
(D) any issuance or reclassification of securities (including
any stock dividend, split or reverse split or any other distribution of
securities in respect of stock), any recapitalization of the
Corporation, any merger or consolidation of the Corporation with any of
its subsidiaries or any other transaction (whether or not with or
otherwise involving an Interested Shareholder) that has the effect,
directly or indirectly, of increasing the proportional share of any
class or series of Capital Stock, or any securities convertible into or
rights, options or warrants to acquire Capital Stock, or equity
securities of any subsidiary, that is beneficially owned by any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
(E) any agreement, arrangement or other understanding
providing for any one or more of the actions specified in the foregoing
clauses (A) to (D).
(ii) The term "Capital Stock" shall mean the capital stock of the
Corporation authorized to be issued from time to time under Article Four
of these Articles of Incorporation; and the term "Voting Stock" shall
mean all issued and outstanding shares of Capital Stock entitled to vote
generally in the election of directors or that otherwise are entitled to
vote with such stock on the specific matter in question.
(iii) The term "person" shall mean any individual, firm, company or
other entity and shall include any group composed of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing
of Capital Stock.
(iv) The term "Interested Shareholder" shall mean any person (other
than the Corporation or any subsidiary and other than any
profit-sharing, employee stock ownership or other employee benefit plan
of the Corporation or any subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity) who or which:
(A) is the beneficial owner, directly or indirectly, of Voting
Stock representing 15% or more of the voting power of all Voting Stock;
or
(B) is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of Voting
Stock representing 15% or more of the voting power of all Voting Stock;
or
(C) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an
Interested Shareholder if such assignment or succession shall have
occurred in the course of a
A-9
<PAGE> 51
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
(v) A person shall be a "beneficial owner" of, shall "beneficially
own" and shall have "beneficial ownership" of any Capital Stock (1) that
such person or any of its Affiliates or Associates owns, directly or
indirectly; (2) that such person or any of its Affiliates or Associates
has, directly or indirectly, (x) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (y) the right to vote pursuant to any agreement
arrangement or understanding; or (3) which is beneficially owned,
directly or indirectly, by any other person with which such person or
any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing
of any shares of Capital Stock. For the purposes of determining whether
a person is an Interested Shareholder pursuant to paragraph (iv) above,
the number of shares of Capital Stock deemed to be outstanding shall
include shares deemed beneficially owned by such person through
application of this paragraph (v), but shall not include any other
shares of Capital Stock that may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(vi) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as
amended and in effect on the date that this Article Thirteen is approved
by the Board of Directors of the Corporation (the term "registrant" in
Rule 12b-2 meaning in this case the Corporation).
(vii) The term "subsidiary" means with reference to any person, any
corporation or other entity of which a majority of the voting power of
equity securities or majority of the equity interest is beneficially
owned, directly or indirectly, by such person, or otherwise controlled
by such person; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph (iv) above,
the term "subsidiary" shall mean only a corporation or other entity of
which a majority of each class of equity securities is beneficially
owned by the Corporation.
(viii) "Common Stock" shall mean the common stock, par value $0.10
per share, of the Corporation, except that "Common Stock" when used with
reference to any person other than the Corporation shall mean the
capital stock of such person with the greatest voting power, or the
equity securities or other equity interest having power to control or
direct the management of such person.
(ix) The term "Disinterested Director," with respect to any
particular Business Combination with, or proposed by or on behalf of,
any Interested Stockholder or any Affiliate or Associate of any
Interested Shareholder or any person who thereafter would be an
Affiliate or Associate of any Interested Shareholder, means (1) any
member of the Board of Directors of the corporation, while such person
is a member of the Board, who is not such Interested Shareholder, or an
Affiliate or Associate of such Interested Shareholder, or a
representative of such Interested Shareholder or of any such Affiliate
or Associate, and was a member of the Board prior to the Determination
Date, or (2) any person who subsequently becomes a member of the Board,
while such person is a member of the Board, who is not such Interested
Shareholder, or an Affiliate or Associate of such Interested
Shareholder, or a representative of such Interested Shareholder or of
any such Affiliate or Associate, if such person's nomination for
election or election to the Board is recommended or approved by a
majority of the Disinterested Directors then in office.
(x) The term "Fair Market Value" means (1) in the case of cash, the
amount of such cash; (2) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York
Stock Exchange-listed stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such exchange, on the principal United States
A-10
<PAGE> 52
securities exchange registered under the 1934 Act, on which such stock
is listed, or, if such stock is not listed on any such exchange, the
highest closing sale price with respect to a share of such stock during
the 30-day period immediately preceding the date in question as reported
by the National Association of Securities Dealers, Inc. Automated
Quotation System or any similar system then in use, or if no such sale
prices are available, the highest of the means between the last reported
bid and asked price with respect to a share of such stock on each day
during the 30-day period immediately preceding the date in question as
reported by the National Association of Securities Dealers, Inc.
Automated Quotation System, or if not so reported, as determined by a
member firm of the National Association of Securities Dealers, Inc.
selected by a majority of the Disinterested Directors, or if no such bid
and asked prices are available, the fair market value on the date in
question of a share of such stock as determined in good faith by a
majority of the Disinterested Directors; and (3) in the case of property
other than cash or stock, the fair market value of such property on the
date in question as determined in good faith by a majority of the
Disinterested Directors.
(xi) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (1) and (2) of Section B.(ii)(A) of this
Article Thirteen shall include the shares of Common Stock and/or the
shares of any other class or series of Capital Stock retained by the
holders of such shares.
(xii) The term "Announcement Date" means the date on which the
proposed Business Combination is first publicly announced, disclosed or
reported.
(xiii) The term "Determination Date" means with respect to any
Interested Shareholder, the date on which such Interested Shareholder
became an interested Shareholder.
(xiv) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of Texas are
obligated by law or executive order to close.
D. Powers of Directors. For the purpose of this Article Thirteen, a
majority of the Disinterested Directors (whether or not any vacancies then
exist on the Board) shall exercise the powers of the Disinterested
Directors hereunder, and shall have the power and duty to determine in good
faith, on the basis of information known to them after reasonable inquiry,
any questions arising under this Article Thirteen, including, without
limitation, (1) whether a person is an Interested Shareholder, (2) the
number of shares of Capital Stock beneficially owned by any person, (3)
whether a person is an Affiliate or Associate of another, (4) whether a
Business Combination is with, or proposed by or on behalf of, an Interested
Shareholder or an Affiliate or Associate of an Interested Shareholder or a
person who thereafter would be an Interested Shareholder or an Affiliate or
Associate of an Interested Shareholder, and (5) whether any transaction
specified in paragraph (i)(B) of Section C. of this Article Thirteen meets
the Substantial Part test set forth therein. Any such determination made in
good faith shall be binding and conclusive on all parties.
E. No Effect On Fiduciary Obligations.
(i) Nothing contained in this Article Thirteen shall be construed
to relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
(ii) The fact that any Business Combination complies with the
provisions of Section B. of this Article Thirteen shall not be construed
to impose any fiduciary duty, obligation or responsibility on the Board
of Directors, or any member thereof, to approve such Business
Combination or recommend its adoption or approval to the shareholders of
the Corporation, nor shall such compliance limit, prohibit or otherwise
restrict in any manner the Board of Directors, or any member thereof,
with respect to evaluations of or actions and responses taken with
respect to such Business Combination."
A-11
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF CASH AMERICA INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
or Formation
---------------
<S> <C>
Cash America, Inc. Delaware
Cash America, Inc. of Louisiana Delaware
Cash America, Inc. of North Carolina North Carolina
Georgia Cash America, Inc. Georgia
Florida Cash America, Inc. Florida
Cash America, Inc. of South Carolina South Carolina
Cash America, Inc. of Kentucky Kentucky
Cash America, Inc. of Oklahoma Oklahoma
Cash America, Inc. of Tennessee Tennessee
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 of Missouri, Inc. Missouri
Express Cash International Corporation Delaware
Cash America Holding, Inc. Delaware
Cash America Pawn L.P. Delaware
Cash America Management L.P. Delaware
Vincent's Jewelers and Loan, Inc. Missouri
Mr. Payroll Corporation Texas
Harvey & Thompson Limited United Kingdom
CAII Pantbelaning Aktiebolag Sweden
Svensk Pantbelaning AB Sweden
</TABLE>
<PAGE> 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 21, 1997,
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, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, 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 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,334
<SECURITIES> 0
<RECEIVABLES> 122,927
<ALLOWANCES> 0
<INVENTORY> 48,777
<CURRENT-ASSETS> 189,974
<PP&E> 108,421
<DEPRECIATION> 45,603
<TOTAL-ASSETS> 325,082
<CURRENT-LIABILITIES> 24,976
<BONDS> 146,079
0
0
<COMMON> 3,024
<OTHER-SE> 151,003
<TOTAL-LIABILITY-AND-EQUITY> 325,082
<SALES> 188,377
<TOTAL-REVENUES> 280,968
<CGS> 117,585
<TOTAL-COSTS> 209,855
<OTHER-EXPENSES> 35,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,429
<INCOME-PRETAX> 25,108
<INCOME-TAX> 9,424
<INCOME-CONTINUING> 15,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,684
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
