SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-18291
U.S. PAWN, INC.
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(Exact name of Registrant as specified in its charter)
Colorado 84-0819941
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
7215 Lowell Boulevard
Westminster, Colorado 80030
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 657-3550
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
No Par Value Common Stock
Indicated 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
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As of March 31, 1998, 3,772,779 shares of the Registrant's no par value common
stock were outstanding and the aggregate market value of the shares held by
non-affiliates was approximately $12,760,000.
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-KSB or any amendment to
this Form 10-KSB.
[ ]
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PART I
ITEM 1. BUSINESS
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Introduction
U.S. Pawn, Inc. (the "Company") was organized as a Colorado corporation on March
18, 1980. As of December 31, 1997, the Company was one of four publicly traded
pawn shop operators in the United States, and it owned and operated seventeen
(17) pawn shops in Colorado (12), Wyoming (3), Nevada (1) and Nebraska (1). The
Company's principal offices are located at 7215 Lowell Boulevard, Westminster,
Colorado 80030, and its telephone number is (303) 657-3550. As used herein, the
term "Company" includes U.S. Pawn, Inc. and its subsidiaries.
Except for the historical information contained herein, certain matters set
forth in this report are forward- looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks are detailed
from time to time in the Company's periodic reports filed with the Securities
and Exchange Commission. These forward-looking statements speak only as of the
date hereof and the Company disclaims any intent or obligation to update these
forward-looking statements.
General
The Company is engaged in acquiring, establishing and operating pawn shops that
lend money on the security of pledged tangible personal property, a transaction
commonly referred to as a "pawn loan". Pawn shops provide a convenient source of
consumer loans and a ready market for the resale of previously-owned merchandise
acquired by the Company when customers do not repay the loan. The Company
receives a pawn service charge to compensate it for the loan. The pawn service
charge is calculated as a percentage of the pawn loan amount based on the size
and term of the loan, in a manner similar to which interest is charged on a
loan, and has generally ranged from 120% to 240% annually, as permitted by state
laws and local ordinances. The pledged property is held through the term of the
pawn loan contract, which generally is 30 to 120 days, unless otherwise earlier
paid or renewed. Generally, the customer repays the pawn loan and accrued
service charge in full, redeeming the pledged property, or pays the accrued
service charge and renews the pawn loan. In the event the customer does not
redeem the pledged property or renew the pawn loan, the unredeemed collateral is
forfeited to the Company and becomes inventory available for sale in the pawn
shop. For the years ended December 31, 1997 ("1997") and 1996 ("1996"), the
Company realized an annualized average pawn service charge equal to 160% and
148% of pawn contracts outstanding.
The pawnshop industry in the United States is highly fragmented and in the early
stages of consolidation. The four publicly traded pawn shop companies operate
approximately 8% of the total United States pawn shops. Management believes that
there are significant opportunities for growth through the acquisition of
existing pawn shops, the opening of new pawn shops, and the improvement of
productivity in pawn shop operations through the application of modern
management techniques.
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Business Strategy
The Company intends to continue concentrating multiple pawn shops in specific
geographic areas in order to achieve economies of scale in supervision, improve
market penetration, enhance name recognition and reinforce market programs.
Currently, the Company has 70% of its store locations clustered in the Denver,
Colorado Metropolitan Area ("Denver"). The Company's recent growth has resulted
from the acquisition of existing pawn shops that management believes will
respond favorably to the Company's management systems. Consistent with this
philosophy, the Company increased the number of pawn shops it operated by 1 and
5 stores during Fiscal 1997 and 1996, respectively.
Management believes that the Company is properly positioned to be successful in
the markets in which it operates in the near term. Management intends to
continue its analysis of the markets in which it currently operates and may
decide to expand or contract in its current market areas or enter new markets
which management feels will further its operating strategies.
Management believes that expanding its market share through the careful
acquisition of existing locations may be more cost efficient than opening new
pawn shops. Management believes that additional pawn shops in market clusters
will provide economies of scale in supervision, purchasing, administration and
marketing. The Company's primary pawn shop acquisition criteria include the
perceived competence of current management, the annual number of pawn
transactions, the outstanding pawn loan balances, the quality and quantity of
pawn shop inventory, pawn shop locations, number of competitive pawn shops in
the market area, lease terms and physical condition of the pawn shop.
The Company expects to finance the acquisition or development of additional pawn
shops through internal cash flow, additional lines of credit and debt and/or
equity securities offerings. The Company cannot assure, however, that these
sources of financing will be available. Furthermore, a number of factors may
limit or even eliminate the Company's ability to increase its number of pawn
shops including, (i) unanticipated operating losses or increases in overhead
expenses, (ii) unavailability of acceptable acquisition candidates or pawn shop
locations, (iii) higher pawn loan demand which will reduce the Company's
available capital for expansion, and (iv) general economic conditions. There can
be no assurance that future expansion can be continued on a profitable basis.
Management's ability to identify, acquire or profitably manage additional
locations or successfully integrate their operations without substantial costs,
delays or other unanticipated problems is a risk factor for future expansion.
There can be no assurance that any entity that the Company acquires will achieve
profitability that justifies the Company's investment. Acquisitions involve a
number of risks, which may include: adverse short-term effects on the Company's
reported operating results and cash flows; diversion of management's attention;
dependence on retraining, hiring and training key personnel; and the effects of
amortization of intangibles. Such risks could have adverse effects on the
Company's operations and financial performance. As the Company expands, the
Company will be required to supplement its existing management team in order to
effectively manage the acquired entities and successfully implement its
acquisition and operating strategies.
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Change in Management Control
On October 29, 1997, the Company accepted the resignations of Daniel B. Rudden,
Stanley M. Edelstein, Larry M. Snyder and Melvin Wedgle as members of its Board
Of Directors pursuant to an agreement contained and more fully described in
Schedule 14f(1) filed with the Securities and Exchange Commission on September
26, 1997. The Company also accepted the resignations of Melvin Wedgle as Chief
Executive Officer and President and Jack Simon as Secretary and Chief Financial
Officer. Gary A. Agron, a member of the Board since 1989 remained as a Director.
The Company appointed Charles C. Van Gundy as a Director, President, Chief
Executive Officer and Chief Financial Officer, and Jack Skidell and Mark
Honigsfeld as Directors. Mr. Van Gundy, associated with the Company since 1992,
served the Company as its Chief Financial Officer, Secretary and Director from
October 1994 until his resignation in August 1997.
Expansion Activity
Effective on February 1, 1996, the Company acquired 80% of the outstanding
common stock of Advantage Pawn, Inc., a Wyoming corporation ("Advantage"), for
an aggregate purchase price of $188,000. The sellers received $83,000 in cash
and 45,000 shares of the Company's common stock valued at $105,000. The assets
acquired consisted primarily of inventory and pawn loans valued at $226,000 and
liabilities assumed of $147,000. The purchase price in excess of assets acquired
of $109,000 was recorded as goodwill. The Company also paid $22,500 in cash for
an agreement not to compete. During 1997, the Company purchased an additional
14% interest in Advantage for an aggregate purchase price of $37,489. The
minority stockholders received $19,615 in cash and a promissory note of $17,874
of which $13,405 was outstanding as of December 31, 1997. At December 31, 1997,
the Company owned 94% of the outstanding common stock of Advantage.
On August 2, 1996, the Company acquired substantially all of the assets and
business of City National Pawn, Inc. and Bohlinger, Inc., two privately held
pawn shop companies with common ownership d/b/a City National Pawn, with one
location in Fort Collins, Colorado and two locations in Cheyenne, Wyoming ("City
National") for an aggregate cash purchase price of $775,000 The assets acquired
from City National consisted of furniture, store equipment, merchandise
inventory, pawn loans, pawn service charges receivable, and customer lists
valued at approximately $518,000. The purchase price in excess of assets
acquired of $247,000 was recorded as goodwill.
On December 9, 1996, the Company agreed to acquire 100% of the outstanding
common stock of Pawnbroker, Inc. d/b/a Quick Bill's ("Bill"s") in Henderson,
Nevada in exchange for approximately 250,000 shares of the Company's common
stock valued at $1,000,000. The merger was accounted for as a pooling of
interests, and accordingly, the consolidated financial statements of the Company
for December 31, 1996 included the accounts and operations of Bill's for all
periods therein presented. On November 14, 1997, the merger was rescinded by
mutual agreement of the parties. The agreement to rescind the merger obligates
the Company to pay $220,000 to Bill's shareholders. Accordingly, the
consolidated financial statements of the Company for December 31, 1996 have been
restated from previously reported amounts to exclude the accounts and operations
of Bill's.
On December 9, 1996, the Company acquired 100% of the common stock in Bobby's
Pawnshop, Inc. ("Bobby's") located in Las Vegas, Nevada for an aggregate
purchase price of $700,000. The sellers received $27,000 in cash and a
promissory note for $673,000 which was paid in March 1997. The assets acquired
consist primarily of inventory and pawn loan receivables valued at approximately
$480,000. The purchase price in excess of assets acquired of $220,000 was
recorded as goodwill.
On June 17, 1997, the Company acquired 100% of the common stock in Pawn
Warehouse Outlet, Inc. ("Pawn") located in Omaha, Nebraska for an aggregate
purchase price of $435,000. The sellers received 75,666 shares of the Company's
common stock valued at $275,000 and cash in the amount of $160,000 in payment of
a note payable due to one of the sellers. The purchase price has been allocated
to assets based on their fair market value net of liabilities assumed.
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The purchase price in excess of assets acquired of $196,000 was recorded as
goodwill. The operating results of Pawn have been included in the Company's
consolidated financial statements since the date of acquisition.
Other Operational Activity
Immediately after the change in management control, the Company's new management
completed an evaluation of the markets in which the Company was operating. Based
upon that evaluation, management made certain recommendations to the Board of
Directors (the "Board"). In November 1997, the Board approved two
recommendations; i) improve the profitability of the Company's operations in
Cheyenne, Wyoming through the consolidation of under-performing pawn shops into
one; and ii) locate a buyer for the Company's one pawn shop in Las Vegas, Nevada
(Bobby's).
During 1996, the Company entered the Cheyenne, Wyoming market using its store
cluster market concept by acquiring/opening a total of four stores. The
Cheyenne, Wyoming market ultimately proved to be insufficient to support such a
cluster of stores. At December 31, 1997, two stores had been consolidated; and
in early February 1998, the three remaining stores were consolidated into one
store location. Management believes that as a result of the operational cost
savings attainable through consolidating its pawn business into a single
location in this market, its one remaining pawn shop in Cheyenne will be
profitable in the future.
During late 1996, the Company acquired two pawn shop businesses in the Las
Vegas, Nevada market, Bill's as a pooling of interests and Bobby's as a
purchase. On November 14, 1997, the merger with Bill's was rescinded by mutual
agreement of the parties. In November 1997, management evaluated the relative
merits of expansion in the Las Vegas market and determined that while the Las
Vegas market presented potential for establishing a profitable cluster of
stores, other barriers to expansion in Las Vegas were greater than its potential
to the Company at this time. In March 1998, the Company executed a letter of
intent to sell Bobby's. In June 1997, the Company acquired one store in the
Omaha, Nebraska market. The Company is currently evaluating the Omaha, Nebraska
market to determine its potential for expansion in the near future.
Letter of Intent
On March 10, 1998, the Company executed a letter of intent to sell certain
assets of the Company's pawn shop in Las Vegas, Nevada. The assets to be
transferred include the pawn loans, pawn license, trade fixtures and trade name
of Bobby's Pawn Shop, Inc. The Company acquired Bobby's Pawn Shop, Inc. in a
purchase transaction in December 1996. The transaction is contingent upon, among
other things, the purchaser securing the necessary approvals for the transfer of
the pawn license and the assignment of the Company's operating lease for the
location.
Operating Controls
The Company has an organizational structure that management believes can support
a larger operating base. The store locations are monitored on a daily basis from
corporate headquarters through an online, real time computer network system. The
Company has an internal audit staff to ensure that the Company's policies and
procedures are consistently followed. In addition, the audit department monitors
the Company's perpetual inventory system, lending practices, and regulatory
compliance. Management believes that the current operating and financial
controls and computer systems are adequate for its current operating base and
for anticipated expansion in the near term.
Many computer software programs installed over the past several decades utilize
two digits to recognize the year, such as "97" for 1997 (the "Year 2000 Issue").
As a result of the Year 2000 Issue, time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. In some cases, the date
"00" may cause computers to stop operating, while in other cases, incorrect
output may result. Many of the Company's software programs are time-sensitive.
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The Company has upgraded its hardware and operating system software programs to
prevent the Year 2000 Issue from affecting its reliance on its computer network.
The vendors who provide point of sale software, accounting systems and general
office programs to the Company are currently in the process of upgrading or have
upgraded their software systems to solve the Year 2000 Issue. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, if the
Company, its customers or vendors are unable to resolve such processing issues
in a timely manner, it could result in a material financial risk. Accordingly,
the Company plans to devote the necessary resources to resolve all significant
year 2000 issues in a timely manner.
Pawn Operations
The Company is engaged in the business of advancing money to customers on the
security of pledged goods. The pledged goods are tangible personal property and
generally consist of jewelry, guns, tools, televisions and stereos, musical
instruments and other miscellaneous items. The pledged personal property is
offered by the customer to provide security to the Company for the repayment of
the pawn loan. Pawn loans cannot be made with personal liability to the
customer, and therefore, the Company does not investigate the creditworthiness
of the customer, but relies on the pledged personal property and the possibility
of its forfeiture as a basis for its credit decision. The Company receives a
pawn service charge to compensate it for extending the pawn loan. Pawn service
charges contributed approximately 44% and 43% to the Company's total operating
revenues for 1997 and 1996, respectively.
At the time a pawn transaction is entered into, a pawn contract agreement,
commonly referred to as a pawn ticket, is delivered to the customer (pledgor)
that sets forth, among other items, the name and address of the pawn shop and
the customer, the customer's identification number from his driver's license or
military identification, a description of the pledged goods, including
applicable serial numbers, and the amount advanced, the pawn service charge, the
maturity date of the pawn loan, total amount that must be paid to redeem the
pledged goods on the maturity date and the monthly percentage rate of the pawn
service charge.
The amount which the Company is willing to finance is typically based on a
percentage of the pledged personal property's estimated resale value. The
sources for the Company's determination of the resale value include catalogs,
blue books, newspaper advertisements and previously made similar pawn
transactions. The pledged property is held through the term of the pawn loan,
which generally is 30 to 120 days, unless earlier paid or renewed. In the
majority of cases, the customer pays the pawn loan amount and accrued service
charge in full, redeeming the pledged property, or pays the accrued service
charge and renews the pawn loan. In the event the customer does not pay or renew
the pawn loan, the unredeemed collateral is forfeited to the Company and becomes
inventory available for sale in the pawn shop. The Company does not record pawn
loan losses or charge-offs inasmuch as, if the pledged property is not redeemed,
the pawn loan amount plus the accrued service charge becomes the inventory cost
of the forfeited collateral that is recovered through the resale operations
described below.
The recovery of the pawn loan amount and accrued service charges, as well as
realization of gross profit on sales of inventory, is dependent on the Company's
initial assessment of the property's estimated resale value. Improper assessment
of the resale value of the collateral when extending a pawn loan can result in
reduced marketability of the property and resale of the property for an amount
less than the pawn loan amount plus accrued service charge. However,
historically, the Company has experienced gross profits from sales of inventory.
The Company generated gross profit margins on the sale of inventory of
approximately 20% and 25% for 1997 and 1996, respectively.
At December 31, 1997, the Company had 34,417 pawn loans outstanding with an
aggregate balance of $3,711,000, or an average of $107.82 per pawn loan
outstanding. At December 31, 1996, the Company had 34,934 pawn loans outstanding
with an aggregate balance of $3,355,000, or an average of $96.04 per pawn loan
outstanding. The Company monitors and maintains record keeping in connection
with its pawn loans through a specialized computer hardware and software system.
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During 1997 and 1996, approximately 33% and 35%, respectively, of pawn loans
were not redeemed, with the forfeited pledged property added to the Company's
sales inventory. For 1997 and 1996, the Company's annualized yield on its
average pawn loan balance outstanding was 160% and 148%, respectively. See
"Financial Statements."
Management believes that its profitability is dependent upon, among other
factors, its employees' ability to make pawn loans that achieve optimum
redemption rates, to be effective sales people and to provide superior customer
service. The Company provides an incentive compensation plan for its store level
employees based on managerial and financial performance.
Resale Operations
The Company sells used goods acquired when a pawn loan is not repaid and new
goods purchased from vendors. New goods, which historically represent less than
1% of the Company's total inventory, consist primarily of accessory merchandise
which enhances the marketability of inventory, such as settings for precious
stones. Sales of new and used goods were approximately 55% and 56% of the
Company's total operating revenues for 1997 and 1996, respectively.
The Company does not provide its customers with warranties on used merchandise
purchased from the Company.
From time to time, the Company may finance a small part of the sales price of
its goods. The Company also permits its customers to purchase inventory on a
"lay-away" plan whereby the customer purchases an item by making an initial cash
deposit representing a part of the selling price and agrees to make additional,
non-interest bearing payments of the balance of the selling price in accordance
with a specified schedule. The Company then sets aside the lay-away item until
the selling price is paid in full. Should the customer fail to make a required
payment, the item may be returned to inventory and previous payments forfeited
to the Company. Revenues derived from financing and lay-away plans historically
amount to less than 1% of total revenues.
The Company provides an allowance for inventory valuation of its merchandise
held for resale based on management's evaluation of the marketability of the
merchandise. Management's evaluation takes into consideration the age of slow
moving merchandise on hand and mark downs necessary to liquidate slow moving
merchandise. At December 31, 1997, total merchandise held for resale was
$2,343,000 after reduction for a valuation allowance of $213,000.
Competition
The Company believes that the primary elements of competition in the pawnshop
industry are store location, the ability to loan competitive amounts on items
pawned, management of the store level employees and quality customer service. In
addition, as the pawnshop industry consolidates, the Company believes that the
ability to compete effectively will be based on strong general management,
regional market focus, automated management information systems, and access to
capital. Some of the Company's competitors have greater financial resources than
the Company.
In connection with its lending of money, the Company competes with other pawn
shops and with certain other financial institutions such as consumer finance
companies, which generally lend money on an unsecured as well as on a secured
basis. Other lenders may lend money on terms more favorable than the Company.
The pawn shop industry is highly fragmented and includes over 12,000 pawn shops
in the United States, the great majority of which are managed by independent
owner-operators. Some of these independent operators own multiple pawn shops,
and a few companies (who are generally regional operators) own more than 50 pawn
shops. Including the Company, there are four publicly held pawn shop chains of
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which the Company has the fewest pawn shops and the smallest amount of assets,
revenues, net worth and personnel. In the Company's Colorado market, which
comprises 70% of all Company locations, there are approximately 180 competitor
pawn shops including 24 pawn shops operated by another publicly held pawn shop
chain, 16 of which are in the Denver Metro area. To the Company's knowledge,
there are no other pawn shop operators in Colorado who operate more pawn shops
than the Company.
In connection with its resale of tangible personal property, the Company
competes with numerous retail and wholesale stores, including jewelry stores,
gun stores, discount retail stores, consumer electronics stores and other pawn
shops. The Company encounters significant competition in all aspects of the
operation of its business. Many competitors (public and private) have greater
financial resources than the Company.
Regulation
The Company's pawn shop operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations in the three states in which it operates. Set forth
below is a summary of the various regulations applicable to the Company's
operations.
Colorado. In Colorado pawn shops must be licensed by the city in which the pawn
shop is located, as well as by the state. Maximum allowable service charge rates
may be set by both city ordinance, as well as state statute. Pawn shop licenses
may be revoked by state or local authorities for certain defined improper
conduct. For instance, under Colorado state law, 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 customer; accept any waiver of any right or protection
accorded to a pledgor under Colorado state law; 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 90 days; display for sale in storefront windows or
sidewalk display cases, pistols, swords, canes, blackjacks or similar weapons;
or purchase used or second hand personal property 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. Under applicable state law,
the maximum allowable pawn service charges for Colorado pawn loans are 240%
annually for pawn loans under $50 and 120% annually for pawn loans of $50 and
over. Local municipalities in which the Company operates may also regulate pawn
service charges within their jurisdictions. The City and County of Denver is the
only Colorado municipality in which the Company operates that deviates from the
Colorado statute pertaining to pawn service charges. The maximum allowable pawn
service charges for Denver pawn loans are 120% annually.
Wyoming. In Wyoming pawn shops must be licensed by the city in which the pawn
shop is located, as well as by the state. Maximum allowable service charge rates
may be set by both city ordinance, as well as state statute. Pawn shop licenses
may be revoked by state or local authorities for certain defined improper
conduct. For instance, under Wyoming state law, 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 customer; accept any waiver of any right or protection
accorded to a pledgor under Wyoming state law; 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 or less than two months from the transaction date; fail to
disclose information concerning the pawn transaction to its customers pursuant
to applicable provisions of Federal Regulation Z of the Truth in Lending Act and
the Wyoming Uniform Consumer Credit Code; fail to display in a conspicuous place
on its premises the days and hours during which a redemption may be made; engage
in false or misleading advertising concerning the terms or conditions of credit
with respect to a pawn transaction; or purchase used or second hand personal
property unless a record is established containing the name, address, accurate
description and identification of the seller, a complete description of the
property, including serial number, and a signed statement that the seller has
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the right to sell the property. Under applicable state law, the maximum
allowable pawn service charges for Wyoming pawn loans are 240% annually and the
amount lent in any one pawn transaction to any one customer may not exceed
$3,000. Local municipalities in which the Company operates may also regulate
pawn service charges within their jurisdictions. The City of Cheyenne is the
only Wyoming municipality in which the Company operates that deviates from the
Wyoming statute pertaining to pawn service charges. The maximum allowable pawn
service charges for Cheyenne pawn loans are set forth below:
On That Part of Unpaid Principal Balance
Maximum Annual Rate Which is Between
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240% $0 to $200
120% $200 to $400
60% $400 to $1,000
18% $1,000 to $3,000
Nevada. In Nevada pawn shops must be licensed by the city in which the pawn shop
is located, as well as by the state. Maximum allowable service charge rates may
be set by both city ordinance, as well as state statute. Pawn shop licenses may
be revoked by state or local authorities for certain defined improper conduct.
For instance, under Nevada state law, a pawnbroker may not accept a pledge from
a person under the age of 18 years or employ a person under the age of 18 years
to accept a pledge; accept a pledge from a person in an intoxicated condition;
fail to furnish to the pawn customer a printed, sequentially numbered receipt
for each article pawned which clearly shows the amount lent, the interest and
any other charges to be paid by the pawn customer, a description of the property
pawned, the date of receipt thereof, the last date for redemption and the name
and address of the pawnbroker; fail to have each receipt signed by the pawn
customer; fail to insure the pawn customer against loss by destruction by fire
of the pledged property; fail to return pledged goods to a pawn customer upon
payment of the full amount due; enter into any pawn transaction that has a
maturity date of less than 120 days from the transaction date; or purchase used
or second hand personal property unless a record is established containing the
name, address, accurate description and identification of the pawn customer, a
complete description of the property, including serial number, a signed
statement that the pawn customer has the right to sell the property, and the
name or other identification of the person or employee conducting the
transaction. Under applicable state law and local ordinance, the maximum
allowable pawn service charges for Nevada pawn loans are 120% annually and up to
a $5 handling fee per item pawned.
Nebraska. In Nebraska pawn shops must be licensed by the city in which the pawn
shop is located and provide the city with a $5,000 surety bond. Pawn licenses
may be revoked by state and local authorities for certain defined improper
conduct. For instance, under Nebraska state law, a pawnbroker may not accept a
pledge from a person under the age of 18 years; accept a pledge from a person in
an intoxicated condition; accept as collateral or purchase any property on which
serial numbers or other identifying insignia have been destroyed, removed,
covered or defaced; fail to furnish to the pawn customer and to the local police
department a printed receipt for each article pawned which clearly shows the
date of the loan or purchase, the name, date of birth, signature, driver's
license number, or other means of identification of the customer, a full and
accurate description of the property, the time the loan becomes due, the amount
lent, the interest and any other charges to be paid by the pawn customer, the
identification and signature of the clerk who handled the transaction; fail to
admit law enforcement officers during normal business hours for the purpose of
examining property or records; fail to admit customers claiming ownership for
property during normal business hours; sell any goods purchased or received as
pawn loan during the period of four months from the date of the transaction;
fail to obtain and maintain a fingerprint of each person pawning, pledging,
mortgaging or selling any goods or articles. The maximum allowable pawn service
charges for Nebraska pawn loans are 180% annually.
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Firearms. With respect to gun sales, all the Company's pawn shops must comply
with federal regulations promulgated by the Department of the Treasury, Bureau
of Alcohol, Tobacco and Firearms which require, among other things, each pawn
shop dealing in guns to maintain a permanent written record of all guns received
or disposed. During Fiscal 1994, the Company implemented procedures which comply
with all rules and regulations promulgated by federal, state and local
authorities under the Brady Handgun Violence Prevention Act of 1993 (the "Brady
Bill") which requires, among other things, a background investigation of any
person purchasing or redeeming a handgun prior to completion of the transaction.
The Company does not sell or deal in ammunition for firearms. As a matter of
policy, the Company does not sell handguns to the general public in any of its
stores operating in the Denver Colorado Metropolitan Area (the "Denver Area") or
Nebraska, but rather, wholesales all forfeited handguns from Denver Area and
Nebraska stores to licensed dealers or transfers handguns forfeited from these
stores to Company pawnshops in other locations.
In order to avoid the acquisition of stolen merchandise, all the Company's pawn
shops voluntarily or pursuant to municipal ordinance provide the local police
department with daily copies of all transactions involving pawn loans and
over-the-counter purchases. These daily transaction reports are designed to
provide the police with a detailed description of the merchandise including
serial numbers, if any, and the name and address of the owner obtained from a
valid identification card. A copy of the pawn 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 pledgor or
seller are subject to recovery by the rightful owner upon application to the
police department and satisfactory evidence of ownership. In connection with
pawn shops acquired by the Company, there is a risk that acquired merchandise
may be subject to claims of rightful owners. Historically, the Company has not
experienced a material number of rightful owner claims.
The Company has experienced no material losses by theft or casualty. The Company
maintains liability and casualty insurance and insurance against employee theft
at each of its pawn shop locations. The Company does not maintain insurance
against robbery and burglary, as the risk of loss does not justify the premium
cost of coverage. Historically, the Company has not experienced material losses
due to robbery or burglary.
Employees
The Company currently employs 94 employees, including its executive officers.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has recently issued Statements
of Financial Accounting Standards ("SFAS")that may affect the Company's
financial statements as follows:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Also, in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131") which supercedes SFAS No. 14
"Financial Reporting for Segments of a Business Enterprise". SFAS 131
establishes reporting standards for the way public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also established standards for disclosures regarding
10
<PAGE>
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of these standards, management
has been unable to fully evaluate the impact, if any, the standards may have on
the future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
In February 1998, the FASB issued SFAS No. 132,"Employer's Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"), which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. SFAS 132 is
effective for years beginning after December 15, 1997 and requires comparative
information for earlier years to be restated, unless such information is not
readily available. Management believes the adoption of this statement will have
no material impact on the Company's financial statements.
ITEM 2. - PROPERTIES
- --------------------
The Company's executive offices are located at 7215 Lowell Boulevard in
Westminster, Colorado pursuant to a five year lease which commenced April 1,
1992 at a monthly rental of $2,800 with two options to renew for five years.
The Company owns the real estate and buildings for two of its Denver, Colorado
pawn shops and currently leases its other pawn shops at monthly rentals between
$2,200 and $7,000 on lease terms between three and eight years. During 1997, the
Company purchased the real estate underlying one of its Denver pawn shops from
its former President. The Company expects to continue leasing its pawn shops in
order to utilize its working capital for pawn loans.
ITEM 3. - LEGAL PROCEEDINGS
- ---------------------------
The Company is not a party to any pending or threatened material legal
proceedings.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------
None.
11
<PAGE>
PART II
ITEM 5. - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The Company's Common Stock has been traded on the NASDAQ SmallCap Market
("NASDAQ") under the symbol "USPN" since May 10, 1989. On March 31, 1998, the
closing bid price for the Company's Common Stock was $3.56 per share.
The following table sets forth for the quarters indicated, the range of high and
low bid prices of the Company's Common Stock as reported by NASDAQ.
Common Stock
By Quarter Ended: High Low
---- ---
Fiscal 1997
- -----------
December 31, 1997................................... $ 4.06 $ 2.87
September 30, 1997.................................. 3.69 1.87
June 30, 1997....................................... 4.44 3.12
March 31, 1997...................................... 5.00 3.62
Fiscal 1996
- -----------
December 31, 1996................................... $ 5.13 $ 2.50
September 30, 1996.................................. 4.56 3.56
June 30, 1996....................................... 3.88 2.75
March 31, 1996...................................... 2.88 1.44
The above quotations were reported by NASDAQ and reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
As of December 31,1997, the Company had approximately 1,500 stockholders of
record. The Company has not declared any dividends on its Common Stock to date.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
Except for the historical information contained herein, certain matters set
forth in this report are forward- looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks are detailed
from time to time in the Company's periodic reports filed with the Securities
and Exchange Commission. These forward-looking statements speak only as of the
date hereof. The Company disclaims any intent or obligation to update these
forward- looking statements.
12
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1997 ("1997") Compared to Year Ended December 31, 1996,
Restated ("1996")
Total revenues for 1997 increased by 20.7% to $12,744,000 compared with
$10,555,000 for 1996. Revenues of $9,679,000 were generated by same store
operations (11 stores), $2,710,000 from stores acquired in 1996 (5 stores) and
$355,000 from one store acquired in 1997 as compared to $9,329,000 from same
store operations and $1,226,000 for stores acquired in 1996. The increase in
revenues reflects an improvement of 20.3% in merchandise sales to $7,058,000
from $5,865,000, an improvement of 22.6% in pawn service charges to $5,640,000
from $4,602,000. As a percentage of total revenues, merchandise sales decreased
to 55% from 56% and pawn service charges increased slightly to 44% in 1997 from
43%. This revenue mix is consistent with the Company's overall goals for
inventory turns and pawn loan activity and is expected to continue for the
foreseeable future.
Income from operations for 1997 decreased to $645,000 or 54.6% as compared to
the prior year's results of $1,420,000. Other expenses (interest, merger
rescission and fixed asset disposals) increased to $610,000 or 134.4 % as
compared to the prior year's other expenses of $219,000. Earnings (losses), net
of income taxes, minority interest and preferred dividends, for 1997 were
$(41,000) or $(0.01) per share as compared to $703,000 or $0.19 per share for
1996. Total shares issued and outstanding at December 31, 1997 increased to
3,772,779 from a prior year total of 3,496,489 due primarily to the issuance of
common shares in connection with the Company's pawn shop acquisitions and the
exercise of consultant and employee stock options during 1997. The weighted
average number of common shares and common stock equivalents outstanding
increased by 2.1% to 3,730,715 from a prior year total of 3,654,557.
Total cost of sales and expenses for 1997 increased by $2,964,000, or 32.5%, to
$12,099,000 from $9,135,000 in 1996. The increase was comprised primarily of a
28.2% increase in cost of goods sold as a direct result of increased sales at
reduced margins, a 60.1% increase in administrative expenses and a 23.6%
increase in operating expenses. As percentage of total revenues, total cost of
sales and expenses for 1997 increased to 94.9% from 86.6% in 1996.
Operating expenses increased $788,000 in 1997 over 1996 amounts primarily due to
an increase in the number of pawn shops in operation during 1997. However, as a
percentage of revenues, operating expenses were level at 32% in 1997 and 1996.
Operating expenses increased over the previous year amounts due primarily to
operating expenses related to stores acquired during late 1996 and 1997. As a
result of the consolidation of the Wyoming store locations, an accrual of
$137,000 was recorded for lease abandonment costs in fourth quarter 1997.
Administrative expenses increased $657,000 in 1997 over 1996 amounts primarily
due to a $385,000 increase related to staff additions in the executive, systems
and training departments; a $52,000 increase in travel expenses related to
supervision of store additions; and a $159,000 increase in auditing, legal and
other professional fees. As a percentage of total revenues, administrative
expenses increased to 13.7% in 1997 from 10.4% in 1996. Management believes that
administrative expenses as a percentage of total revenues will revert to 1996
levels for 1998.
Depreciation and amortization expense increased to $568,000 from $292,000 due to
the acquisition of pawn shops during late 1996 and 1997, the purchase of
computer equipment and a $167,000 charge to expense in the fourth quarter of
1997 related to certain intangible assets of the consolidated Wyoming stores.
Interest expense increased to $351,000 from $219,000 due to the Company's
increased utilization of debt financing during 1997.
In late 1997, the Company and the shareholders of Bill's agreed to rescind the
merger between the Company and Bill's. Pursuant to the agreement, the Company is
obligated to the Bill's shareholders for $220,000 payable in quarterly
installments through November 1998. At December 31, 1997, $170,000 of this
obligation remained outstanding.
13
<PAGE>
The Company's annualized inventory turnover rate was 2.6 times for 1997 and
1996. Management expects inventory turns to improve as the Company re-emphasizes
sales programs in 1998. Gross profit as a percentage of sales for 1997 decreased
to 20% from 25% for 1996. The decrease in gross profit on sales percentage is
primarily attributable to an inventory valuation allowance in the amount of
$213,000 recognized in the fourth quarter of 1997 related to management's
estimate of the marketability of certain slower moving categories of inventory.
Gross profit percentages on sales of inventory may continue to remain below
historical comparisons as management implements plans to liquidate such slower
moving categories of inventory in future periods.
The forfeiture rate for pawn loans (total new loans this year plus previous year
ending loan balance, minus current year ending loan balance in relationship to
total forfeited amount during the year) decreased to 33% in 1997 from 35% in the
prior year and is slightly above industry comparisons. The Company's slightly
higher than industry forfeiture rate is due primarily to the aggressive pawn
loan policy in use for the past several years, which allows for slightly higher
pawn loan to value ratios than competing pawnshops in an effort to attract more
pawn customers. The Company intends to continue its aggressive pawn loan policy
for the reasonably foreseeable future. The Company's outstanding aggregate pawn
loan balance increased $356,000 or 10.6% to $3,711,000 in 1997 as compared to
$3,355,000 in 1996. The increase in pawn loans during 1997 is due to increases
in outstanding pawn loans of $121,000 in the Denver pawn shops and $41,000 among
the Wyoming and Nevada locations and $194,000 from the Nebraska acquisition. The
Company realized an annualized pawn service charge equal to 160% and 148% of
average pawn loans outstanding for 1997 and 1996, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board "Statement of Financial Accounting Standards No. 109"
(SFAS 109). See "Notes to Consolidated Financial Statements #10" for further
analysis of income taxes. The application of SFAS 109 reflects the deferred tax
consequences of temporary differences between the bases of assets and
liabilities for financial and income tax reporting purposes. The Company
recognized income tax expense of $49,000 for 1997 and $440,000 for 1996. The
Company recognized an income tax benefit in 1997 of approximately $225,000 as a
result of the exercise of employee stock options. As such income tax benefit was
the result of a stock issuance, it was recorded as additional paid in capital.
Significant Fourth Quarter Adjustments
During the fourth quarter of 1997, the Company recognized a valuation allowance
for inventory and wrote-off intangible assets and lease abandonment costs
associated with the store closures under a plan to consolidate the operations of
four stores located in Cheyenne, Wyoming. The total charge to earnings for these
transactions was approximately $517,000.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by 14.3% from $4,504,000 at December 31, 1996 to
$5,148,000 at December 31, 1997. Total assets increased during 1997 by
$1,444,000 mainly due to increases in cash, pawn loans, inventory, income tax
refunds, and property and equipment. Total liabilities increased by $894,000
during 1997 due primarily to increases in the bank line of credit, private debt
and accrued expenses at December 31, 1997. Total stockholders' equity increased
by 9.4% or $592,000, as a result of losses, net of income taxes, minority
interest and preferred stock dividends, in 1997 of $41,000, the issuance of
common stock of $675,000 net of offering costs, the income tax effect of the
exercise of employee stock options of $225,000, and the redemption of vested
employee stock purchase options in the aggregate amount of $267,000.
14
<PAGE>
The Company's operations during 1997 and 1996 have been financed from funds
generated from operations, bank borrowing, private borrowing, and the exercise
of common stock options. In 1997, the Company raised sufficient capital to
satisfy all capital requirements. Management believes that the current line of
credit, internally generated funds and private borrowings will provide
sufficient working capital for the near future.
The Company has a bank line of credit totaling $1,000,000. As of December 31,
1997 the Company owed $637,000 under this revolving credit facility and had
$363,000 available for future use. Advances under the line of credit are limited
to a borrowing base of 50% of inventory balance and pawn loan balance. The terms
of the credit facility require the Company to maintain certain financial ratios.
The line of credit is on a year to year basis, matured on April 4, 1998 and as
of April 5, 1998 was fully paid.
Private borrowings used for working capital comprise $1,911,000 of the total
liabilities due at December 31, 1997 and are due $1,211,000 in 1998 and $700,000
in years through 2002. Amounts due pursuant an agreement with Bill's
shareholders and stock buy-back arrangements with certain minority shareholders
of a subsidiary company aggregating $183,000 are due in 1998. The Company
intends to repay a majority of these obligations on their due dates from
internally generated funds or other borrowings. Private borrowings in the amount
of $224,000 were issued in 1997, were utilized to purchase the real estate
underlying an existing store location and are due $4,000 in 1998 and $219,000 in
years through 2002.
The Company plans to continue to expand its operating base with acquisitions of
existing pawn shops but will also consider potential start-up locations when
they become available. There can be no assurance, however, that such expansion
opportunities will become available to the Company. The Company has experienced
that new start-up locations generally result in losses during their first six to
fifteen months of operations, depending on location and competitive environment.
Leasehold improvements and equipment costs for new stores have ranged from
approximately $75,000 to $100,000 per store plus inventory of $50,000 to
$75,000. Conversely, the Company has experienced that acquisitions of existing
pawn shops generally have an immediate positive impact on earnings.
The Company expects to fund its expansion and meet its ongoing working capital
needs from internally generated funds, lines of credit and debt and/or equity
securities offerings. There can be no assurance, however, that such sources of
financing will be available to the Company.
Net cash flows provided by operating activities of the Company during 1997 were
$4,721,000, consisting of net income before depreciation and amortization of
$563,000 and cash used to change balance sheet accounts of $4,158,000. Net cash
used for investing activities of the Company for 1997 totaled $4,712,000 and
consisted primarily of net outflows of $4,055,000 for pawn loans, $470,000 for
purchase of property and equipment, and $195,000 used for acquisition related
activities. Net cash flows provided by financing activities of the Company for
1997 equaled $105,000 and consisted primarily of net advances on the line of
credit of $424,000, issuance of common stock for $400,000, less net repayments
of debt of $416,000, less repurchase of employee stock purchase options for
$267,000 and less preferred stock dividends of $36,000. Cash increased by
$114,000 during 1997.
Profitability vs. Liquidity
The profitability and liquidity of the Company is affected by the amount of the
Company's outstanding pawn loans, which in turn is affected in part by the
Company's pawn loan decisions. The Company is generally able to influence the
frequency of pawn loan redemptions and forfeitures of pawn loan collateral by
increasing or decreasing the amount loaned in relation to the estimated resale
value of the pledged property. A more conservative loan policy, i.e., smaller
loans in relation to the pledged property's estimated resale value, generally
results in fewer and smaller transactions being entered into, a decrease in the
Company's aggregate pawn loan balance and a decrease in pawn service charge
income. However, smaller pawn loans also tend to increase pawn loan redemptions
and improve the Company's liquidity. A conservative pawn loan policy also tends
15
<PAGE>
to decrease the cost of merchandise inventory, thereby improving the margins
possible through resale of forfeited pawn loan collateral. Conversely, a more
aggressive pawn loan policy which provides for larger pawn loans in relation to
the estimated resale value of the pledged property generally results in
increased pawn service charge income, but also tends to increase pawn loan
forfeitures, thereby increasing the quantity of inventory on hand and, unless
the Company is able to increase inventory turns, reducing the Company's
liquidity.
Unprecedented and/or unexpected pawn loan demand tends to drain liquidity
reserves, and if other external sources of working capital are unavailable, the
implementation of a more conservative pawn loan policy and increasing inventory
turns will generate cash at the expense of profitability if not optimally
balanced.
Inflation
The Company does not believe that inflation has had a material effect on the
Company's results of operations.
Seasonality
The Company's pawn loan demand and sales follow slight seasonal trends. Sales
are generally highest during the fourth calendar quarter of the year, while pawn
loan demand is general lower during the first and second calendar quarters than
during the third and fourth calendar quarters.
16
<PAGE>
ITEM 7. - FINANCIAL STATEMENTS
- ------------------------------
17
<PAGE>
U.S. PAWN, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996 (Restated)
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Table of Contents
-----------------
Page
----
Independent Auditors' Reports...............................................F-2
Consolidated Financial Statements:
Consolidated Balance Sheets.................................................F-4
Consolidated Statements of Operations.......................................F-5
Consolidated Statements of Changes in Stockholders' Equity..................F-6
Consolidated Statements of Cash Flows.......................................F-7
Notes to Consolidated Financial Statements..................................F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
U.S. Pawn, Inc. and Subsidiaries
Westminster, Colorado
We have audited the accompanying consolidated balance sheet of U.S. Pawn, Inc.
and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit 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 consolidated 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Pawn, Inc. and
Subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
As disclosed in Note 1 to the consolidated financial statements, the Company
changed its method of computing earnings per share.
/s/ Ehrhardt Keefe Steiner & Hottman PC
------------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
April 7, 1998
Denver, Colorado
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
U.S. Pawn, Inc.
Westminster, Colorado
We have audited the accompanying consolidated balance sheet of U.S. Pawn, Inc.
and Subsidiaries as of December 31, 1996 (Restated), and the related statements
of income, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
The consolidated financial statements as of December 31, 1996 and for the year
then ended have been restated to reflect the recission of the pooling of
interests with Pawnbroker, Inc. d/b/a Quick Bill's as described in Note 15 to
the consolidated financial statements.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Pawn, Inc. and
Subsidiaries as of December 31, 1996 (Restated), and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ AJ. Robbins, PC
----------------------------------
AJ Robbins, PC
February 13, 1997
Denver, Colorado
Except Note 15, Paragraphs 4-6,
the date is November 14, 1997
F-3
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share Data)
December 31,
--------------------
1997 1996
------- -------
(Restated)
Assets
Current assets
Cash $ 791 $ 677
Service charges receivable 534 514
Pawn loans 3,711 3,355
Accounts receivable, net 18 12
Income tax refund receivable 356 --
Deferred income taxes 94 --
Note receivable - related party -- 74
Inventory 2,343 2,100
Prepaid expenses and other 124 218
------- -------
Total current assets 7,971 6,950
------- -------
Property and equipment, net 1,808 1,332
Intangible assets, net 801 852
Other assets 20 22
------- -------
$10,600 $ 9,156
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $ 637 $ 23
Accounts payable 48 29
Customer layaway deposits 70 47
Accrued expenses 494 217
Due to stockholders of acquiree -- 673
Notes payable, related parties 802 638
Notes payable 579 624
Current portion of long-term debt
- related parties 103 100
Current portion of long-term debt 90 95
------- -------
Total current liabilities 2,823 2,446
------- -------
Long-term debt
Long-term debt - related parties,
less current portion 161 200
Long-term debt, less current portion 731 90
------- -------
Total long-term debt 892 290
------- -------
Deferred income taxes 28 113
------- -------
Total liabilities 3,743 2,849
------- -------
Minority interest -- 42
------- -------
Commitments and contingencies
Stockholders' equity
Redeemable preferred stock, 9.5%,
$10 par value, 1,000,000 shares
authorized; 37,800 shares issued and
outstanding 378 378
Common stock, no par value, 30,000,000
shares authorized; 3,772,779 and
3,496,489 shares issued and outstanding 4,687 3,988
Additional paid-in capital 805 871
Retained earnings 987 1,028
------- -------
Total stockholders' equity 6,857 6,265
------- -------
$10,600 $ 9,156
======= =======
See notes to consolidated financial statements.
F-4
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands Except Earnings Per Share)
Year Ended
December 31,
--------------------
1997 1996
-------- --------
(Restated)
Revenues
Sales $ 7,058 $ 5,865
Pawn service charges 5,640 4,602
Other income 46 88
-------- --------
Total revenues 12,744 10,555
-------- --------
Cost of sales and expenses
Cost of sales 5,655 4,412
Operations 4,125 3,337
Administration 1,751 1,094
Depreciation and amortization 568 292
-------- --------
Total cost of sales and expenses 12,099 9,135
-------- --------
Income from operations 645 1,420
Other (expenses)
Interest (208) (127)
Interest, related parties (143) (92)
Loss on settlement of contract (220) --
Loss on disposal of fixed assets (39) --
-------- --------
Total other (expenses) (610) (219)
Income before income taxes and minority interest 35 1,201
Income tax expense 49 440
-------- --------
Income (loss) before minority interest (14) 761
Minority interest 9 (22)
-------- --------
Net income (loss) (5) 739
Dividends on preferred stock (36) (36)
-------- --------
Net income (loss) available for common stockholders $ (41) $ 703
======== ========
Earnings (loss) per common share $ (.01) $ .22
======== ========
Earnings (loss) per common share - assuming dilution $ (.01) $ .19
======== ========
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996 (Restated)
(In Thousands Except Share Data)
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (restated) 37,800 $ 378 3,087,322 $ 3,241 $ 822 $ 325 $ 4,766
Exercise of common stock options -- -- 364,167 642 -- -- 642
Stock issued for acquisition -- -- 45,000 105 -- -- 105
Option offering costs -- -- -- -- (60) -- (60)
Dividends on preferred stock -- -- -- -- -- (36) (36)
Stock based compensation -- -- -- -- 109 -- 109
Net income -- -- -- -- -- 739 739
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 (restated)
37,800 378 3,496,489 3,988 871 1,028 6,265
Exercise of common stock options -- -- 200,624 424 -- -- 424
Stock issued for acquisition -- -- 75,666 275 -- -- 275
Tax effect of options exercised -- -- -- -- 225 -- 225
Repurchase of options -- -- -- -- (267) -- (267)
Option offering costs -- -- -- -- (24) -- (24)
Dividends on preferred stock -- -- -- -- -- (36) (36)
Net (loss) -- -- -- -- -- (5) (5)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 37,800 $ 378 3,772,779 $ 4,687 $ 805 $ 987 $ 6,857
========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended
December 31,
----------------------------
1997 1996
-------- --------
(Restated)
Cash flows from operating activities
<S> <C> <C>
Net income (loss) $ (5) $ 739
-------- --------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Loss on disposal of fixed assets 39
Accrued interest receivable written off (4) --
Settlement costs 220 --
Depreciation and amortization 568 292
Interest receivable added to note receivable - related party -- 15
Stock based compensation -- 109
Deferred income taxes (179) (17)
Minority interest (9) 42
Income tax effect of stock options exercised 225 --
Changes in:
Service charges receivable 37 14
Inventory, excluding forfeited loan collateral 3,815 2,963
Accounts receivable (37) 23
Income taxes receivable (356) --
Prepaid expenses and other 99 (139)
Accounts payable 19 (18)
Accrued expenses 273 (30)
Customer layaway deposits 16 5
-------- --------
4,726 3,259
-------- --------
Net cash provided by operating activities 4,721 3,998
-------- --------
Cash flows from investing activities
Pawn loans made (11,791) (9,910)
Pawn loans repaid 7,736 6,520
Proceeds from sale of equipment 6 6
Purchase of property and equipment (470) (264)
Proceeds from notes receivable-related parties -- 237
Cash paid for pawn shop acquisitions, net of cash acquired (150) (325)
Acquisition costs (30) (162)
Other assets 7 --
Purchase of minority interest in subsidiary (20) --
-------- --------
Net cash (used) by investing activities (4,712) (3,898)
-------- --------
Cash flows from financing activities
Net activity on line-of-credit 424 --
Dividends paid (36) (36)
Issuance of notes payable and long-term debt 553 538
Payments on notes payable and long-term debt (186) (1,166)
Issuance of notes payable-related parties 189 385
Payments on notes payable-related parties (972) (8)
Sale of common stock, net of offering costs 400 582
Repurchase of options (267) --
-------- --------
Net cash provided by financing activities 105 295
-------- --------
Net increase in cash 114 395
Cash, beginning of year 677 282
-------- --------
Cash, end of year $ 791 $ 677
======== ========
See notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
- --------------------------------------------------------------------
U.S. Pawn, Inc., (the Company) was incorporated in the State of Colorado in
March 1980. The Company is engaged in acquiring, establishing and operating
pawnshops which lend money on the security of pledged tangible personal property
to residents of Colorado, Wyoming, Nevada and Nebraska. In addition, the Company
offers for resale personal property from forfeited loans, as well as merchandise
purchased directly from customers and vendors. As of December 31, 1997, the
Company operated 12 pawnshops in Colorado, 3 pawnshops in Wyoming and 1 pawnshop
each in Nevada and Nebraska.
Principles of Consolidation
- ---------------------------
The Company and its subsidiaries in which it exercises control through majority
ownership are consolidated, and all intercompany accounts and transactions are
eliminated. The acquisitions of subsidiaries have been accounted for using the
purchase method of accounting for business combinations and accordingly, the
results of operations of the acquirees are included in the Company's financial
statements only from the applicable dates of acquisition.
Minority Interest
- -----------------
The consolidated financial statements of the Company include 100% of the assets,
liabilities and equity of Advantage Pawn, Inc. (Advantage) which was owned 94%
by the Company at December 31, 1997 (80% at December 31, 1996). Since the
Company is the majority stockholder in Advantage, the remaining ownership
interests of the other stockholders have been recorded as minority interest in
the amount of $0 and $42,000 at December 31, 1997 and 1996 (Restated),
respectively.
Pawn Loans and Income Recognition
- ---------------------------------
Pawn loans (loans) are generally made for a period of one to four months with an
automatic extension period (loan term) on the pledge of tangible personal
property. The pawn service charge is calculated as a percentage of the loan
amount based on the size and duration of the loan. Pawn service charges on loans
are recognized on a constant yield basis over the loan term.
If the loan is not repaid, the principal amount loaned plus accrued pawn service
charges become the carrying value (cost) of the forfeited collateral (inventory)
which is recoverable through sales to customers. Accordingly, the Company does
not record loan losses or charge-offs on defaulted loans.
F-8
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Concentrations of Credit Risk
- -----------------------------
Financial instruments that had potentially subjected the Company to credit risk
included a note receivable-related party amounting to $74,000 at December 31,
1996 (Restated). The note receivable was collateralized by shares of common
stock of the Company and real property. During 1997, the note was paid in full.
There are no concentrations of credit risk, with the exception of the
geographical concentrations, with respect to trade receivables. Ongoing credit
evaluations of customers' financial condition are performed and, generally, no
collateral is required. The Company maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded management's
expectations.
The Company maintains all cash in bank deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced a loss in such
accounts.
Fair Values of Financial Instruments
- -----------------------------------
Pawn loans are outstanding for a relatively short period, generally 120 days or
less. The rate of pawn service charges bears no relationship to interest rate
market movements. 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 adjust
frequently based on market rate changes. Accordingly, management believes that
the fair value of that debt approximates its carrying value. The fair value of
investor notes payable was estimated based on market values for debt issues with
similar characteristics, or interest rates currently available for debt with
similar terms. Management believes the fair values of those debts approximate
their carrying value.
Customer Layaways
- -----------------
Interim payments from customers on layaway sales are classified as customer
layaway deposits and subsequently recorded as income during the period in which
the final payment is received or when the deposit is forfeited.
Cash Equivalents
- ----------------
For purposes of reporting cash flows, the Company considers all funds with
original maturities of three months or less to be cash equivalents.
F-9
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Inventory
- ---------
Inventory consists of 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.
Costs associated with the warehousing of merchandise totaling approximately
$138,000 and $102,000 at December 31, 1997 and 1996 (Restated), respectively. A
valuation allowance of approximately $213,000 has been reflected in inventory as
of December 31, 1997.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of 5-10 years for equipment, 7-15 years for leasehold improvements and
15-39 years for buildings. Depreciation and amortization expense of property and
equipment was $291,000 and $238,000 for the years ended December 31, 1997 and
1996 (Restated), respectively.
Intangible Assets
- -----------------
Intangible assets consist primarily of costs in excess of net assets of
pawnshops acquired and noncompete agreements with the previous owners of
pawnshops acquired. The costs in excess of net assets acquired and the
noncompete agreements are amortized on a straight-line basis over 10 years and
over the term of the agreements of 5 to 10 years, respectively. Recoverability
is reviewed annually or sooner if events or circumstances indicate that the
carrying amount may exceed fair value. Recoverability is then determined by
comparing the undiscounted net cash flows of the assets to which goodwill
applies to the net book value including goodwill of those assets. The analysis
involves significant management judgment to evaluate the capacity of an acquired
business to perform within projections. Amortization expense of intangible
assets was $277,000, of which $167,000 relates to the write-off of goodwill and
acquisition costs related to certain pawnshop locations abandoned and
consolidated into other operations, and $54,000 for the years ended December 31,
1997 and 1996 (Restated), respectively.
Advertising Costs
- -----------------
The Company expenses all advertising costs as incurred.
F-10
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Income Taxes
- ------------
Deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of the assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances will be established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the current period and the change during the period in
deferred tax assets and liabilities. The deferred tax assets and liabilities
have been netted to reflect the tax impact of temporary differences.
Earnings (Loss) Per Common Share
- --------------------------------
During 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings (loss) per common
share is computed based upon the weighted average number of common shares
outstanding during the period. Diluted earnings per share consists of the
weighted average number of common shares outstanding plus the dilutive effects
of options and warrants calculated using the treasury stock method. In loss
periods, dilutive common equivalent shares are excluded as the effect would be
anti-dilutive. All prior period earnings per share data has been restated to
reflect the requirements of SFAS 128.
Stock Options
- -------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for all stock option plans. Under APB 25, no compensation cost has been
recognized for stock options granted to employees as the option price equals or
exceeds the market price of the underlying common stock on the date of grant.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), requires the Company to provide pro forma information
regarding net income as if compensation cost for the Company's stock option
plans had been determined in accordance with the fair value based method
prescribed in SFAS 123. To provide the required pro forma information, the
Company estimates the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
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, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates and assumptions.
F-11
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Use of Estimates in the Preparation of Financial Statements (continued)
- -----------------------------------------------------------------------
Management of the Company has determined that a reserve for obsolescence of
inventory is necessary in order to reflect a value for inventory that is not in
excess of net realizable value. Management has calculated an estimate of the net
realizable value of inventory and has recognized an allowance of approximately
$213,000 in the accompanying financial statements. Actual net realizable value
may differ from these results.
During 1997, the Company approved a plan to consolidate the operations of
Advantage. The Company has recognized a liability and expense in 1997 of
approximately $137,000 based upon the estimated costs to terminate leases on two
of the store locations. Actual results could differ from these amounts.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available, that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of the standards, management has
been unable to fully evaluate the impact, if any, the standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
F-12
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements (continued)
- -----------------------------------------------------
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits" (SFAS 132) which standardizes the disclosure requirements for pensions
and postretirement benefits and requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. SFAS 132 is effective for years beginning after December 15,
1997 and requires comparative information for earlier years to be restated,
unless such information is not readily available. Management believes the
adoption of this statement will have no material impact on the Company's
financial statements.
Reclassifications
- -----------------
Certain balances in the December 31, 1996 (Restated) financial statements have
been reclassified to conform to the December 31, 1997 presentation. The
reclassifications had no effect on the financial condition, results of
operations, or cash flows for December 31, 1996 (Restated).
Note 2 - Accounts Receivable
- ----------------------------
Major classifications of accounts receivable are as follows (in thousands):
December 31,
------------------
1997 1996
---- ----
(Restated)
Employee receivables $ 3 $ 5
Trade receivables 15 12
Other receivables 2 6
---- ----
20 23
Less allowance for doubtful accounts (2) (11)
---- ----
$ 18 $ 12
==== ====
Note 3 - Note Receivable - Related Party
- ----------------------------------------
As of December 31, 1996 (Restated), the Company had a note receivable - related
party for $74,000, which consisted of advances due from a stockholder/officer.
The note receivable was paid in full during 1997.
Interest income received from related parties was approximately $5,000, for each
of the years ended December 31, 1997 and 1996 (Restated).
F-13
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Property and Equipment
- -------------------------------
Property and equipment consisted of the following (in thousands):
December 31,
--------------------
1997 1996
------- -------
(Restated)
Land $ 236 $ 180
Buildings 546 270
Equipment and vehicles 1,089 1,270
Leasehold improvements 796 755
------- -------
2,667 2,475
Less accumulated depreciation and amortization (859) (1,143)
------- -------
$ 1,808 $ 1,332
======= =======
Note 5 - Intangible Assets
- --------------------------
Intangible assets consisted of the following (in thousands):
December 31,
---------------------
1997 1996
----- -----
(Restated)
Goodwill $ 834 $ 717
Acquisition costs 115 84
Non-compete agreements 32 160
----- -----
981 961
Less accumulated amortization (180) (109)
----- -----
$ 801 $ 852
===== =====
F-14
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 - Accrued Expenses
- -------------------------
Accrued expenses consisted of the following (in thousands):
December 31,
-----------------
1997 1996
---- ----
(Restated)
Accrued salaries and payroll taxes $160 $ 96
Accrued property and sales taxes 95 83
Accrued interest-related parties 11 8
Accrued income taxes -- 6
Accrued lease abandonment costs 137 --
Other 91 24
---- ----
$494 $217
==== ====
Note 7 - Line-of-Credit
- -----------------------
The Company entered into an agreement with a bank for a line of credit of
$1,000,000 due April 4, 1998. The interest rate is calculated at prime plus
1.75% which was 10.25% at December 31, 1997. Interest is payable monthly and the
line is collateralized by substantially all of the assets of the Company and
guaranteed by a former stockholder/officer. The outstanding balance at December
31, 1997 and 1996 (Restated) was $637,000 and $23,000, respectively.
The loan restricts certain changes in the Company's ownership structure,
payments of dividends, dealings with insiders, restricts incurring debt and
disposing of assets in addition to certain financial covenants. Although certain
covenants were not met, a waiver was issued by the financial institution and the
line was paid in full at maturity.
In addition, the Company is required to maintain certain deposits in support of
the line-of-credit.
Note 8 - Notes Payable and Long-Term Debt
- -----------------------------------------
Notes Payable - Related Parties
- -------------------------------
The Company has notes payable to related parties, who are employees,
stockholders or family members of stockholders or employees, totaling $802,000
and $638,000 as of December 31, 1997 and 1996 (Restated), respectively. These
notes have interest payable monthly at rates of 8% to 15% per annum, mature
during 1998 and are unsecured. These notes are subordinated to the banks
line-of- credit.
F-15
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Notes Payable and Long-Term Debt (continued)
- -----------------------------------------------------
Notes Payable
- -------------
The Company has notes payable to various individuals which are due prior to
December 1998. Interest on these notes is payable monthly, bi-monthly,
quarterly, semi-annually and annually at rates ranging from 12% to 15%. The
notes are unsecured and are subordinated to the current bank line-of-credit. The
outstanding balance at December 31, 1997 and 1996 (Restated) was $579,000 and
$624,000, respectively.
Long-Term Debt - Related Parties
- --------------------------------
The Company has notes payable to related parties, who are stockholders or family
members of stockholders, which are due on dates ranging from February 1998 to
December 1999 totaling $264,000 and $300,000 as of December 31, 1997 and 1996
(Restated), respectively. These notes have interest rates of 10% to 15% per
annum, and are unsecured. Interest is due monthly. These notes are subordinated
to the current bank line-of-credit. As a condition of several note payable
agreements, the Company issued warrants to purchase 9,000 shares of the
Company's common stock, exercisable at $4.00 per share through 1999. A deferred
charge of $10,000 has been recorded for the value of the warrants and will be
amortized over the term of the loan, which is three years. Amortization of
$3,000 and $300 was expensed for the years ended December 31, 1997 and 1996
(Restated), respectively.
Maturities of long term debt, related parties are as follows (in thousands):
Year Ending December 31,
- ------------------------
1998 $ 103
1999 153
2000 3
2001 3
2002 2
--------
264
Less current portion (103)
--------
$ 161
========
F-16
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Notes Payable and Long-Term Debt (continued)
- -----------------------------------------------------
Long-Term Debt
- --------------
Long term debt consists of the following (in thousands):
December 31,
--------------------
1997 1996
------- -------
(Restated)
Long-term debt to a finance company due November 1999;
interest rate of 10% per annum; principal and interest
of $8,100 due monthly; collateralized by computer
equipment. The note allows for up to $250,000 in
principal. $ 147 $ 145
Note payable to an individual due April 2002; interest
rate 15% per annum; due monthly; unsecured. 450 --
Note payable to an individual; due August 2002;
interest rate of 12% per annum; principal and interest
of $2,547 due monthly; collateralized by real estate. 224 --
Note payable to bank due January 2003; variable
interest rate of 1.75% above the bank's prime rate
index of 8.5% at December 31, 1996; principal and
interest of $800 due monthly; collateralized by
inventory; paid in full during 1997. -- 40
------- -------
821 185
Less current portion (90) (95)
------- -------
$ 731 $ 90
======= =======
Maturities of long-term debt are as follows (in thousands):
Year Ending December 31,
- ------------------------
1998 $ 90
1999 66
2000 5
2001 6
2002 654
---------
$ 821
=========
F-17
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Notes Payable and Long-Term Debt (continued)
- -----------------------------------------------------
Long-Term Debt (continued)
- --------------------------
Interest expense incurred on notes payable and long-term debt was $351,000 and
$219,000 for the years ended December 31, 1997 and 1996 (Restated),
respectively. Included in interest expense were amounts paid to related parties
of approximately $143,000 and $92,000, for the years ended December 31, 1997 and
1996 (Restated), respectively.
Note 9 - Commitments and Contingencies
- --------------------------------------
Operating Leases
- ----------------
The Company leased one pawnshop facility from a stockholder/officer through
October 1997 at which time the Company acquired the building (Note 13). The
Company leases one pawnshop facility from a stockholder and leases its other
pawnshop facilities from unrelated parties under operating leases expiring in
various years through 2006. Utilities, insurance and taxes are paid by the
Company for all of the pawnshop facilities. The majority of the operating leases
provide for an option to renew for one additional period of five years at the
fair market value at the time of renewal.
Future minimum lease payments under noncancelable leases are as follows (in
thousands):
Related Non-Related
Year Ending December 31, Party Parties Total
- ------------------------ --------- --------- ---------
1998 $ 18 $ 525 $ 543
1999 - 507 507
2000 - 433 433
2001 - 387 387
2002 - 251 251
Thereafter - 280 280
--------- --------- ---------
$ 18 $ 2,383 $ 2,401
========= ========= =========
Total future minimum lease payments above include a reduction of $9,000 for
noncancelable sublease payments.
Rent expense was $644,000 and $552,000, for the years ended December 31, 1997
and 1996 (Restated), respectively. Included in rent expense were amounts paid to
a stockholder/officer of $70,000 and $79,000 for the years ended December 31,
1997 and 1996 (Restated), respectively.
F-18
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Commitments and Contingencies (continued)
- --------------------------------------------------
Litigation
- ----------
The Company is a 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.
Insurance
- ---------
For the most part, the Company does not maintain theft insurance for personal
property losses as management believes that the risk of loss does not justify
the premium cost of coverage. Insurance is provided to insure against casualty
loss, employee dishonesty and general business liability claims. Costs resulting
from uninsured property losses will be charged against income upon occurrence.
No material amounts for uninsured property losses were charged to operations for
any of the periods presented.
Employment Agreements
- ---------------------
The Company has entered into an employment agreement with an officer of the
Company. The agreement requires an annual salary of $150,000 and includes
incentive compensation provisions. The agreement expires in December 2000.
Note 10 - Income Taxes
- ----------------------
The components of deferred tax assets and (liabilities) are as follows (in
thousands):
December 31,
----------------
1997 1996
---- ----
(Restated)
Total deferred tax assets $ 94 $ 28
Total deferred tax (liabilities) (28) (141)
----- -----
Net deferred tax assets (liabilities) $ 66 $(113)
===== =====
F-19
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Income Taxes (continued)
- ----------------------------------
The tax effects of temporary differences that give rise to deferred tax assets
and (liabilities) are as follows (in thousands):
December 31,
-------------------
1997 1996
----- -----
Temporary differences: (Restated)
<S> <C> <C>
Abandonment of leases $ 51 $--
Change in tax accounting method
for service charges receivable (111) (60)
Service charges receivable -- (23)
Property and equipment 85 (9)
Inventory 29 (38)
Other 12 17
----- -----
$ 66 $(113)
===== =====
Income tax expense (benefit) consists of the following (in thousands):
Year Ended
December 31,
-------------------
1997 1996
----- -----
(Restated)
Current $ 228 $ 458
Deferred (179) (18)
----- -----
$ 49 $ 440
===== =====
The current tax benefit associated with the exercise of stock options reduced
taxes currently payable by approximately $225,000 in 1997. Such benefit is
reflected as additional paid in capital.
The components of deferred income tax expense (benefit) are as follows (in
thousands):
Year Ended
December 31,
-------------------
1997 1996
----- -----
(Restated)
Abandonment of leases $ (51) $--
Depreciation and amortization (94) 21
Change in tax accounting method
for service charges receivable 51 (20)
Service charges receivable (23) --
Inventory (67) (23)
Other 5 4
----- -----
$(179) $ (18)
===== =====
F-20
</TABLE>
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Income Taxes (continued)
- ----------------------------------
The following is a reconciliation of the amount of income tax expense that would
result from applying the statutory federal income tax rates to pre-tax income
and the reported amount of income tax expense (in thousands):
Year Ended
December 31,
------------------
1997 1996
----- -----
(Restated)
Tax expense at federal statutory rates $ 15 $ 408
Goodwill amortization 14 29
Non deductible items 3 5
Other 17 (2)
----- -----
$ 49 $ 440
===== =====
Note 11 - Redeemable Preferred Stock
- ------------------------------------
The Company has authorized 1,000,000 shares of $10 par value, redeemable
preferred stock. The preferred stock is redeemable only at the Company's option
at par value. The preferred stock is nonvoting, cumulative, pays a monthly
dividend at an annual rate of 9.5% and has the same rights in the event of
liquidation as the common stockholders.
Note 12 - Common Stock, Options and Warrants
- --------------------------------------------
Warrants
- --------
In connection with a July 1993 private placement offering, the Company issued to
an underwriter warrants to purchase up to 125,000 shares of common stock until
July 31, 1998 at an exercise price of $3.00 per share. No warrants have been
exercised at December 31, 1997.
In connection with $300,000 of notes payable issued during 1996, the Company
issued warrants to purchase up to 9,000 shares of the Company's common stock for
an exercise price of $4.00 per share through 1999. No warrants have been
exercised at December 31, 1997.
F-21
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Warrants (continued)
- --------------------
A summary of the status of the Company's warrants follows:
December 31,
---------------------------------------------------
1997 1996
------------------------ -----------------------
(Restated)
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 134,000 $ 3.07 125,000 $ 3.00
Granted - - 9,000 4.00
Exercised - - - -
Canceled - - - -
--------- -------- --------- --------
Outstanding at end of year 134,000 $ 3.07 134,000 $ 3.07
========= ======== ========= =========
Warrants exercisable at end of year 134,000 134,000
========= =========
Weighted average fair value of warrants granted
during the year $ - $ 1.12
========= =========
The following information summarizes warrants outstanding and exercisable at
December 31, 1997:
Number of Warrants
Outstanding and Weighted Average
Exercisable at Remaining Weighted Average
December 31, Contractual Exercise
Range of exercise price 1997 Life Price
- ----------------------- ------------------ ---------------- ----------------
$3.00 - $4.00 134,000 .79 $ 3.07
============= ================== ================ ================
F-22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Stock-Based Compensation Plans
- ------------------------------
The Company's stock option plans provide for the granting of stock options to
employees, key employees, consultants and directors. Under the plans, the
Company has reserved 1,452,500 shares of common stock for issuance at prices not
less than the fair market value at the date of grant. For options granted to an
employee owning shares of common stock possessing more than 10% of the total
combined voting power of all classes of the Company's common stock, the option
price shall not be less than 110% of the fair market value of the common stock
on the date of grant. The maximum term of the options is ten years and all plans
are fully vested at December 31, 1997.
A summary of the status of the Company's stock option plans follows:
December 31,
----------------------------------------------------
1997 1996
---------------------- -----------------------
(Restated)
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 655,040 $ 1.96 744,540 $ 2.02
Granted 125,000 3.47 300,000 2.11
Exercised (423,874) 1.96 (364,167) 1.77
Canceled (31,666) 1.72 (25,333) 2.42
-------- ------- --------- -------
Outstanding at end of year 324,500 $ 2.71 655,040 $ 1.96
======== ======= ========= =======
Options exercisable at end of year 324,500 562,544
======== =========
Options available for future grant 205,626 292,960
======== =========
Weighted average fair value of options granted
during the year $ .86 $ .33
======== =========
</TABLE>
F-23
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Stock-Based Compensation Plans (continued)
- ------------------------------------------
The following information summarizes stock options outstanding and exercisable
at December 31, 1997:
Number of
Options
Outstanding Weighted
and Average Weighted
Exercisable at Remaining Average
December 31, Contractual Exercise
Range of exercise prices 1997 Life Price
- ------------------------ --------------- ----------- ----------
$.62 to $2.50 181,875 5.12 $ 1.77
$2.50 to $3.50 100,000 9.97 3.24
$3.50 to $5.13 42,625 3.93 4.38
-------------- --------------- ----------- ----------
$.62 to $5.13 324,500 6.46 $ 2.57
============= =============== =========== ==========
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, no compensation cost has been recognized for these stock
options plans in 1997 or 1996 for options granted to employees of the Company.
Had compensation cost for these plans been determined based on their fair value
at the date of grant pursuant to SFAS 123, net income (loss) and earnings (loss)
per share would have been reduced to the pro forma amounts indicated as follows
(in thousands except for per share data):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
Net income (loss) - as reported $ (41) $ 703
Net income (loss) - pro forma $ (150) $ 703
Earnings (loss) per share - as reported $ (.01) $ .22
Earnings (loss) per share - pro forma $ (.04) $ .22
Earnings (loss) per share, assuming dilution - as reported $ (.01) $ .19
Earnings (loss) per share, assuming dilution - pro forma $ (.04) $ .19
</TABLE>
F-24
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Stock-Based Compensation Plans (continued)
- ------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
Expected dividend yield - %
Expected stock price volatility 52.05%
Risk free interest rate 6.00%
Expected life of options 1.5 years
Expected vesting period 1.5 years
Earnings (Loss) Per Share
- -------------------------
The following table sets forth the computation of earnings (loss) per common
share:
Year Ended
December 31,
------------------------
1997 1996
---------- ----------
(Restated)
Numerator:
Net income (loss) available for common
stockholders
$ (41,000) $ 703,000
========== ==========
Denominator:
Denominator for basic earnings per share
- weighted average shares
3,730,715 3,266,799
Effect of dilutive securities:
Stock options and warrants -- 387,758
---------- ----------
Denominator for diluted earnings per share
- adjusted weighted average shares and
assumed conversions 3,730,715 3,654,557
========== ==========
Earnings (loss) per common share $ (.01) $ .22
========== ==========
Earnings (loss) per common share - assuming dilution $ (.01) $ .19
========== ==========
The numerators for earnings (loss) per common share consists of net income
(loss) adjusted only for dividends paid to preferred stockholders.
F-25
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 - Related Party Transactions
- ------------------------------------
In addition to transactions with related parties discussed throughout the notes
to financial statements, the following related party transactions have occurred:
Two stockholders/directors of the Company are attorneys who have provided
certain legal services to the Company. Legal fees incurred totaled approximately
$47,000 and $26,000, for the years ended December 31, 1997 and 1996 (Restated),
respectively. In addition, one of these attorneys was paid a finder's fee or
loan origination fee in 1997 of $20,000 for the $450,000 note payable.
In October 1997, a stockholder/officer resigned from his position with the
Company. The terms of the resignation agreement between the Company and the
stockholder/officer provided that (i) the Company purchase certain real estate
from the stockholder/officer valued at $332,000 in consideration of the Company
assuming a $224,000 mortgage and the cancellation of amounts due to the Company
from the stockholder of $108,000 and; (ii) redeem for cash options to purchase
223,250 common shares of the Company exercisable by the stockholder/officer for
approximately $267,000.
Note 14 - Significant Fourth Quarter Adjustments
- ------------------------------------------------
During the fourth quarter of fiscal 1997, the Company recognized a valuation
allowance for inventory and wrote-off intangible assets and lease abandonment
costs associated with the store closures under a plan to consolidate the
operations of four stores located in Cheyenne, Wyoming. The total charge to
earnings for these transactions was approximately $517,000.
Note 15 - Acquisition Activity
- ------------------------------
Effective on February 1, 1996, the Company acquired 80% of the outstanding stock
of Advantage for an aggregate purchase price of $188,000. Under the agreement,
the sellers received $83,000 in cash and 45,000 shares of the Company's common
stock valued at $105,000. The Company also agreed to guarantee $105,000 in
liabilities of Advantage. The assets acquired consisted primarily of inventory
and pawn loans valued at $226,000 and liabilities assumed of $147,000. The
purchase price in excess of assets acquired of $109,000 was recorded as
goodwill. The Company also paid $22,500 in cash for an agreement not to compete.
During 1997, the Company acquired an additional 14% of Advantage for an
aggregate purchase price of $37,489. The minority stockholders received $19,615
in cash and a promissory note of $17,874 of which $13,405 was outstanding as of
December 31, 1997.
F-26
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 - Acquisition Activity (continued)
- ------------------------------------------
On August 2, 1996, the Company acquired the assets of City National Pawn, which
consisted of three pawnshops; one in Ft. Collins, Colorado and two in Cheyenne,
Wyoming. Substantially all of the assets of the three pawnshops were acquired
for an aggregate purchase price of $775,000. The assets consisted primarily of
inventory and pawn loans which were valued at $518,000. The purchase price in
excess of assets acquired of $247,000 was recorded as goodwill.
On December 9, 1996, the Company acquired all of the outstanding stock in
Bobby's Pawnshop, Inc. (Bobby's) for an aggregate purchase price of $700,000.
The sellers received $27,000 in cash and a note payable of $673,000 which was
paid in March 1997. The assets consist primarily of inventory and pawn loan
receivables which were valued at approximately $480,000. The purchase price in
excess of assets acquired of $220,000 has been recorded as goodwill. Bobby's
operates one pawnshop in Las Vegas, Nevada.
On December 9, 1996, the Company agreed to issue approximately 250,000 shares of
its common stock for 100% of the outstanding common stock of Pawnbroker, Inc.
d/b/a Quick Bill's (Bill's). The merger was accounted for as a pooling of
interests, and accordingly, the consolidated financial statements of the Company
for December 31, 1996 included the accounts and operations of Bill's for all
periods therein presented. On November 14, 1997, the merger was rescinded by
mutual agreement of the parties. The agreement to rescind the merger obligates
the Company to pay $220,000 to Bill's shareholders. Accordingly, the
consolidated financial statements of the Company for December 31, 1996 have been
restated from previously reported amounts to exclude the accounts and operations
of Bill's.
In connection with the Bill's merger, $20,000 of merger costs and expenses
($13,000 after tax or $.01 per share) were incurred in 1996 and were charged to
operations. The merger costs and expenses consisted of legal, accounting, travel
and employee salaries.
The balance sheet as of December 31, 1996 which would reflect the Bill's
recission as if it occurred prior to December 31, 1996 is as follows (in
thousands):
Restated
U.S. Pawn Bill's Balance
--------- ------- -------
(As Reported)
Current assets $7,286 $ (336) $6,950
Property and equipment 1,397 (65) 1,332
Other assets 901 (27) 874
------ ------ ------
Total assets $9,584 $ (428) $9,156
====== ====== ======
F-27
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 - Acquisition Activity (continued)
- ------------------------------------------
Restated
U.S. Pawn Bill's Balance
--------- ------ -------
(As Reported)
Current liabilities $2,473 $ (27) $2,446
Long-term debt 322 (32) 290
Deferred income taxes 113 -- 113
Minority interest 42 -- 42
Stockholders' equity 6,634 (369) 6,265
------ ------ ------
Total liabilities and
stockholders' equity $9,584 $ (428) $9,156
====== ====== ======
On June 17, 1997, the Company acquired all of the outstanding common stock of
Pawn Warehouse Outlet, Inc. (Pawn) a pawnshop located in Omaha, Nebraska for an
aggregate purchase price of $435,000. Under the agreement, the sellers received
75,666 shares of the Company's common stock valued at $275,000 and cash in the
amount of $160,000 in payment of a note payable due to one of the sellers. The
purchase price has been allocated to assets based on their fair market value net
of liabilities assumed. The purchase price in excess of the assets acquired of
approximately $196,000 has been recorded as goodwill. The operating results of
Pawn have been included in the Company's consolidated financial statements since
the date of acquisition.
The assets and liabilities acquired were as follows (in thousands):
Assets acquired
- ---------------
Cash $ 10
Service charges receivable 57
Pawn loans 194
Inventory 165
Prepaid and other assets 5
Property and equipment 9
----
440
----
Liabilities assumed
- -------------------
Line-of-credit 190
Accrued liabilities 4
Customer deposits 7
----
201
----
239
Aggregate purchase price 435
----
Goodwill $196
====
F-28
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 - Acquisition Activity (continued)
- ------------------------------------------
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and Pawn for the years shown as if the acquisition had
taken place at the beginning of the years shown. Appropriate adjustments have
been made to reflect the cost basis used in recording these acquisitions.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would have
resulted had the combinations been in effect on the dates referred to above,
that have resulted since the dates of the acquisitions or that may result in the
future (in thousands, except per share amounts):
Year Ended
December 31,
----------------------
1997 1996
-------- --------
(Unaudited) (Unaudited)
(Restated)
Revenues $ 13,058 $ 10,959
Net income allocated to common stockholders $ (21) $ 708
Income per common and common equivalent share $ (.01) $ .19
Note 16 - Supplemental Information to Statement of Cash Flows for Noncash
- --------------------------------------------------------------------------------
Investing and Financing Activities (in Thousands)
- -------------------------------------------------
Year Ended
December 31,
-----------------
1997 1996
------- -------
(Restated)
Cash paid during the year for interest $ 335 $ 218
======= =======
Cash paid during the year for income taxes $ 338 $ 493
======= =======
Transfer of forfeited pawn loan collateral to inventory $ 3,893 $ 3,299
======= =======
Note issued in acquisition of minority interest $17,874 $ --
======= =======
F-29
<PAGE>
ITEM 8. - DISAGREEMENTS IN ACCOUNTING AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------
On March 26, 1998 the Company's principal independent accountant resigned due to
certain independence issues. On March 30, 1998 the Company engaged a new
independent accountant. On March 31, 1998 a Form 8-K, which is incorporated
herein by reference, was filed reflecting this change.
PART III
ITEM 9. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information with respect to this Item is incorporated herein by reference to the
Company's definitive proxy statement, to be disseminated on or before April 30,
1998.
ITEM 10. - EXECUTIVE COMPENSATION
- ---------------------------------
Information with respect to this Item is incorporated herein by reference to the
Company's definitive proxy statement, to be disseminated on or before April 30,
1998.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
Information with respect to this Item is incorporated herein by reference to the
Company's definitive proxy statement, to be disseminated on or before April 30,
1998.
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
Information with respect to this Item is incorporated herein by reference to the
Company's definitive proxy statement, to be disseminated on or before April 30,
1998.
18
<PAGE>
ITEM 13. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements:
---------------------
The following consolidated financial statements are included in Part II, Item 7
for the years ended December 31, 1997 and 1996 (Restated): Balance Sheets,
Statements of Operations, Statements of Changes in Stockholder's Equity,
Statements of Cash Flows and Notes to Financial Statements.
2. Financial Statements Schedules:
- --------------------------------------
None.
3. Exhibits:
- ----------------
Exhibit #10.1 Stock Purchase Agreement, dated April 11, 1997
Exhibit #10.2 Agreement and Plan of Merger, dated June 16, 1997
Exhibit #10.3 Schedule 13-G, dated August 22, 1997, incorporated herein by
reference
Exhibit #10.4 Schedule 14-F, dated September 26, 1997, incorporated herein by
reference
Exhibit #10.5 Resignation Agreement, dated October 29, 1997
Exhibit #10.6 Settlement Agreement, dated November 14, 1997
Exhibit #10.7 Schedule 13-D, dated December 23, 1997, incorporated herein by
reference
Exhibit #27.1 Financial Data Schedule.
(b) Reports on Form 8-K: During the twelve months covered by this report, the
Company filed one report on form 8-K on November 14, 1997 to report a change in
management control of the Company.
19
<PAGE>
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 April
15, 1998 on its behalf by the undersigned, thereto duly authorized.
U.S. PAWN, INC.
By /s/ Charles C. Van Gundy
-----------------------------
Charles C. Van Gundy
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on April 15, 1998.
Signature Capacity
- --------- --------
/s/ Charles C. Van Gundy Chief Executive Officer,
- ---------------------------- Chief Financial Officer,
(Principal Accounting Officer)
and Director
/s/ Gary A. Agron Director
- ----------------------------
Gary A. Agron
/s/ Jack Skidell Director
- ----------------------------
Jack Skidell
/s/ Mark Honigsfeld Director
- ----------------------------
Mark Honigsfeld
20
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), entered into April 11,
1997, by and among U.S. Pawn Nevada, Inc., a Colorado corporation ("Purchaser"),
Bobby's Pawnshop, Inc., d/b/a Bobby's Jewelry & Loan, a Nevada corporation (the
"Company"), and Robert T. Lord, Jr. ("RTL") and Roy M. York ("RMY") (RTL AND RMY
shall be hereinafter sometimes individually be referred to as a "Seller" and
collectively referred to as the "Sellers").
RECITALS
--------
WHEREAS, the Company is engaged in the business of advancing money to
customers on the security of pledged goods and, if appropriate, selling such
pledged goods, otherwise known as a pawnshop (the "Business"), located at 626
Las Vegas Boulevard South in Las Vegas, Nevada;
WHEREAS, the Sellers jointly, as tenants in common, own 250 shares of
common stock of the Company (the "Shares"), which are all of the issued and
outstanding shares of the capital stock of the Company; and
WHEREAS, the Sellers desires to sell, transfer and deliver the Shares to
the Purchaser and the Purchaser desires to purchase such shares upon the terms
and conditions provided by this Agreement.
AGREEMENT
---------
THEREFORE, in consideration of the Recitals which shall constitute a
substantive part of this Agreement, the mutual covenants, promises, agreements,
representations and warranties hereinafter set forth, the covenants not to
compete included in the employment agreement attached hereto as Exhibit B and in
the Non- Compete Agreement attached hereto as Exhibit C and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
---------
SALE AND PURCHASE OF SHARES
---------------------------
1.1 SALE AND PURCHASE. Subject to the terms and conditions hereof, at the
Closing, as defined in Section 1.2 below, the Sellers shall sell, assign,
transfer and deliver to the Purchaser, and the Purchaser shall purchase from the
Sellers all right, title and interest of the Sellers in and to the Shares (the
"Purchase").
1.2 CLOSING. The Purchase shall be consummated at a closing (the "Closing")
to take place at the offices of Purchaser on April 11, 1997 (the "Closing
Date"), at 11:00 a.m. or such other place, time or date as the parties shall
agree.
1.3 PURCHASE PRICE. The consideration to be paid by the Purchaser to the
Sellers for the Shares shall be an amount equal to $700,000 (the "Purchase
Price") payable as follows: (a) cancellation of the Promissory Note (the "Note")
<PAGE>
dated December 11, 1996 from the Company and RMY in the principal amount of
$27,500, and (b) a certified or cashier's check or wire transfer (to be made
payable or wired at the Closing in accordance with the written instructions of
Sellers) of an amount equal to $672,500. In addition, the Promissory Note (the
"Capital Note") dated January 21, 1997 from the Company and RMY in the principal
amount of $10,000 shall be cancelled at the Closing (such amount being deemed
capital paid into the Company by Purchaser). Notwithstanding the foregoing,
$20,000 of the $672,500 shall be retained by Purchaser until the merger of
Pawnbrokers, Inc. and Purchaser or a wholly-owned subsidiary of Purchaser has
been consummated, at which time, simultaneously with such consummation,
Purchaser shall forward a certified or cashier's check or wire transfer to
Sellers for $20,000 in accordance with Seller's written instructions. For the
Sellers' tax purposes, the $700,000 Purchase Price shall be distributed between
the Sellers as indicated on Schedule 1.3 attached hereto.
1.4 PURCHASE PRICE ADJUSTMENT. No more than 4 business days prior to the
Closing Date, the Purchaser may, at its option, perform an updated evaluation of
the Company's cash on hand (including cash in bank accounts or otherwise) (the
"Cash"), merchandise inventory ("MI") and pawn loans receivable ("PLR")
utilizing methods substantially similar to those used in the Purchaser's audit
of the Company conducted in late January, 1997. In the event that the MI is more
than 15% less than $93,000 or the PLR is more than 15% less than $280,000 and
such reduction is not otherwise offset by a corresponding increase in either the
Cash, the MI, the PLR or a combination thereof, as the case may be, then the
parties shall, in good faith, negotiate a reduction in the cash portion of the
Purchase Price to compensate for such unexpected reduction in the MI or the PLR,
as the case may be. There will be no adjustment of the Purchase Price if the MI
or the PLR is greater than the above threshold amounts.
1.5 DELIVERIES AT CLOSING. At the Closing, the parties shall make the
deliveries described below, provided that the obligation of each to do so shall
depend upon the performance by the other party of its obligations hereunder.
(a) The Sellers shall deliver, or cause to be delivered, to the
Purchaser the following documents and certificates (which shall be in form
and substance reasonably satisfactory to the Purchaser):
(i) the certificates representing the Shares, duly endorsed for
transfer;
(ii) an opinion of counsel substantially in the form attached
hereto as Exhibit A;
(iii)employment agreement substantially in the form attached
hereto as Exhibit B executed by RMY (the "Employment
Agreement");
(iv) a Non-Compete Agreement substantially in the form attached
hereto as Exhibit C executed by RTL (the "Non- Compete
Agreement");
2
<PAGE>
(v) executed UCC-3 termination statements (the "UCC
Terminations"), in form suitable for filing with the Nevada
Secretary of State, terminating the UCC-1's on file that
identify Bobby's Pawnshop, Inc. and RTL as Debtor and Welt
Family Trust as Secured Party;
(vi) a letter, in form satisfactory to Purchaser, and in
compliance with Nevada law, whereby the spouse of each
Seller shall release and waive any and all interest she may
have in the transfer of the Shares, including a release and
waiver of any community property interest that each such
spouse may have in the Shares or the Company; and
(vii)such other documents as may be reasonably necessary to
consummate the transactions contemplated hereby.
(b) The Purchaser shall deliver to the Sellers the following:
(i) a certified check or cashier's check or wire transfer in the
amount of the Purchase Price as adjusted;
(ii) the Employment Agreement executed by Purchaser;
(iii) the Note and the Capital Note, marked as cancelled; and
(iv) such other documents as may be reasonably necessary to
consummate the transactions contemplated hereby.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 GENERAL STATEMENT. The parties make the representations and warranties
to each other which are set forth in this Article II. The survival of all such
representations and warranties shall be in accordance with Section 8.1 hereof.
All representations and warranties of the parties are made subject to the
exceptions which are noted in the respective schedules delivered by the parties
to each other concurrently herewith.
2.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to the Company and Sellers, as of the date hereof and at the Closing
Date, as follows:
(a) Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado.
(b) Authorization of Transaction. The execution, delivery and
performance by the Purchaser of this Agreement and the consummation of the
transactions contemplated hereby are within the Purchaser's power and have
3
<PAGE>
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding obligation of the Purchaser, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance and transfer, and moratorium or other
similar laws of general application affecting the enforcement of creditors'
rights generally.
(c) Brokers' Fees. Purchaser has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent engaged by the
Purchaser with respect to the transactions contemplated by this Agreement.
2.3 REPRESENTATIONS AND WARRANTIES OF SELLER. The Sellers and the Company,
jointly and severally, represent and warrant to Purchaser as of the date hereof
and at the Closing Date, as follows:
(a) Organization, Qualification and Corporate Power. The Company is a
corporation duly incorporated, validly existing, and in good standing under
the laws of the State of Nevada. The Company is duly authorized to conduct
the Business and is duly qualified as a foreign corporation to do business,
and is in good standing, under the laws of each jurisdiction where such
qualification is required. The Company has the legal right, full corporate
power and authority to carry on the Business and to own and use the
properties owned and used by it. Copies of the Articles of Incorporation
and Bylaws of the Company have heretofore been provided to Purchaser, and
such copies are accurate and complete as of the date hereof and as of the
Closing Date. No portion of the Business is presently conducted by any
legal entity other than the Company. The Company does not, and has not,
conducted any business other than the Business. No actions, proceedings or
transactions have been commenced or undertaken by either the Company or
Sellers which (i) give or would give rights to any person, other than the
Purchaser, in any of the Shares or any of the Company's assets or (ii)
interfere with the consummation of the transactions contemplated by this
Agreement. The Company has no subsidiaries and has no equity or other
ownership interest in any other entity or business enterprise.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 500 shares of common stock, no par value, of which 250 shares
are issued and outstanding. All of the Shares have been duly authorized and
are validly issued, fully paid, and nonassessable. Other than the Shares,
the Company has no outstanding capital stock and there are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that
could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to the Company. Immediately following the
Closing, Purchaser will own the entire equity interest in the Company.
(c) Ownership of Sellers' Shares. The Sellers, as tenants in common,
are the sole and exclusive record and beneficial owners of 250 shares of
the Company's common stock, no par value (representing the Shares) free and
4
<PAGE>
clear of all liens, charges, security interests and similar rights of third
parties (collectively, "Encumbrances"). The Sellers possess and on the
Closing Date shall possess, good and merchantable title to the Shares, and
will own the Shares free and clear of any and all Encumbrances. The Sellers
have the absolute and unconditional right to sell, assign, transfer and
deliver the Shares to the Purchaser in accordance with the terms of this
Agreement.
(d) Authority and Binding Effect. The Company has the full corporate
power and each of the Sellers has the full power and authority to execute
and deliver this Agreement and each agreement referenced herein to which
they are a party and to consummate the transactions contemplated by, and
comply with their obligations under, such agreements. Upon execution, this
Agreement and each agreement referenced herein to which the Company is a
party, and the consummation by the Company of its obligations herein and
therein, have been duly authorized by all necessary corporate action of the
Company. As of the Closing Date, this Agreement and each agreement
referenced herein to which the Company is a party, if required, will have
approval by all of the Company's stockholders in accordance with applicable
law. This Agreement has been duly executed and delivered by the Sellers and
the Company, and the Sellers and the Company will, at the Closing, duly
execute and deliver the agreements referenced herein to which they are a
party. This Agreement is a valid and binding obligation of each Seller and
the Company enforceable against it in accordance with its terms, except as
such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally, and (ii) general principles of equity
regardless of whether such enforceability is considered in a proceeding in
equity or at law. No further action is required to be taken by the Sellers
or the Company, nor is it necessary for the Sellers or the Company to
obtain any action, approval or consent by or from any third persons,
governmental or other, to enable the Sellers or the Company to enter into
or perform its obligations under this Agreement and each agreement referred
to herein to which it is a party.
(e) Noncontravention. Except as disclosed on Schedule 2.3(e), neither
the execution and the delivery of this Agreement, nor the consummation of
the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Company is subject or by which any of its assets are
bound, (ii) conflict with or violate any provision of the Articles of
Incorporation, any provision of the Bylaws of the Company or any
shareholders' agreement to which the Company or the Sellers is a party or
(iii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any security interest upon any of
its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation or failure to give
notice would not have a material adverse effect on either (i) the assets,
operations, financial condition or prospects of the Business, or (ii)
Sellers' or Purchaser's (as applicable) ability to consummate the
5
<PAGE>
transactions contemplated hereby (a "Material Adverse Effect"). Except as
set forth on Schedule 3.3(e), the Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order for the parties to
consummate the transactions contemplated by this Agreement, except where
the failure to give notice, to file, or obtain any authorization, consent,
or approval would not have a Material Adverse Effect.
(f) Financial Statements. The Sellers have delivered to Purchaser
financial statements of the Company consisting of an unaudited balance
sheet and a related statement of income, as of and for the period ended
December 31, 1995. True, correct and complete copies of the Financial
Statements from January 1, 1996 through December 31, 1996, are attached as
Schedule 3.3(f) hereto (the "Financial Statements"). Except as otherwise
set forth in the footnotes contained therein, the Financial Statements were
prepared in accordance with generally accepted accounting principles
("GAAP"). The Financial Statements fairly present the financial condition
of the Company and the results of its operations as of the relevant dates
thereof and for the respective periods covered thereby. Except as set forth
in the Financial Statements, the Company does not have any debts,
obligations, liabilities or commitments of any nature, whether due or to
become due, absolute, contingent or otherwise, that, in accordance with
GAAP, are required to be disclosed in a balance sheet or the footnotes
thereto, and are not shown on the December 31, 1996 balance sheet delivered
pursuant hereto, other than liabilities incurred after December 31, 1996 in
the ordinary course of business and consistent with past practice. Such
post-December 31, 1996 liabilities are not material in amount and have not
had and are not expected to have, individually or in the aggregate, a
material adverse effect on the financial condition or results of operations
of the Company or the business. As to each liability, debt, obligation or
commitment, fixed or contingent, that is set forth in the Financial
Statements, the Seller shall provide the following information, in writing
as an attachment to such Schedule: (i) a summary description of the
liability, debt, obligation or commitment, together with copies of all
relevant documentation relating thereto, the amounts claimed and any other
action or relief sought and, if in connection with a claim, suit or
proceeding, the name of the claimant and all other parties involved
therewith and the identity of the court or agency in which such claim, suit
or proceeding is being prosecuted, and (ii) the best estimate of the
Sellers of the maximum amount, if any, which is likely to become payable
with respect to any contingent liability. For purposes hereof, if no
written estimate is provided, such best estimate shall be deemed to be
zero. To the best of Sellers' and the Company's knowledge, except as noted
on Schedule 3.3(f), all outstanding notes and accounts receivable of the
Company are collectible.
(g) Absence of Certain Changes. Except as set forth in Schedule 3.3(g)
hereto, during the period from December 31, 1996 to the date hereof, there
has not been with respect to or affecting the Company or the Business: (i)
any amendment, termination or revocation, or any threat known to the
Sellers or the Company of any amendment, termination or revocation, of any
lease, licenses, permit, franchise, purchase order, sales order or other
agreement or binding commitment, whether or not in written form (a
"Contract") to which the Company is a party; (ii) except for the
transactions contemplated hereby, any sale, transfer, mortgage, pledge or
subjection to any Encumbrance, of, on or affecting any of the Company's
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<PAGE>
assets, except sales or utilization of the Company's inventory that
have been made in the ordinary course of Business consistent with past
practices, and liens for current taxes not yet due and payable; (iii) other
than as contemplated in connection with the transactions contemplated
hereby, any increase in the compensation paid or to become payable or in
the fringe benefits provided to any officers or employees of the Company,
(iv) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the Company or the Business; (v) the
incurrence of any indebtedness, either for borrowed money or in connection
with any purchase of assets that is not reflected in the December 31, 1996
balance sheet which individually, or in the aggregate, involves more than
$1,000, except in the ordinary course of business consistent with past
practices; (vi) any purchase or lease, or commitment for the purchase or
lease, of equipment, machinery, leasehold improvements or other capital
items not disclosed in the Financial Statements which involves amounts
exceeding $1,000 individually or $2,500 in the aggregate, or obligates the
Company to purchase goods or services for a period of 90 days or more
except in the ordinary course of business consistent with past practices;
(vii) the execution by the Company of any agreement or Contract that is, or
could reasonably be expected to become, material to the Business; (viii)
any material change in the collection, payment or credit experience or
practices of the Business or in the accounting practices, procedures or
methods of the Company; (ix) the occurrence subsequent to December 31, 1996
of any other event or circumstance which could materially and adversely
affect any of the Company's assets, the Business, or the ability of the
Sellers or the Company to consummate the transactions contemplated hereby
or (x) any commitment with respect to any of the foregoing.
(h) Title to and Adequacy of Company Assets. Except as disclosed on
Schedule 3.3(h) hereto, the Company has, and at the Closing will have,
good, complete and marketable title to all of its assets necessary for
Purchaser to own and operate the Business substantially in the same manner
as it is being now conducted (the "Company Assets"). Except as set forth on
Schedule 3.3(h), all of the Company Assets are in the exclusive possession
and control of the Company. The Company Assets have been maintained in good
working condition (normal wear and tear excepted) and are sufficient for
the conduct of the Business. The Company's accounts receivable and pawn
loan receivable represent bona fide obligations arising in the ordinary
course of the Business and to the best of the Sellers' and the Company's
knowledge, are fully collectible by the Company or adequately
collateralized, net of reserves for doubtful accounts as reflected on the
Financial Statements. The assets reflected on the Financial statements
constitute all of the assets, properties and other rights used in the
conduct of the Business except for those assets acquired or disposed of in
the ordinary course of business subsequent to the date of the Financial
Statements.
(i) Undisclosed Liabilities. To the best of Seller's knowledge, the
Company has no liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due),
except for (i) liabilities set forth in the balance sheets dated as of
December 31, 1996, and outstanding on the Closing Date, and (ii)
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<PAGE>
liabilities which have arisen after December 31, 1996, in the ordinary
course of business (none of which results from, arises out of, relates to,
is in the nature of, or was caused by breach of contract, breach of
warranty, tort, infringement, or violation of law or which individually or
in the aggregate will have a Material Adverse Effect). Except as disclosed
on Schedule 3.3(i), the Company has no liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, or whether
due or to become due) for Taxes (as defined below). Notwithstanding
anything in the foregoing to the contrary, as of the Closing Date, the
Company will not have any accounts payable or other outstanding
liabilities.
(j) Brokers' Fees. Neither Sellers nor the Company has paid or is
obligated to pay any brokerage commissions, finders' fees or similar
compensation (including any payments to employees of the Company but
excluding fees to attorneys and accountants) in connection with the
transactions contemplated by this Agreement.
(k) Taxes. With respect to Taxes (as defined below):
(i) The Company has filed, within the time and in the manner
prescribed by law, all returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be filed
under federal, state, local or any foreign laws by the Company, and
all such Returns are true, correct and complete in all material
respects.
(ii) The Company has, within the time and in the manner
prescribed by law, paid (and until the Closing Date will, within the
time and in the manner prescribed by law, pay) all Taxes that are due,
or claimed or asserted by any taxing authority to be due, from or with
respect to the Company for all periods prior to the Closing Date,
whether or not shown on any Return.
(iii) With respect to any period for which Returns have not yet
been filed, or for which Taxes are not yet due or owing, the Company
has no liability for Taxes other than that set forth on the Financial
Statements or incurred subsequent to the date of the Financial
Statements in the ordinary course of business. The Company has made
all required current estimated Tax payments sufficient to avoid any
underpayment penalties.
(iv) The Company has established (and until the Closing Date will
establish) on its respective books and records reserves (to be
specifically designated as an increase to current liabilities) that
are adequate for the payment of all Taxes not yet due and payable.
(v) There are no liens for Taxes upon the assets of the Company
or any subsidiary of the Company except liens for Taxes not yet due.
(vi) The Company has not filed (and will not file prior to the
Closing Date) any consent agreement under Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code") or agree to
have Section 341(f)(2) of the Code apply to any disposition of the
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by the Company.
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<PAGE>
(vii) Except as set forth in Schedule 3.3(k)(7) (which shall set
forth the type of return, date filed, and date of expiration of the
statute of limitations), (i) no extensions of the statute of
limitations for the assessment of federal income taxes have been
granted for any federal income tax returns of the Company and such
returns have been examined by the Internal Revenue Service for all
periods through December 31, 1995; (ii) no extensions of the statute
of limitations for the assessment of state, local and foreign income
taxes have been granted for any applicable Returns of the Company and
such Returns have been examined by the appropriate tax authorities for
all periods through December 31, 1995; and (iii) no deficiency for any
Taxes has been proposed, asserted or assessed against the Company
which has not been resolved and paid in full.
(viii) There are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect
to any Taxes or Returns that have been given by the Company.
(ix) Except as set forth in Schedule 3.3(k)(9) (which shall set
forth the nature of the proceeding, the type of Return, the
deficiencies proposed or assessed and the amount thereof, and the
taxable year in question), no federal, state, local or foreign audits
or other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Returns.
(x) The Company is not a party to any tax-sharing or allocation
agreement, nor does the Company owe any amount under any tax-sharing
or allocation agreement.
(xi) No amounts payable under any agreement will fail to be
deductible for federal income tax purposes by virtue of Section 280G
or 162(m) of the Code.
(xii) The Company has complied (and until the Closing Date will
comply) in all respect with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of
the Code or similar provisions under any foreign laws) and have,
within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities,
all amounts required to be so withheld and paid over under all
applicable laws.
(xiii) The Company has never been (or has any liability for
unpaid Taxes because it once was) a member of an "affiliated group"
within the meaning of Section 1502 of the Code during any part of any
consolidated return year within any part of which year any corporation
other than the Company was also a member of such affiliated group.
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<PAGE>
(xiv) Schedule 3.3(k)(14) contains a list of all jurisdictions
(whether foreign or domestic) in which the company presently files
Returns. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Returns that it is or may be subject
to taxation by that jurisdiction.
(xv) For purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies, or other assessments of whatever kind or
nature, including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, estimated,
severance, stamp, occupancy or property taxes, customs duties, fees,
assessments or charges of any kind whatsoever (together with any
interest and any penalties, additions to tax or additional amounts)
imposed by any taxing authority (domestic or foreign) upon or payable
by the Company.
(l) Leases. Schedule 3.3(l) is a list and brief description of each of
the facilities or real properties leased by the Company and used in
Business (the "Real Property Leases"). The description sets forth, among
other things, the address of each facility or real property leased and the
name and address of the landlord. Schedule 3.3(l) also contains a list of
all leases under which the Company possesses or uses personal property in
connection with the conduct or operation of the Business. The personal
property leases set forth in Schedule 3.3(l) are sometimes collectively
referred to as the "Personal Property Leases." True, correct and complete
copies of the Real Property Leases and Personal Property Leases
(collectively, the "Leases") have been delivered to Purchaser. All of the
facilities covered by the Real Property Leases are equipped in substantial
conformity with laws and governmental regulations applicable to the Company
or the Business. The zoning of each parcel of real property permits the
presently existing improvements thereon and continuation of the Business
presently conducted thereon and no changes therein are pending or are
threatened. To the best of the Company's and Sellers' knowledge, after due
inquiry, no condemnation or similar proceedings are pending or, to the best
knowledge of the Company and Sellers, after due inquiry, threatened against
any of the real properties described on Schedule 3.3(l). None of the Leases
contains any provisions which, after the Closing Date, would (i) hinder or
prevent Purchaser from continuing to use any of the properties or assets
which are the subject of the Leases in the manner in which they are
currently used or (ii) impose any additional costs (other than scheduled
rental increases) or material requirements as a condition to their
continued use which are not currently in effect. Except for the Leases,
none of the Company Assets are held under, or used by the Company in
connection with the Business pursuant to, any lease or conditional sales
contract.
(m) Contracts, Agreements and Commitments. Schedule 3.3(m) hereto
contains an accurate and compete list of all contracts, agreements, leases,
licenses and instruments, not otherwise disclosed in Schedule 3.3(l) to
which the Company is a party or is bound and (i) which relate to and
materially affect any of the Company Assets or the Business, or (ii) which
could hinder consummation of the transactions contemplated by this
Agreement or would affect Purchaser's title to or its ability, after the
Closing, to conduct the Business as it is being conducted on the date
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<PAGE>
hereof, or its ability to dispose of any of the Company Assets following
the Closing. Schedules 3.3(l) and (m) include, without limitation, all
contracts and agreements and all leases, licenses and instruments, which
(i) grant a security interest or permit or provide for the imposition of
any Encumbrance on, or provide for the disposition of, any of the Company
Assets; (ii) require the consent of any third party to the consummation by
the Company or Sellers of the transactions contemplated by this Agreement,
or (iii) would restrict the use or disposition by Purchaser after the
Closing of any of the Company Assets. True, correct and complete copies of
all items so listed on Schedules 3.3(l) and (m) have been furnished to
Purchaser. Each of such contracts, agreements, leases, licenses and
instruments so listed, or required to be so listed on Schedules 3.3(l) and
(m) is a valid and binding obligation of the Company or Sellers, as
applicable, and to the best knowledge of the Company and Sellers, the other
parties thereto, enforceable in accordance with their terms, except as may
be affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity relating to
the availability of equitable remedies. Except as otherwise set forth on
Schedules 3.3(l) and (m) hereto, there have not been any defaults by the
Company, or to the best knowledge of the Company and Sellers after due
inquiry, defaults or any claims of default or claims of nonenforceability
by the other party or parties which, individually or in the aggregate,
would have a Material Adverse Effect and, to the best of the Company's and
Sellers' knowledge after due inquiry, there are no facts or conditions that
have occurred or that the Company or Sellers (without independent
investigation) anticipate to occur which, through the passage of time or
the giving of notice, or both, would constitute a default by the Company or
Sellers, or by the other party or parties, under any of such Contracts,
agreements, leases, licenses and instruments or would cause a creation of
an Encumbrance upon any of the Company Assets or otherwise cause a Material
Adverse Effect.
(n) Employees and Plans. Attached hereto as Schedule 3.3(n) is a list
of each compensation arrangement for each employee of the Company as of the
date hereof. The Company has no employee pension plan, employee profit
sharing plan or employee welfare benefit plan subject to the Employee
Income Retirement Security Act of 1974 or any other employee pension plan,
employee profit sharing plan and employee welfare benefit plan.
(o) Licenses. The Company owns and holds all licenses and permits
necessary or required by applicable law in order to conduct its Business as
now conducted and, if required, the Company and Sellers shall take all
actions necessary to assist Purchaser in transferring such licenses and
permits to the Purchaser.
(p) Labor unions. There are no agreements with any labor union, other
labor organization or labor representatives applicable to or covering the
employees of the Company, nor are any discussions or negotiations in
anticipation of any such agreement presently under way or anticipated, nor
has there been any request made to enter any such negotiations or to hold
any type of election relating to employer/employee relations or bargaining.
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(q) Environmental laws. (i) Except as set forth on Schedule 3.3(q) and
except for such of the following as, individually or in the aggregate, do
not and will not have a Material Adverse Effect:
(i) The Company is and has been in compliance at all times with
all applicable Environmental and Safety Requirements (as defined
below), and the Company has received no notice, report or information
regarding any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), or any corrective, investigatory or
remedial obligations, arising under Environmental and Safety
Requirements with respect to the past or present operations or
properties of the Business.
(ii) The Company has obtained, and is and has been in compliance
at all times with all terms and conditions of, all permits, licenses
and other authorizations required pursuant to Environmental and Safety
Requirements for the occupation of the properties of the Business and
the conduct of its operations.
(iii) None of the following exists at any property owned or
occupied by the Company: asbestos-containing material in any form or
condition; polychlorinated biphenyl-containing materials or equipment;
underground storage tanks; or any other toxic or hazardous material
regulated by Environmental and Safety Requirements.
(iv) The transactions contemplated by this Agreement do not
impose any obligations under Environmental and Safety Requirements for
site investigation or cleanup or notification to or consent of any
government agencies or third parties.
(v) Based on Environmental and Safety Requirements as currently
in effect, no facts, events or conditions relating to the past or
present properties or operations of the Business or properties
contiguous thereto will (x) prevent, hinder or limit continued
compliance by the Company with Environmental and Safety Requirements,
(y) give rise to any corrective, investigatory or remedial obligations
on the part of the Company pursuant to Environmental and Safety
Requirements, or (z) give rise to any liabilities on the part of the
Company (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements,
including without limitation those liabilities relating to onsite or
offsite hazardous substance releases, personal injury, property damage
or natural resources damage.
(vi) The Company has not assumed any liabilities or obligations
of any third party under Environmental and Safety Requirements.
For the purposes of this subsection, "Environmental and Safety
Requirements" means all federal, state and municipal statutes, regulations,
common law and similar provisions having force or effect of law, including
all required orders, permits, licenses and approvals, with respect to
environmental, public health and safety, occupational health and safety,
12
<PAGE>
product liability and transportation matters, including without limitation
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labelling,
testing, processing, discharge, release, control or cleanup of any
contaminant, waste, hazardous materials or substances, chemical substances
or mixtures, pesticides, toxic compounds or materials, petroleum products
or byproducts, asbestos, polychlorinated biphenyls, noise or radiation.
(r) Reports. Sellers have delivered or made available to Purchaser
true, complete and correct copies of all environmental reports, analyses,
tests or monitoring in the possession of Sellers or the Company pertaining
to any property owned or operated in connection with the Business and a
true, complete and correct list identifying all third party facilities at
which contaminants generated in connection with the Business, if any,
(whether by the Company or any prior owner or occupant) have been
transported, treated, stored, handled or disposed within the past five
years. The premises currently occupied by the Company satisfy all local
ordinances and Nevada statutes and the Company has complied in all material
respects with all environmental laws, including hazardous or toxic waste
disposal laws and regulations applicable to the Company and the Business.
(s) Compliance with Law/Permits. The Business has been conducted in
compliance with all applicable laws and regulations of governmental
authorities, except for such violations that have been cured or that,
individually or in the aggregate, may not reasonably be expected to have a
Material Adverse Effect. The Company possesses, and is in compliance in all
material respects with, all franchise, contract, license, marketing right,
permit, authorization, approval or other operating authority issued by any
governmental or regulatory body ("Governmental Permit") necessary to the
conduct of the Business, and except as set forth on Schedule 3.3(s) such
Governmental Permits will be in full force and effect for the benefit of
the Company following the Closing Date.
(t) Litigation and Proceedings. Except as set forth in Schedule 3.3(t)
hereto, there is no action, suit, proceeding or investigation, or any
counter or cross-claim in any action brought by or on behalf of the Company
or Sellers, whether at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, or before any arbitrator of any kind, that is pending or, to
the best knowledge of the Company or Sellers, after due inquiry,
threatened, against the Company or the Sellers, which (i) could reasonably
be expected to affect adversely the Company's or Sellers' ability to
perform its obligations under this Agreement or the agreements referenced
herein or complete any of the transactions contemplated hereby or thereby,
or (ii) which, if adversely determined, individually or in the aggregate,
would have a Material Adverse Effect. The Company is not subject to any
judgment, order, writ, injunction, decree or award of any court, arbitrator
or governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over the Company, any of its assets or
the Business.
(u) Insurance. Schedule 3.3(u) contains a complete listing of all
policies of insurance carried by the Company, including the type and amount
of coverage, deductible levels and expiration dates. All premiums due with
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<PAGE>
respect to such policies have been paid and such policies are in full force
and effect and will remain in full force and effect through the Closing
Date. The Company shall assume all risk of loss due to destruction or
damage due to fire or other casualty up to the time of Closing. Purchaser
shall have no right to terminate this Agreement unless such loss is
"substantial" (resulting in a total stoppage of the Business for a period
of time in excess of 15 business days). In the event of a substantial loss,
this Agreement shall be terminated and Purchaser waives any claims for
damages against the Sellers or the Company for such loss or for the
curtailment or interruption of the Business prior to Closing.
(v) Affiliate Interests. Except as disclosed in Schedule 3.3(v), the
Company is not a party to any transaction with (a) any Seller, (b) any
employee, officer or director of the Company, (c) any relative of any
Seller or of any such employee, officer or director, or (d) any entity,
corporation or partnership that, directly or indirectly, is controlled by
or under common control with any Seller or with any such employee, officer,
director or relative, including without limitation any contract, agreement
or other arrangement (i) providing for the furnishing of services by such
person, (ii) providing for the rental of real or personal property from or
to such person, (iii) providing for the guaranty of any obligation of such
person, (iv) requiring any payment to such person which will continue
beyond the Closing Date, or (v) establishing any right or interest of such
person in any of the assets or rights of the Company.
ARTICLE III
-----------
COVENANTS
---------
3.1 CONDUCT OF BUSINESS. Sellers and the Company agree that from the date
hereof and to the Closing Date or earlier termination of this Agreement as
follows:
(a) Full Access. Between the date of this Agreement and the Closing
Date, Sellers and the Company will (i) give Purchaser and its authorized
representatives (including lenders, legal counsel and accountants)
reasonable access to all employees, offices, warehouses and other
facilities and property of the Business and to its books and records, (ii)
permit Purchaser and its authorized representatives to make such
inspections thereof as Purchaser may reasonably require, and (iii) furnish
Purchaser and its representatives and advisers with such financial and
operating data and other information with respect to the Business and
properties of the Company as Purchaser may from time to time reasonably
request; provided, however, that any such investigation shall be conducted
in such a manner as not to interfere unreasonably with the operation of the
Business.
(b) Confidentiality. If the transactions contemplated by this
Agreement are not consummated, Purchaser will maintain the confidentiality
of all information and materials obtained from Sellers and will not use or
permit others to use such information for any other purpose, except to the
extent disclosure of any such information is authorized by Sellers or
required by law. The provisions of this Section will not apply to any
information, documents or material which are in the public domain other
than by reason of a breach of this Section by Purchaser.
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(c) Operation of Business. Neither the Company nor the Sellers will
engage in any practice, take any action, or enter into any transaction
outside the ordinary course of the Business. Without limiting the
generality of the foregoing, neither the Company nor the Sellers:
(i) will authorize or effect any change in the Company's Articles
of Incorporation or Bylaws;
(ii) will grant any options, warrants, or other rights to
purchase or obtain any of its capital stock or issue, sell, or
otherwise dispose of any of its capital stock;
(iii) will declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock;
(iv) will issue any note, bond, or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or
capitalized lease obligation;
(v) will create or permit the creation of any Encumbrance upon
any of the Company Assets other than non-consensual liens arising by
operation of law;
(vi) will make any capital investment in, make any loan to, or
acquire the securities or assets of any other person or entity outside
the ordinary course of business;
(vii) will make any change in employment terms for any of its
directors, officers, and employees or enter into any employment
agreements or commitment to any employees of the company outside the
ordinary course of business; or
(viii) will commit to any of the foregoing.
In addition, the Sellers and the Company will:
(i) maintain working capital at current levels subject to normal
fluctuation consistent with past experience;
(ii) keep in full force and effect insurance comparable in amount
and scope of coverage to insurance now carried with respect to the
Business;
(iii) perform in all material respects all obligations under
leases, agreements, contracts and instruments relating to or affecting
the Business;
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(iv) maintain the books of account and records of the Business in
the usual, regular and ordinary manner; and
(v) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the conduct of the
Business;
(d) Exclusivity. Neither Sellers nor the Company shall solicit,
initiate or encourage the submission of any proposal or offer from any
person relating to the acquisition of all or substantially all of the
capital stock or assets of the Company. Sellers and the Company shall
notify the Purchaser immediately if any person makes any proposal, offer,
inquiry or contact with respect to any of the foregoing and shall
immediately upon receipt forward a copy of such (if in writing) to
Purchaser.
(e) Amendment of Disclosure Schedules. From time to time prior to the
Closing Date, Sellers and the Company will supplement or amend the
schedules hereto with respect to any matter known to them which, if
existing or occurring at or prior to the date of this Agreement, would have
been required to be set forth or described in the schedules hereto or which
is necessary to correct any information in such schedules or in any
representation or warranty of Sellers which has been rendered inaccurate
thereby. Such supplemented or updated disclosures shall not be deemed a
modification of Sellers' representations and warranties and shall not
affect Purchaser's rights hereunder.
3.2 THIRD PARTY CONSENTS. Each party to this Agreement shall use its best
efforts to obtain, as soon as reasonably practicable, all permits,
authorizations, consents, waivers and approvals from third parties or
governmental authorities necessary to consummate this Agreement and the
transactions contemplated hereby or thereby, including, without limitation, any
permits, authorizations, consents, waivers and approvals required in connection
with the Agreement.
ARTICLE IV
----------
COMPUTER SYSTEM
---------------
4.1 INSTALLATION. Sellers and the Company hereby agree that they will allow
the Purchaser and its employees and agents access to the Company Assets and the
Business for the purpose of installing, at Purchaser's expense, a new integrated
inventory/management information system (the "System") for the Business,
provided that Sellers shall have consented to such installation.
4.2 TERMINATION. If this Agreement is terminated as provided herein, then,
at Seller's option (which option shall be exercised within five business days of
such termination), either (i) the Purchaser shall, at Purchaser's expense,
remove the System and restore the previous system, if any, to substantially
similar condition as it existed prior to the installation of the System, or (ii)
Sellers and the Company shall jointly and severally execute a promissory note
payable to the Purchaser (with a term and conditions substantially similar to
the Note) in an aggregate principal amount approximately equal to the
Purchaser's cost of the System and its installation (as determined by Purchaser)
not to exceed $20,000.
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4.3 REASONABLE ACCESS. Sellers and the Company hereby agree to
provide the Purchaser and its agents and employees reasonable access to the
Business for such installation and, if necessary, such removal of the System.
ARTICLE V
---------
CONDITIONS TO CLOSING
---------------------
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE PURCHASE. The
respective obligations of each party to consummate the Purchase and the other
transactions contemplated by this Agreement (collectively, the "Transaction")
shall be subject to the fulfillment of all of the following conditions precedent
at or prior to the Closing Date:
(a) No injunction, order, or decree by any Federal, state or foreign
court which prevents the consummation of the Transaction shall have been
issued;
(b) No statute or regulation shall exist or be enacted which would
prevent consummation of the Transaction; and,
(c) Subject to Section 5.3(j) below, all governmental consents and
approvals required for Transaction shall have been obtained.
5.2 CONDITIONS TO OBLIGATIONS OF SELLERS TO EFFECT THE TRANSACTION. The
obligation of Sellers to consummate the Transaction is subject to fulfillment of
all of the following conditions precedent at or prior to the Closing Date:
(a) All of Purchaser's representations and warranties contained herein
shall be true and correct in all material respects;
(b) Purchaser shall have performed and complied with all covenants
under this Agreement;
(c) The Employment Agreement, substantially in the form attached
hereto shall be executed by the Company.
5.3 CONDITIONS TO OBLIGATIONS OF PURCHASER TO CONSUMMATE THE TRANSACTION.
The obligations of Purchaser to consummate the Purchase and the Transaction are
subject to the fulfillment of all of the following conditions precedent at or
prior to the Closing Date:
(a) The representations and warranties made by Seller are true and
correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date;
(b) The Company and Sellers shall have performed and complied in all
material respects with all of their respective obligations under this
Agreement required to be performed or complied with by Sellers or the
Company on or prior to the Closing Date;
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(c) No action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or change would (i)
prevent consummation of any of the Transactions; (ii) affect adversely the
right of Purchaser to own the capital stock of the Company, or (iii)
materially and adversely affect the right of the Company to own its assets
and to operate its Business (and no such injunction, judgment, order,
decree, ruling or charge shall be in effect);
(d) The Employment Agreement, substantially in the form attached
hereto shall be executed;
(e) The Non-Compete Agreement, substantially in the form attached
hereto, shall be executed by RTL;
(f) The UCC Terminations executed by the Welt Family Trust shall be
delivered;
(g) Subject to subsection (j) below, all consents and approvals
necessary for the operation of the Business post-Closing shall have been
obtained;
(h) No material adverse change has occurred in the Business,
operations or prospects of the Company;
(i) Sellers shall have paid, or made other arrangements satisfactory
to Purchaser regarding, all amounts owed by Sellers or the Company to the
Welt Family Trust;
(j) Approval of the transfer for the benefit of the Purchaser of the
Business' pawnshop license, firearms license and secondhand license
pursuant to the provisions of applicable ordinances or laws in the
municipality or county where the Business is located provided, however,
that if, at the time of approval of the transfer of the pawnshop license
and the secondhand license, the Purchaser has not received approval for
such transfer of the firearms licenses, then the Transaction shall be
consummated and RMY shall, and hereby agrees to, for nominal consideration
and compensation, enter into a management agreement in form and substance
acceptable to Purchaser regarding the sale of firearms at the Business,
whereby RMY shall utilize his firearms license to enable the Company to
continue the firearms portion of the Business, pending the approval of the
transfer of the firearms license for the Business; and
(k) Execution of a new lease between the Company (post-Closing) and
the Welt Family Trust (or modification of the existing lease) (the "Lease")
for the building known as 626 Las Vegas Boulevard South, Las Vegas, Nevada,
with substantially the following terms: (i) the lease shall commence on the
Closing Date and provide for a term ending on December 31, 2002; (ii) the
18
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maximum rent in no event shall exceed $3,732.00 per month; (iii) the
monthly rent which is currently $2,911.00 shall be increased every
September in proportion to any increase in the Consumer Price Index; (iv)
the lease shall also provide one option, exercisable by the Company, for an
additional five year term; and (v) the lease shall provide that the Company
will be granted a right of first refusal in the event of any proposed sale
of the aforesaid premises to purchase such premises on substantially the
same terms of such proposed sale.
5.4 CONTINGENCIES. In addition to the foregoing, this Agreement and
Purchaser's obligation to perform hereunder is specifically contingent upon and
subject to the Purchaser's satisfaction, in its sole discretion, with its due
diligence examination of the following which will be performed and completed by
Purchaser or its agents within 15 business days of the execution of this
Agreement;
(a) An accounting and audit verification of all assets and liabilities
of the Company by agents of Purchaser;
(b) Verification of the corporate status of the Company with the
Nevada Secretary of State;
(c) Review of Company Articles of Incorporation, Bylaws, minutes of
any meetings of shareholders and board of directors, and stock certificate
records and ledgers of the Company which will be provided to Purchaser upon
execution of this Agreement;
(d) Review of pawn and other required business licenses
of the Company to conduct the Business in the state and local
governmental jurisdictions; and
(e) Any other Business review procedures or documents required to
close the Transaction as may be required or recommended by legal,
accounting or tax advisers to Purchaser.
If the Purchaser is not satisfied, in Purchaser's sole opinion, with its
review of any of the above, the Purchaser may terminate this Agreement in
writing on or before 20 business days from the execution of this Agreement, in
which event this Agreement and all obligations of the Purchaser hereunder shall
terminate.
ARTICLE VI
----------
INDEMNIFICATION
---------------
6.1 GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of
Sections 6.2 and 6.3, Sellers jointly and severally, shall unconditionally
indemnify, save and keep Purchaser and its officers, directors, employees,
agents, affiliates, successors and permitted assigns (including the Company)
(the "Purchaser Indemnitees"), harmless against and from (i) all liability,
demands, claims, actions or cause of action, assessments, losses, fines,
penalties, costs, damages and expenses, including reasonable attorneys' fees,
disbursements and expenses (collectively, "Damages"), sustained or incurred by
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any of the Purchaser Indemnitees as a result of, arising out of, or by virtue of
any misrepresentation, breach of any warranty or representation, or
non-fulfillment of any agreement or covenant on the part of the Company or
Sellers, whether contained in this Agreement or any exhibit or schedule hereto
or in any closing document delivered by the Company or Sellers to Purchaser in
connection herewith (without regard to any materiality qualification contained
in any such representation or warranty) to the extent such amount exceeds One
Thousand dollars ($1,000.00) in the aggregate; (ii) any Damages arising at any
time which arise out of or are connected with events or actions that occur on or
prior to the Closing Date; and, (iii) without limiting the foregoing, any Taxes
of the Company or the Sellers for any period prior to the Closing Date.
6.2 CONDITIONS OF INDEMNIFICATION PURSUANT TO SECTION 6.1
(a) Promptly following the receipt by a Purchaser Indemnitee of notice
of a demand, claim, action, assessment or proceeding made or brought by a
third party, including a governmental agency (a "Third Party Claim"), the
Purchaser Indemnitee receiving the notice of the Third Party Claim (i)
shall notify Sellers of its existence, setting forth the facts and
circumstances of which such Purchaser Indemnitee has received notice, and
(ii) if the Purchaser Indemnitee giving such notice is a person entitled to
indemnification under this Article (an "Indemnified Party"), specifying the
basis hereunder upon which the Indemnified Party's claim for
indemnification is asserted.
(b) The Indemnified Party shall, upon reasonable notice by Sellers,
tender the defense of a Third Party Claim to Sellers. If Sellers accept
responsibility for the defense of a Third Party Claim, then Sellers shall
have the exclusive right to contest, defend and litigate the Third Party
Claim and shall have the exclusive right, in their discretion exercised in
good faith and upon the advice of counsel, to settle any such matter,
either before or after the initiation of litigation, at such time and upon
such terms as they deem fair and reasonable, provided that at least ten
days prior to any such settlement, they shall give written notice of their
intention to settle to the Indemnified Party. The Indemnified Party shall
have the right to be represented by counsel at its own expense in any
defense conducted by Sellers.
(c) Notwithstanding the foregoing, in connection with any settlement
by Sellers, no Indemnified Party shall be required to (i) enter into any
settlement (A) that does not include the delivery by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect of such claim or litigation, (B) if the Indemnified Party shall, in
writing to Sellers within the ten day period prior to such proposed
settlement, disapprove of such settlement proposal and desire to have
Sellers tender the defense of such matter back to the Indemnified Party, or
(C) that requires an Indemnified Party to take any affirmative actions as a
condition of such settlement, or (ii) consent to the entry of any judgment
that does not include a full dismissal of the litigation or proceeding
against the Indemnified Party with prejudice; provided, however, that
should the Indemnified Party disapprove of a settlement proposal pursuant
to Clause (B) above, the Indemnified Party shall thereafter have all of the
responsibility for defending, contesting and settling such Third Party
Claim but shall not be entitled to indemnification by Sellers to the extent
that, upon final resolution of such Third Party Claim, Sellers' liability
to the Indemnified Party but for this provision exceeds what Sellers'
liability to the Indemnified Party would have been if Sellers were
permitted to settle such Third Party Claim in the absence of the
Indemnified Party exercising its right under Clause (B) above.
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<PAGE>
(d) If, in accordance with the foregoing provisions of this Section,
an Indemnified Party shall be entitled to indemnification against a Third
Party Claim, and if Sellers shall fail to accept the defense of a Third
Party Claim which has been tendered in accordance with this Section, the
Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and
upon the advice of counsel, to contest, defend and litigate such Third
Party Claim, and may settle such Third Party Claim, either before or after
the initiation of litigation, at such time and upon such terms as the
Indemnified Party deems fair and reasonable, provided that at least ten
days prior to any such settlement, written notice of its intention to
settle is given to Sellers. If, pursuant to this Section, the Indemnified
Party so defends or settles a Third Party Claim for which it is entitled to
indemnification hereunder, as hereinabove provided, the Indemnified Party
shall be reimbursed by Sellers for the reasonable attorneys' fees and other
expenses of defending the Third Party Claim which are incurred from time to
time, forthwith following the presentation to Sellers of itemized bills for
said attorneys' fees and other expenses. No failure by Sellers to
acknowledge in writing their indemnification obligations under this Article
shall relieve them of such obligations to the extent they exist.
6.3 CERTAIN TAX AND OTHER MATTERS.
(a) If, in connection with the audit of any Return, a proposed
adjustment is asserted in writing with respect to any Taxes of the Company
for which Sellers are required to indemnify Purchaser, Purchaser shall
notify Sellers of such proposed adjustment within 20 days after the receipt
thereof. Upon notice to Purchaser or the Company within 20 days after
receipt of the notice of such proposed adjustment from Purchaser or the
Company, Sellers may assume (at Sellers' own cost and expense) control of
and contest such proposed adjustment.
(b) Alternatively, if Sellers request within 20 days after receipt of
notice of such proposed adjustment from Purchaser or the Company, as the
case may be, shall contest such proposed adjustment, Sellers shall be
obligated to pay all reasonable out-of-pocket costs and expenses (including
legal fees and expenses) which Purchaser or the Company may incur in so
contesting such proposed adjustment as such costs and expenses are
incurred, and Purchaser shall have the full right to contest such proposed
adjustment and shall be entitled to settle or agree to pay in full such
proposed adjustment (in its sole discretion) and thereafter pursue its
rights under this Agreement. Sellers shall pay to Purchaser all indemnity
amounts in respect of any such proposed adjustment within 30 days after
written demand to Sellers therefor, or, if Sellers have assumed control of
the contest of such proposed adjustment as provided above (or has requested
Purchaser or the Company to contest such proposed adjustment within the
time provided above), within 30 days after such proposed adjustment is
settled or a Final Determination has been made with respect to such
proposed adjustment.
(c) For purposes of this Section, a "Final Determination" shall mean
(i) the entry of a decision of a court of competent jurisdiction at such
time as an appeal may no longer be taken from such decision or (ii) the
execution of a closing agreement or its equivalent between the particular
taxpayer and the Internal Revenue Service, as provided in Section 7121 and
Section 7122, respectively, of the Code, or a corresponding agreement
between the particular taxpayer and the particular state or local taxing
authority. The obligation of Sellers to make any indemnity payment pursuant
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hereto shall be premised on the receipt by Sellers from Purchaser or the
Company of a written notice setting forth the relevant portion of any Final
Determination, and in cases where the amount of the indemnity payment
exceeds twenty five thousand dollars ($25,000), a certified statement by
Purchaser's accounting firm setting forth the amount of the indemnity
payment (and in all other cases, a similar statement certified by the chief
financial officer of Purchaser) and describing in reasonable detail the
calculation thereof.
6.4 CERTAIN INFORMATION. Purchaser, Sellers and the Company agree to
furnish or cause to be furnished to each other (at reasonable times and at no
charge) upon request as promptly as practicable, such information (including
access to books and records) pertinent to the Company and assistance relating to
the Company as is reasonably necessary for the preparation, review and audit of
financial statements, the preparation, review, audit and filing of any Return,
the preparation for any audit or the prosecution or defense of any claim, suit
or proceeding relating to any proposed adjustment or which may result in Sellers
being liable under the indemnification provisions hereof provided, that access
shall be limited to items pertaining solely to the Company. Sellers shall
provide Purchaser with copies of all Returns filed with respect to the Company.
6.5 RELEASE BY SELLER. Sellers hereby release and discharge Purchaser and
the Company and each of its officers and directors from, and agrees and
covenants that in no event will Sellers commence any litigation or other legal
or administrative proceeding against, Purchaser, the Company, or any of their
officers or directors, whether in law or equity, relating to any and all claims
and demands, known and unknown, suspected and unsuspected, disclosed and
undisclosed, for damages, actual or consequential, past, present and future,
arising out of or in any way connected with his ownership or alleged ownership
of common stock of the Company prior to the Closing Date, other than claims or
demands arising out of the transactions contemplated by this Agreement.
6.6 INDEMNITY OF PURCHASER. Purchaser agrees to indemnify and hold Sellers
harmless from all Damages (i) sustained or incurred by Seller as a result of the
breach by Purchaser of any representation or warranty made by Purchaser in this
Agreement (without regard to any materiality qualification contained in any such
representation or warranty); or (ii) which arise out of or are connected with
events or actions that occur after the Closing Date including, but not limited
to, any Damages in connection with the Lease after the Closing Date.
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 TERMINATION. Anything to the contrary notwithstanding, this Agreement
may be terminated at any time prior to the Closing Date:
(a) By mutual written consent of Purchaser and Sellers;
(b) By either Purchaser or Seller if (i) the Purchase shall not have
been consummated on or before May 31, 1997 (the "Termination Date"), or
(ii) any court or competent jurisdiction in the United States or any State
shall have issued an order, judgment or decree (other than a temporary
restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the Transaction and such order, judgment or decree shall
have become final and nonappealable; or
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(c) This Agreement may be terminated by Purchaser, by written notice
to Sellers, if any governmental or regulatory body, the consent of which is
a condition to the obligations of Purchaser to consummate the transactions
contemplated hereby, shall have determined not to grant its consent.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either Purchaser or Sellers, this Agreement shall forthwith become void and
there shall be no liability on the part of either Purchaser or the Company or
their respective officers or directors. Nothing in this Section shall relieve
any party from liability for any breach of this Agreement.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements made by any party in this Agreement or
pursuant hereto shall survive the Closing until December 31, 1999, except for
the representations, warranties, covenants and agreements regarding Taxes which
shall survive the Purchase until the expiration of the applicable statutes of
limitations with respect to such matters.
8.2 AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by all of the
parties. No waiver by any party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
8.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior approval of the other parties; provided, however,
that any party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing party will use its
reasonable best efforts to advise the other party prior to making the
disclosure).
8.4 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (i) hand
delivered; (ii) sent by a nationally recognized overnight courier; (iii) sent by
registered or certified mail, return receipt requested, postage prepaid; or (iv)
sent by telephone facsimile transmission (with prompt oral confirmation of
receipt) as follows:
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If to the Company: Bobby's Pawnshop, Inc.,
626 Las Vegas Boulevard South
Las Vegas, Nevada 89101
Telecopy No.: (702) 382-2486
Copy To: (post-Closing)
U.S. Pawn Nevada, Inc.
c/o U.S. Pawn, Inc.
7215 Lowell Boulevard
Westminster, CO 80030
Telecopy No.: (303) 657-6341
and
(pre-Closing)
Roy M. York
626 Las Vegas Boulevard South
Las Vegas, Nevada 89101
Telecopy No.: (702) 382-9420
If to the Purchaser: U.S. Pawn Nevada, Inc.
c/o U.S. Pawn, Inc.
7215 Lowell Boulevard
Westminster, CO 80030
Telecopy No.: (303) 657-6341
Copy To: Larry M. Snyder, Esq.
3300 E. First Ave. #690
Denver, CO 80206-5809
Telecopy No.: (303) 399-5203
and
Brent T. Slosky, Esq.
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, Twenty-second Floor
Denver, Colorado 80202-4437
Telecopy No.: (303) 623-1956
If to the Sellers: Roy M. York
626 Las Vegas Boulevard South
Las Vegas, Nevada 89101
Telecopy No.: (702) 382-9420
24
<PAGE>
and
Robert T. Lord, Jr.
8233 Aqua Spray Ave.
Las Vegas, Nevada 89128
Copy To: Bryan A. Lowe Professional Law Corp.
S. Craig Stone II, Esq.
4011 Meadows Lane, Suite 102
Las Vegas, NV 89107
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
8.5 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) fully sets forth the agreement of the parties described in that letter
dated December 10, 1996 and constitutes the entire agreement among the parties
and supersedes any prior understandings, agreements, or representations by or
among the parties, written or oral, to the extent they related in any way to the
subject matter hereof.
8.6 NON-WAIVER. The failure of any party to insist upon performance of any
terms, covenants or conditions shall not be construed as a subsequent waiver of
any such terms, covenants, or conditions.
8.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
8.8 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
8.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
COLORADO OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO. IN ANY ACTION BROUGHT
UNDER OR ARISING OUT OF THIS AGREEMENT, THE PARTIES HEREBY CONSENT TO THE
JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF COLORADO AND CONSENT TO
SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY THE LAWS OF SUCH STATE.
8.10 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
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rights, interests, or obligations hereunder without the prior written approval
of the other parties provided, however, that Purchaser may assign its rights
under this Agreement to a wholly owned subsidiary entity of Purchaser without
any prior consent.
8.11 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.12 EXPENSES. Except as otherwise provided herein, each of the parties
will bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase Agreement
on the date first above written.
PURCHASER: U.S. PAWN NEVADA, INC.
BY: /s/ Melvin Wedgle
----------------------------------------
MELVIN WEDGLE
Chief Executive Officer
COMPANY: BOBBY'S PAWNSHOP, INC.,
D/B/A BOBBY'S JEWELRY & LOAN
BY: /s/ Robert T. Lord
-----------------------------------------
ROBERT T. LORD, President
SELLERS:
/s/ Roy M. York
---------------------------------------------
ROY M. YORK
/s/ Robert T. Lord, Jr.
--------------------------------------------
ROBERT T. LORD, JR.,
26
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
U.S. PAWN, INC.,
U.S PAWN NEBRASKA, INC.
AND
PAWN WAREHOUSE OUTLET, INC.,
LORI WHITE AND MIKE SORTINO
DATED 16, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated 16, 1997 (the "Agreement"), by and
among U.S. PAWN, INC., a Colorado corporation ("Parent"), U.S. PAWN NEBRASKA,
INC., a Colorado Corporation and a wholly-owned subsidiary of Parent ("USPN"),
and PAWN WAREHOUSE OUTLET, INC., a Nebraska corporation ("Company"), LORI WHITE
("LW"), and MIKE SORTINO ("MS")(Collectively, LW AND MS, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of advancing money to
customers on the security of pledged goods and, if appropriate, selling such
pledged goods, otherwise known as a pawnshop (the "Business"), located at 329
South Washington Street in Papillion, Nebraska;
WHEREAS, the Boards of Directors of Parent and the Company have determined
that the merger of the Company with and into USPN (the "Merger") is consistent
with and in furtherance of the long-term business strategy of Parent and the
Company and is fair to, and in the best interests of, Parent and the Company and
their respective stockholders.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Colorado Business Corporation Act (the "CBCA") and the Nebraska
Business Corporation Act("NBCA"), the Company shall be merged with and into USPN
and the separate existence of the Company shall thereupon cease. USPN shall be
the surviving corporation in the Merger and is hereinafter sometimes referred to
as the "Surviving Corporation."
<PAGE>
SECTION 1.2 Effective Time of the Merger. The Merger shall become effective
at such time (the "Effective Time") as shall be stated in a Articles of Merger,
in a form mutually acceptable to Parent and the Company, to be filed with the
Secretaries of State of Colorado and Nebraska in accordance with the CBCA and
the N__, respectively (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the closing of the Merger in
accordance with Section 3.5.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 Officers. The officers of the Surviving Corporation shall be:
Chief Executive Officer and
President Melvin Wedgle
Secretary and Treasurer Charles C. VanGundy
and such officers shall serve in accordance with the Bylaws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
SECTION 2.2 Directors. The director of the Surviving Corporation shall be
Melvin Wedgle, and such director shall serve in accordance until the next annual
meeting of the Surviving Corporation or until his successor is duly elected and
qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Shares in the Merger. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any shares of Company Common Stock, no par value ("Company Common Stock"):
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into, and shall
thereafter represent only, the right to receive the Merger Consideration (as
defined in Section 3.2).
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<PAGE>
(b) No share of Company Common Stock shall be deemed to be outstanding
or to have any rights other than those set forth in this Section 3.1 after the
Effective Time.
SECTION 3.2 Consideration.
(a) The consideration to be issued in the Merger for each share (or
fraction thereof) of Company Common Stock shall be the number of shares of the
Parent's common stock (the "Merger Consideration") equal to the results obtained
by (i) dividing Two Hundred and Seventy-Five Thousand Dollars ($275,000) by the
average closing price per share of Parent's common stock, as reported on the
NASDAQ SmallCap Market, for the ten trading days immediately preceding the
Closing Date and (ii) dividing the results of (i) above by 704 (representing the
number of shares of the Company Common Stock issued and outstanding on the
Closing Date (as defined in Section 3.4)) to be distributed in accordance with
Section 3.3 below.
(b) The shares of Parent's common stock issued as the Merger
Consideration shall be "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Act").
(c) In addition to the Merger Consideration, simultaneously with the
Closing, USPN or Parent shall pay off the outstanding balance of the line of
credit and all other outstanding liabilities of the Company payable to American
National Bank and obtain a release of liability for all lines of credit, notes
and guarantees executed by MS and his family members relating to the Company. In
addition, once all of the foregoing have been paid, USPN or Parent shall pay off
the outstanding balance of all loans and notes, whether in writing or otherwise,
owed by the Company to MS. Notwithstanding the foregoing, USPN and Parent shall
not be obligated to pay more than $400,000 to pay off the foregoing lines of
credit, notes , guarantees and loans and any amounts in excess of $400,000 shall
be paid at Closing by the Stockholders.
(d) The Merger Consideration shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split or other
change in the number of shares of Company Common Stock outstanding prior to
Closing (as defined in Section 3.4).
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SECTION 3.3 Cancellation of Company Common Stock Certificates.
(a) From and after the Effective Time, all Company Common Stock shall
no longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate representing shares of
Company Common Stock shall cease to have any rights with respect thereto, except
the right to receive in exchange therefor, upon surrender thereof at or after
the Effective Time, the amount of Merger Consideration to which each holder of
Company Common Stock is entitled pursuant to the terms hereof.
(b) Upon surrender of Company Common Stock certificates to ("Company
Certificates") Parent for cancellation on or after the Closing Date, together
with such other documents as Parent shall reasonably require, the holder of such
Company Certificates shall be entitled to receive in exchange therefore the
Merger Consideration into which the shares of Company Common Stock theretofore
represented by the Company Certificates so surrendered shall have been converted
pursuant to the provisions of Section 3.1, and the Company Certificates so
surrendered shall be cancelled. Notwithstanding the foregoing, none of Parent or
the Surviving Corporation shall be liable to a holder of Company Common Stock
for any Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat and similar laws.
SECTION 3.4 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Parent on June
13, 1997 at 10:00 a.m. or such other place, time or date as the parties shall
agree (the date on which the Closing occurs is referred to in this Agreement as
the "Closing Date").
SECTION 3.5 Closing of the Company's Transfer Books. At and after the
Effective Time, holders of Company Common Stock shall cease to have any rights
as stockholders of the Company, except for the rights described herein. At the
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of shares of Company Common Stock which were outstanding immediately
prior to the Effective Time shall thereafter be made. If, after the Effective
Time, subject to the terms and conditions of this Agreement, Company
Certificates formerly representing Company Common Stock are presented to Parent,
they shall be cancelled and exchanged for Merger Consideration in accordance
with this Article III.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 General Statement. The parties make the representations and
warranties to each other which are set forth in this Article IV. The survival of
all such representations and warranties shall be in accordance with Section 9.1
hereof. All representations and warranties of the parties are made subject to
the exceptions which are noted in the respective schedules delivered by the
parties to each other concurrently herewith.
SECTION 4.2 Representations and Warranties of Parent and USPN. Parent and
USPN represent and warrant to the Company and the Stockholders, as of the date
hereof and at the Closing Date, as follows:
(a) Organization. Each of Parent and USPN is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado.
(b) Authorization of Transaction. The execution, delivery and
performance by each of the Parent and USPN of this Agreement and the
consummation of the transactions contemplated hereby are within Parent's and
USPN's respective power and have been duly authorized by all necessary corporate
action. This Agreement constitutes a valid and binding obligation of each of
Parent and USPN enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance and transfer, and
moratorium or other similar laws of general application affecting the
enforcement of creditors' rights generally.
(c) Brokers' Fees. Neither Parent nor USPN has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent
engaged by Parent or USPN with respect to the transactions contemplated by this
Agreement.
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SECTION 4.3 Representations and Warranties of the Company and the
Stockholders. The Stockholders and the Company, jointly and severally, represent
and warrant to Parent and USPN as of the date hereof and at the Closing Date, as
follows:
(a) Organization, Qualification and Corporate Power. The Company is a
corporation duly incorporated, validly existing, and in good standing under the
laws of the State of Nebraska. The Company is duly authorized to conduct the
Business and is duly qualified as a foreign corporation to do business, and is
in good standing, under the laws of each jurisdiction where such qualification
is required. The Company has the legal right, full corporate power and authority
to carry on the Business and to own and use the properties owned and used by it.
Copies of the Articles of Incorporation and Bylaws of the Company have
heretofore been provided to Parent, and such copies are accurate and complete as
of the date hereof and as of the Closing Date. No portion of the Business is
presently conducted by any legal entity other than the Company. The Company does
not, and has not, conducted any business other than the Business. No actions,
proceedings or transactions have been commenced or undertaken by either the
Company or the Stockholders which (i) give or would give rights to any person,
other than Parent, in any of the Company Common Stock or any of the Company's
assets or (ii) interfere with the consummation of the transactions contemplated
by this Agreement. The Company has no subsidiaries and has no equity or other
ownership interest in any other entity or business enterprise.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 10,000 shares of common stock, $1.00 par value, of which 704 shares
are issued and outstanding. All of the Company Common Stock has been duly
authorized and is validly issued, fully paid, and nonassessable. Other than the
Company Common Stock, the Company has no outstanding capital stock and there are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company.
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(c) Ownership of Company Common Stock. The Company Common Stock is
owned as follows: LW--454 shares, MS--250 shares. Each of the Stockholders owns
the respective Company Common Stock set forth by their name above as the sole
and exclusive record and beneficial owner free and clear of all liens, charges,
security interests and similar rights of third parties (collectively,
"Encumbrances"). Each of the Stockholders possesses and on the Closing Date
shall possess, good and merchantable title to his respective Company Common
Stock, and will own such Company Common Stock free and clear of any and all
Encumbrances. Each of the Stockholders has the absolute and unconditional right
to sell, assign, transfer and deliver his respective Company Common Stock for
cancellation in accordance with the terms of this Agreement.
(d) Authority and Binding Effect. The Company has the full corporate
power and each of the Stockholders has the full power and authority to execute
and deliver this Agreement and each agreement referenced herein to which they
are a party and to consummate the transactions contemplated by, and comply with
their obligations under, such agreements. Upon execution, this Agreement and
each agreement referenced herein to which the Company is a party, and the
consummation by the Company of its obligations herein and therein, have been
duly authorized by all necessary corporate action of the Company. As of the
Closing Date, this Agreement and each agreement referenced herein to which the
Company is a party, if required, will have approval by all of the Company's
stockholders in accordance with applicable law. This Agreement has been duly
executed and delivered by the Stockholders and the Company, and the Stockholders
and the Company will, at the Closing, duly execute and deliver the agreements
referenced herein to which they are a party. This Agreement is a valid and
binding obligation of each Stockholder and the Company enforceable against it in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally, and (ii) general
principles of equity regardless of whether such enforceability is considered in
a proceeding in equity or at law. No further action is required to be taken by
the Stockholders or the Company, nor is it necessary for the Stockholders or the
Company to obtain any action, approval or consent by or from any third persons,
governmental or other, to enable the Stockholders or the Company to enter into
or perform its obligations under this Agreement and each agreement referred to
herein to which it is a party.
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(e) Noncontravention. Except as disclosed on Schedule 4.3(e), neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Company is subject or by which any of its assets are bound, (ii) conflict with
or violate any provision of the Articles of Incorporation, any provision of the
Bylaws of the Company or any shareholders' agreement to which the Company or the
Sellers is a party or (iii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any security interest upon any of its
assets), except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation or failure to give notice would not have
a material adverse effect on either (i) the assets, operations, financial
condition or prospects of the Business, or (ii) Stockholders' or the Company's
(as applicable) ability to consummate the transactions contemplated hereby (a
"Material Adverse Effect"). Except as set forth on Schedule 4.3(e), the Company
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or obtain any
authorization, consent, or approval would not have a Material Adverse Effect.
(f) Financial Statements. The Stockholders have delivered to Parent
financial statements of the Company consisting of an unaudited balance sheet and
a related statement of income, as of and for the period ended March 31, 1997.
True, correct and complete copies of the Company's unaudited financial
statements from January 1, 1996 through December 31, 1996 are attached as
Schedule 4.3(f) hereto (the "Financial Statements"). Except as otherwise set
forth in the footnotes contained therein, the Financial Statements were prepared
in accordance with generally accepted accounting principles ("GAAP"). The
Financial Statements fairly present the financial condition of the Company and
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the results of its operations as of the relevant dates thereof and for the
respective periods covered thereby. Except as set forth in the Financial
Statements, the Company does not have any debts, obligations, liabilities or
commitments of any nature, whether due or to become due, absolute, contingent or
otherwise, that, in accordance with GAAP, are required to be disclosed in a
balance sheet or the footnotes thereto, and are not shown on the March 31, 1997
balance sheet delivered pursuant hereto, other than liabilities incurred after
March 31, 1997 in the ordinary course of business and consistent with past
practice. Such post-March 31, 1997 liabilities are not material in amount and
have not had and are not expected to have, individually or in the aggregate, a
material adverse effect on the financial condition or results of operations of
the Company or the business. As to each liability, debt, obligation or
commitment, fixed or contingent, that is set forth in the Financial Statements,
the Stockholders shall provide the following information, in writing as an
attachment to such Schedule: (i) a summary description of the liability, debt,
obligation or commitment, together with copies of all relevant documentation
relating thereto, the amounts claimed and any other action or relief sought and,
if in connection with a claim, suit or proceeding, the name of the claimant and
all other parties involved therewith and the identity of the court or agency in
which such claim, suit or proceeding is being prosecuted, and (ii) the best
estimate of the Stockholders of the maximum amount, if any, which is likely to
become payable with respect to any contingent liability. For purposes hereof, if
no written estimate is provided, such best estimate shall be deemed to be zero.
To the best of Stockholders' and the Company's knowledge, except as noted on
Schedule 4.3(f), all outstanding notes and accounts receivable of the Company
are collectible.
(g) Absence of Certain Changes. Except as set forth in Schedule 4.3(g)
hereto, during the period from December 31, 1996 to the date hereof, there has
not been with respect to or affecting the Company or the Business: (i) any
amendment, termination or revocation, or any threat known to the Stockholders or
the Company of any amendment, termination or revocation, of any lease, licenses,
permit, franchise, purchase order, sales order or other agreement or binding
commitment, whether or not in written form (a "Contract") to which the Company
is a party; (ii) except for the transactions contemplated hereby, any sale,
transfer, mortgage, pledge or subjection to any Encumbrance, of, on or affecting
any of the Company's assets, except sales or utilization of the Company's
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inventory that have been made in the ordinary course of Business consistent with
past practices, and liens for current taxes not yet due and payable; (iii) other
than as contemplated in connection with the transactions contemplated hereby,
any increase in the compensation paid or to become payable or in the fringe
benefits provided to any officers or employees of the Company, (iv) any damage,
destruction or loss, whether or not covered by insurance, materially and
adversely affecting the Company or the Business; (v) the incurrence of any
indebtedness, either for borrowed money or in connection with any purchase of
assets that is not reflected in the March 31, 1997 balance sheet which
individually, or in the aggregate, involves more than $1,000, except in the
ordinary course of business consistent with past practices; (vi) any purchase or
lease, or commitment for the purchase or lease, of equipment, machinery,
leasehold improvements or other capital items not disclosed in the Financial
Statements which involves amounts exceeding $1,000 individually or $2,500 in the
aggregate, or obligates the Company to purchase goods or services for a period
of 90 days or more except in the ordinary course of business consistent with
past practices; (vii) the execution by the Company of any agreement or Contract
that is, or could reasonably be expected to become, material to the Business;
(viii) any material change in the collection, payment or credit experience or
practices of the Business or in the accounting practices, procedures or methods
of the Company; (ix) the occurrence subsequent to December 31, 1996 of any other
event or circumstance which could materially and adversely affect any of the
Company's assets, the Business, or the ability of the Stockholders or the
Company to consummate the transactions contemplated hereby or (x) any commitment
with respect to any of the foregoing.
(h) Title to and Adequacy of Company Assets. Except as disclosed on
Schedule 4.3(h) hereto, the Company has, and at the Closing will have, good,
complete and marketable title to all of its assets necessary for USPN to own and
operate the Business substantially in the same manner as it is being now
conducted (the "Company Assets"). Except as set forth on Schedule 4.3(h), all of
the Company Assets are in the exclusive possession and control of the Company.
The Company Assets have been maintained in good working condition (normal wear
and tear excepted) and are sufficient for the conduct of the Business. The
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Company's accounts receivable and pawn loans receivable represent bona fide
obligations arising in the ordinary course of the Business and to the best of
the Stockholders' and the Company's knowledge, are fully collectible by the
Company or adequately collateralized, net of reserves for doubtful accounts as
reflected on the Financial Statements. The assets reflected on the Financial
statements constitute all of the assets, properties and other rights used in the
conduct of the Business except for those assets acquired or disposed of in the
ordinary course of business subsequent to the date of the Financial Statements.
(i) Undisclosed Liabilities. To the best of Stockholders' and the
Company's knowledge, the Company has no liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), except for (i) liabilities set forth in the balance sheets dated as of
March 31, 1997, and outstanding on the Closing Date, and (ii) liabilities which
have arisen after March 31, 1997, in the ordinary course of business (none of
which results from, arises out of, relates to, is in the nature of, or was
caused by breach of contract, breach of warranty, tort, infringement, or
violation of law or which individually or in the aggregate will have a Material
Adverse Effect). Except as disclosed on Schedule 4.3(i), the Company has no
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, or whether due or to become due) for Taxes (as defined
below). Notwithstanding anything in the foregoing to the contrary, as of the
Closing Date, the Company will not have any accounts payable or other
outstanding liabilities other than those incurred in the ordinary course of
business.
(j) Brokers' Fees. None of the Stockholders nor the Company has paid
or is obligated to pay any brokerage commissions, finders' fees or similar
compensation (including any payments to employees of the Company but excluding
fees to attorneys and accountants) in connection with the transactions
contemplated by this Agreement.
(k) Taxes. With respect to Taxes (as defined below):
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(1) The Company has filed, within the time and in the manner
prescribed by law, all returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be filed
under federal, state, local or any foreign laws by the Company, and
all such Returns are true, correct and complete in all material
respects.
(2) The Company has, within the time and in the manner prescribed
by law, paid (and until the Closing Date will, within the time and in
the manner prescribed by law, pay) all Taxes that are due, or claimed
or asserted by any taxing authority to be due, from or with respect to
the Company for all periods prior to the Closing Date, whether or not
shown on any Return.
(3) With respect to any period for which Returns have not yet
been filed, or for which Taxes are not yet due or owing, the Company
has no liability for Taxes other than that set forth on the Financial
Statements or incurred subsequent to the date of the Financial
Statements in the ordinary course of business. The Company has made
all required current estimated Tax payments sufficient to avoid any
underpayment penalties.
(4) The Company has established (and until the Closing Date will
establish) on its respective books and records reserves (to be
specifically designated as an increase to current liabilities) that
are adequate for the payment of all Taxes not yet due and payable.
(5) There are no liens for Taxes upon the assets of the Company
or any subsidiary of the Company except liens for Taxes not yet due.
(6) The Company has not filed (and will not file prior to the
Closing Date) any consent agreement under Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code") or agree to
have Section 341(f)(2) of the Code apply to any disposition of the
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by the Company.
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(7) Except as set forth in Schedule 4.3(k)(7) (which shall set
forth the type of return, date filed, and date of expiration of the
statute of limitations), (i) no extensions of the statute of
limitations for the assessment of federal income taxes have been
granted for any federal income tax returns of the Company ; (ii) no
extensions of the statute of limitations for the assessment of state,
local and foreign income taxes have been granted for any applicable
Returns of the Company and such Returns have been examined by the
appropriate tax authorities for all periods through December 31, 1995;
and (iii) no deficiency for any Taxes has been proposed, asserted or
assessed against the Company which has not been resolved and paid in
full.
(8) There are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect
to any Taxes or Returns that have been given by the Company.
(9) Except as set forth in Schedule 4.3(k)(9) (which shall set
forth the nature of the proceeding, the type of Return, the
deficiencies proposed or assessed and the amount thereof, and the
taxable year in question), no federal, state, local or foreign audits
or other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Returns.
(10) The Company is not a party to any tax-sharing or allocation
agreement, nor does the Company owe any amount under any tax-sharing
or allocation agreement.
(11) No amounts payable under any agreement will fail to be
deductible for federal income tax purposes by virtue of Section 280G
or 162(m) of the Code.
(12) The Company has complied (and until the Closing Date will
comply) in all respect with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of
the Code or similar provisions under any foreign laws) and have,
within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities,
all amounts required to be so withheld and paid over under all
applicable laws.
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(13) The Company has never been (or has any liability for
unpaid Taxes because it once was) a member of an "affiliated
group" within the meaning of Section 1502 of the Code during any
part of any consolidated return year within any part of which
year any corporation other than the Company was also a member of
such affiliated group.
(14) Schedule 4.3(k)(14) contains a list of all
jurisdictions (whether foreign or domestic) in which the company
presently files Returns. No claim has ever been made by an
authority in a jurisdiction where the Company does not file
Returns that it is or may be subject to taxation by that
jurisdiction.
For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies, or other assessments of whatever kind or nature, including,
without limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupancy or property taxes,
customs duties, fees, assessments or charges of any kind whatsoever (together
with any interest and any penalties, additions to tax or additional amounts)
imposed by any taxing authority (domestic or foreign) upon or payable by the
Company.
(l) Leases. Schedule 4.3(l) is a list and brief description of each of
the facilities or real properties leased by the Company and used in Business
(the "Real Property Leases"). The description sets forth, among other things,
the address of each facility or real property leased and the name and address of
the landlord. Schedule 4.3(l) also contains a list of all leases under which the
Company possesses or uses personal property in connection with the conduct or
operation of the Business. The personal property leases set forth in Schedule
4.3(l) are sometimes collectively referred to as the "Personal Property Leases."
True, correct and complete copies of the Real Property Leases and Personal
Property Leases (collectively, the "Leases") have been delivered to Parent. All
of the facilities covered by the Real Property Leases are equipped in
substantial conformity with laws and governmental regulations applicable to the
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Company or the Business. The zoning of each parcel of real property permits the
presently existing improvements thereon and continuation of the Business
presently conducted thereon and no changes therein are pending or are
threatened. To the best of the Company's and Stockholders' knowledge, after due
inquiry, no condemnation or similar proceedings are pending or, to the best
knowledge of the Company and Stockholders, after due inquiry, threatened against
any of the real properties described on Schedule 4.3(l). None of the Leases
contains any provisions which, after the Closing Date, would (i) hinder or
prevent USPN from continuing to use any of the properties or assets which are
the subject of the Leases in the manner in which they are currently used or (ii)
impose any additional costs (other than scheduled rental increases) or material
requirements as a condition to their continued use which are not currently in
effect. Except for the Leases, none of the Company Assets are held under, or
used by the Company in connection with the Business pursuant to, any lease or
conditional sales contract.
(m) Contracts, Agreements and Commitments. Schedule 4.3(m) hereto
contains an accurate and compete list of all contracts, agreements, leases,
licenses and instruments, not otherwise disclosed in Schedule 4.3(l) to which
the Company is a party or is bound and (i) which relate to and materially affect
any of the Company Assets or the Business, or (ii) which could hinder
consummation of the transactions contemplated by this Agreement or would affect
USPN's title to or its ability, after the Closing, to conduct the Business as it
is being conducted on the date hereof, or its ability to dispose of any of the
Company Assets following the Closing. Schedules 4.3(l) and (m) include, without
limitation, all contracts and agreements and all leases, licenses and
instruments, which (i) grant a security interest or permit or provide for the
imposition of any Encumbrance on, or provide for the disposition of, any of the
Company Assets; (ii) require the consent of any third party to the consummation
by the Company or Stockholders of the transactions contemplated by this
Agreement, or (iii) would restrict the use or disposition by USPN after the
Closing of any of the Company Assets. True, correct and complete copies of all
items so listed on Schedules 4.3(l) and (m) have been furnished to Parent. Each
of such contracts, agreements, leases, licenses and instruments so listed, or
required to be so listed on Schedules 4.3(l) and (m) is a valid and binding
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obligation of the Company or Stockholders, as applicable, and to the best
knowledge of the Company and Stockholders, the other parties thereto,
enforceable in accordance with their terms, except as may be affected by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and general principles of equity relating to the availability of
equitable remedies. Except as otherwise set forth on Schedules 4.3(l) and (m)
hereto, there have not been any defaults by the Company, or to the best
knowledge of the Company and Stockholders after due inquiry, defaults or any
claims of default or claims of nonenforceability by the other party or parties
which, individually or in the aggregate, would have a Material Adverse Effect
and, to the best of the Company's and Stockholders' knowledge after due inquiry,
there are no facts or conditions that have occurred or that the Company or
Stockholders (without independent investigation) anticipate to occur which,
through the passage of time or the giving of notice, or both, would constitute a
default by the Company or Stockholders, or by the other party or parties, under
any of such Contracts, agreements, leases, licenses and instruments or would
cause a creation of an Encumbrance upon any of the Company Assets or otherwise
cause a Material Adverse Effect.
(n) Employees and Plans. Attached hereto as Schedule 4.3(n) is a list
of each compensation arrangement for each employee of the Company as of the date
hereof. The Company has no employee pension plan, employee profit sharing plan
or employee welfare benefit plan subject to the Employee Income Retirement
Security Act of 1974 or any other employee pension plan, employee profit sharing
plan and employee welfare benefit plan.
(o) Licenses. The Company owns and holds all licenses and permits
necessary or required by applicable law in order to conduct its Business as now
conducted and, if required, the Company and Stockholders shall take all actions
necessary to assist the Company in transferring such licenses and permits to
USPN.
(p) Labor unions. There are no agreements with any labor union, other
labor organization or labor representatives applicable to or covering the
employees of the Company, nor are any discussions or negotiations in
anticipation of any such agreement presently under way or anticipated, nor has
there been any request made to enter any such negotiations or to hold any type
of election relating to employer/employee relations or bargaining.
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(q) Environmental laws. Except as set forth on Schedule 4.3(q) and
except for such of the following as, individually or in the aggregate, do not
and will not have a Material Adverse Effect:
(1) The Company is and has been in compliance at all times with
all applicable Environmental and Safety Requirements (as defined
below), and the Company has received no notice, report or information
regarding any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), or any corrective, investigatory or
remedial obligations, arising under Environmental and Safety
Requirements with respect to the past or present operations or
properties of the Business.
(2) The Company has obtained, and is and has been in compliance
at all times with all terms and conditions of, all permits, licenses
and other authorizations required pursuant to Environmental and Safety
Requirements for the occupation of the properties of the Business and
the conduct of its operations.
(3) To the best of the Company's and the Stockholders' knowledge,
none of the following exists at any property owned or occupied by the
Company: asbestos-containing material in any form or condition;
polychlorinated biphenyl-containing materials or equipment;
underground storage tanks; or any other toxic or hazardous material
regulated by Environmental and Safety Requirements.
(4) The transactions contemplated by this Agreement do not impose
any obligations under Environmental and Safety Requirements for site
investigation or cleanup or notification to or consent of any
government agencies or third parties.
(5) To the best of the Company's and the Stockholders' knowledge,
based on Environmental and Safety Requirements as currently in effect,
no facts, events or conditions relating to the past or present
properties or operations of the Business or properties contiguous
thereto will (x) prevent, hinder or limit continued compliance by the
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Company with Environmental and Safety Requirements, (y) give rise to
any corrective, investigatory or remedial obligations on the part of
the Company pursuant to Environmental and Safety Requirements, or (z)
give rise to any liabilities on the part of the Company (whether
accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental and Safety Requirements, including without limitation
those liabilities relating to onsite or offsite hazardous substance
releases, personal injury, property damage or natural resources
damage.
(6) The Company has not assumed any liabilities or obligations of
any third party under Environmental and Safety Requirements.
For the purposes of this subsection, "Environmental and Safety
Requirements" means all federal, state and municipal statutes, regulations,
common law and similar provisions having force or effect of law, including all
required orders, permits, licenses and approvals, with respect to environmental,
public health and safety, occupational health and safety, product liability and
transportation matters, including without limitation those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labelling, testing, processing, discharge,
release, control or cleanup of any contaminant, waste, hazardous materials or
substances, chemical substances or mixtures, pesticides, toxic compounds or
materials, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation.
(r) Reports. Stockholders have delivered or made available to Parent
true, complete and correct copies of all environmental reports, analyses, tests
or monitoring in the possession of Stockholders or the Company pertaining to any
property owned or operated in connection with the Business and a true, complete
and correct list identifying all third party facilities at which contaminants
generated in connection with the Business, if any, (whether by the Company or
any prior owner or occupant) have been transported, treated, stored, handled or
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disposed within the past five years. The premises currently occupied by the
Company satisfy all local ordinances and Nebraska statutes and the Company has
complied in all material respects with all environmental laws, including
hazardous or toxic waste disposal laws and regulations applicable to the Company
and the Business.
(s) Compliance with Law/Permits. The Business has been conducted in
compliance with all applicable laws and regulations of governmental authorities,
except for such violations that have been cured or that, individually or in the
aggregate, may not reasonably be expected to have a Material Adverse Effect. The
Company possesses, and is in compliance in all material respects with, all
franchise, contract, license, marketing right, permit, authorization, approval
or other operating authority issued by any governmental or regulatory body
("Governmental Permit") necessary to the conduct of the Business, and except as
set forth on Schedule 4.3(s) such Governmental Permits will be in full force and
effect for the benefit of the USPN following the Closing Date.
(t) Litigation and Proceedings. Except as set forth in Schedule 4.3(t)
hereto, there is no action, suit, proceeding or investigation, or any counter or
cross-claim in any action brought by or on behalf of the Company or
Stockholders, whether at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, that is pending or, to the best
knowledge of the Company or Stockholders, after due inquiry, threatened, against
the Company or the Stockholders, which (i) could reasonably be expected to
affect adversely the Company's or Stockholders' ability to perform its
obligations under this Agreement or the agreements referenced herein or complete
any of the transactions contemplated hereby or thereby, or (ii) which, if
adversely determined, individually or in the aggregate, would have a Material
Adverse Effect. The Company is not subject to any judgment, order, writ,
injunction, decree or award of any court, arbitrator or governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company, any of its assets or the Business.
(u) Insurance. Schedule 4.3(u) contains a complete listing of all
policies of insurance carried by the Company, including the type and amount of
coverage, deductible levels and expiration dates. All premiums due with respect
to such policies have been paid and such policies are in full force and effect
and will remain in full force and effect through the Closing Date. The Company
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shall assume all risk of loss due to destruction or damage due to fire or other
casualty up to the time of Closing. Parent or USPN shall have no right to
terminate this Agreement unless such loss is "substantial" (resulting in a total
stoppage of the Business for a period of time in excess of 15 business days). In
the event of a substantial loss, this Agreement shall be terminated and Parent
and USPN waive any claims for damages against the Stockholders or the Company
for such loss or for the curtailment or interruption of the Business prior to
Closing.
(v) Affiliate Interests. Except as disclosed in Schedule 4.3(v), the
Company is not a party to any transaction with (a) any Stockholder, (b) any
employee, officer or director of the Company, (c) any relative of any
Stockholder or of any such employee, officer or director, or (d) any entity,
corporation or partnership that, directly or indirectly, is controlled by or
under common control with any Stockholder or with any such employee, officer,
director or relative, including without limitation any contract, agreement or
other arrangement (i) providing for the furnishing of services by such person,
(ii) providing for the rental of real or personal property from or to such
person, (iii) providing for the guaranty of any obligation of such person, (iv)
requiring any payment to such person which will continue beyond the Closing
Date, or (v) establishing any right or interest of such person in any of the
assets or rights of the Company.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business. Stockholders and the Company agree that
from the date hereof and to the Closing Date or earlier termination of this
Agreement as follows:
(a) Full Access. Between the date of this Agreement and the Closing
Date, Stockholders and the Company will (i) give Parent and its authorized
representatives (including lenders, legal counsel and accountants) reasonable
access to all employees, offices, warehouses and other facilities and property
of the Business and to its books and records, (ii) permit Parent and its
authorized representatives to make such inspections thereof as Parent may
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reasonably require, and (iii) furnish Parent and its representatives and
advisers with such financial and operating data and other information with
respect to the Business and properties of the Company as Parent may from time to
time reasonably request; provided, however, that any such investigation shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the Business.
(b) Confidentiality. If the transactions contemplated by this
Agreement are not consummated, Purchaser will maintain the confidentiality of
all information and materials obtained from Stockholders and will not use or
permit others to use such information for any other purpose, except to the
extent disclosure of any such information is authorized by Stockholders or
required by law. The provisions of this Section will not apply to any
information, documents or material which are in the public domain other than by
reason of a breach of this Section by Parent or USPN.
(c) Operation of Business. Neither the Company nor the Stockholders
will engage in any practice, take any action, or enter into any transaction
outside the ordinary course of the Business. Without limiting the generality of
the foregoing, neither the Company nor the Stockholders:
(1) will authorize or effect any change in the Company's Articles
of Incorporation or Bylaws;
(2) will grant any options, warrants, or other rights to purchase
or obtain any of its capital stock or issue, sell, or otherwise
dispose of any of its capital stock;
(3) will declare, set aside, or pay any dividend or distribution
with respect to its capital stock (whether in cash or in kind), or
redeem, repurchase, or otherwise acquire any of its capital stock;
(4) will issue any note, bond, or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or
capitalized lease obligation;
(5) will create or permit the creation of any Encumbrance upon
any of the Company Assets other than non- consensual liens arising by
operation of law;
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(6) will make any capital investment in, make any loan to, or
acquire the securities or assets of any other person or entity outside
the ordinary course of business;
(7) will make any change in employment terms for any of its
directors, officers, and employees or enter into any employment
agreements or commitment to any employees of the Company outside the
ordinary course of business; or
(8) will commit to any of the foregoing.
In addition, the Stockholders and the Company will:
(1) maintain working capital at current levels subject to normal
fluctuation consistent with past experience;
(2) keep in full force and effect insurance comparable in amount
and scope of coverage to insurance now carried with respect to the Business;
(3) perform in all material respects all obligations under
leases, agreements, contracts and instruments relating to or affecting the
Business;
(4) maintain the books of account and records of the Business in
the usual, regular and ordinary manner; and
(5) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the conduct of the Business;
(d) Exclusivity. Neither Stockholders nor the Company shall directly
or indirectly through any officer, director, employee, agent, partner, affiliate
or otherwise; (i) enter into any agreement, agreement in principle or other
commitment (whether or not legally binding) relating to any business combination
with, recapitalization of, or acquisition or purchase of all or a significant
portion of the assets or operations of, or ownership interest in, the Company or
relating to any other similar transaction (a "Competing Transaction"); (ii)
solicit, initiate or encourage the submission of any proposal or offer from any
person or entity (including any of their officers, directors employees, and
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agents) relating to any Competing Transaction; or (iii) participate in any
discussions or negotiations regarding, furnishing to any other person or entity
any information with respect to, or encourage any effort or attempt by any
person or entity to effect, a Competing Transaction. Stockholders and the
Company shall notify Parent immediately if any person makes any proposal, offer,
inquiry or contact with respect to any of the foregoing and shall immediately
upon receipt forward a copy of such (if in writing) to Parent. In addition, the
Company will immediately terminate all discussions, negotiations, or agreements
now pending with other potential buyers with respect to a Competing Transaction.
(e) Amendment of Disclosure Schedules. From time to time prior to the
Closing Date, Stockholders and the Company will supplement or amend the
schedules hereto with respect to any matter known to them which, if existing or
occurring at or prior to the date of this Agreement, would have been required to
be set forth or described in the schedules hereto or which is necessary to
correct any information in such schedules or in any representation or warranty
of Stockholders or the Company which has been rendered inaccurate thereby. Such
supplemented or updated disclosures shall not be deemed a modification of
Stockholders' and the Company's representations and warranties and shall not
affect Parent's or USPN's rights hereunder.
SECTION 5.2 Third Party Consents. Each party to this Agreement shall use
its best efforts to obtain, as soon as reasonably practicable, all permits,
authorizations, consents, waivers and approvals from third parties or
governmental authorities necessary to consummate this Agreement and the
transactions contemplated hereby or thereby, including, without limitation, any
permits, authorizations, consents, waivers and approvals required in connection
with the Agreement.
SECTION 5.3 Sale of Merger Consideration. The Stockholders hereby agree
that they will comply with the limitations on the amount of securities sold
contained in Rule 144(e) (or any successor provision) of the Act with regard to
any resale of the Merger Consideration so long as any such Stockholder owns any
Merger Consideration (notwithstanding any shorter compliance period contained in
Rule 144).
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SECTION 5.4 Exchange Act Filings. Parent covenants that it will timely file
all reports required to be filed by it under the Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). So long as Parent is subject to
the periodic reporting requirements of the Exchange Act, Parent covenants to
make publicly available such information as may be necessary to permit the sale
of the Merger Consideration without registration under the Act pursuant to the
exemption provided by Rule 144 under the Act, as such rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission. Upon the request of any holder of the Merger
Consideration at any time, Parent will deliver to such holder or such holder's
prospective transferee such information as may be necessary to permit the sale
of the Merger Consideration pursuant to Rule 144 under the Act, as such rule may
be amended from time to time. Upon request of any holder of the Merger
Consideration, Parent will deliver to such holder a written statement as to
whether it has complied with such information requirements.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholder Approval. The Company shall, as promptly as
practicable, submit this Agreement and the transactions contemplated hereby for
the approval of its stockholders at a meeting of stockholders and, subject to
the fiduciary duties of the Board of Directors of the Company under applicable
law, shall use its reasonable best efforts to obtain stockholder approval and
adoption (the "Company Stockholders' Approval") of this Agreement and the
transactions contemplated hereby. The Company shall, through its Board of
Directors, but subject to the fiduciary duties of the members thereof, recommend
to its stockholders approval of the transactions contemplated by this Agreement.
The Company (i) acknowledges that a breach of its covenant contained in this
Section 6.1 to convene a meeting of its stockholders and call for a vote thereat
with respect to the approval of this Agreement and the Merger will result in
irreparable harm to Parent which will not be compensable in money damages and
(ii) agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly available
to Parent for a breach of such covenant.
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SECTION 6.2 Expenses and Fees. Each party hereto agrees to bear its own
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement
SECTION 6.3 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable pursuant to all agreements, contracts, indentures or other instruments
to which the parties hereto are a party, or under any applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to (i) obtain all
necessary or appropriate waivers, consents and approvals from lenders,
landlords, security holders or other parties whose waiver, consent or approval
is required to consummate the Merger, (ii) effect all necessary registrations,
filings and submissions and (iii) lift any injunction or other legal bar to the
Merger (and, in such case, to proceed with the Merger as expeditiously as
possible)
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, Parent shall have
the right, at its own expense, to participate therein, and the Company will not
settle any such litigation without the consent of Parent, which consent will not
be unreasonably withheld.
SECTION 6.4 Public Statements. Unless required by law, the parties shall
not make any news releases or other public disclosure with respect to this
Agreement without the prior consent of the other parties, which consent shall
not be unreasonably withheld. In addition, each of the parties hereto will be
furnishing to each other certain information which is either non-public,
confidential or proprietary in nature. Each of the parties agrees that all such
information furnished or otherwise obtained, directly or indirectly, by such
party, its directors, officers, partners, employees, agents or representatives
including, without limitation, attorneys, accountants, partners, experts and
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consultants (collectively "Representatives") and all reports , analysis,
compilations, data, studies or other documents prepared by such party or its
Representatives containing or based, in whole or in part, on any such furnished
information (collectively the "Information") will be kept strictly confidential
and will not, without the prior written consent of the other party, be disclosed
to any other individual, corporation, partnership, joint venture, trust or
association in any manner whatsoever, in whole or in part and will not be used
for any purpose other than evaluation the transactions described herein;
provided that if either party receives an opinion of counsel that it is legally
obligated to release the Information, such party may do so after notice to and
consultation with the other party.
SECTION 6.5 Notification of Certain Matters. Each of the Company, the
Stockholders, Parent and USPN agrees to give prompt notice to each other of, and
to use their respective reasonable best efforts to prevent or promptly remedy,
(i) the occurrence or failure to occur or the impending or threatened occurrence
or failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.5 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.
Unless waived by the parties, the respective obligations of each party to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No injunction, order, or decree by any Federal, state or foreign
court which prevents the consummation of the Merger shall have been issued;
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(b) No statute or regulation shall exist or be enacted which would
prevent consummation of the Merger; and,
(c) Subject to Section 7.3(f) below, all governmental consents and
approvals required for Merger shall have been obtained.
SECTION 7.2 Conditions to Obligations of Stockholders and the Company to
Effect the Merger. Unless waived by the Stockholders and the Company, the
obligation of Stockholders and the Company to consummate the Merger is subject
to fulfillment of all of the following conditions precedent at or prior to the
Closing Date:
(a) All of Parent's and USPN's representations and warranties
contained herein shall be true and correct in all material respects;
(b) Parent and USPN shall have performed and complied with all
covenants under this Agreement.
(c) The Employment Agreement, substantially in the form attached
hereto, shall be executed by USPN.
SECTION 7.3 Conditions to Obligations of USPN to Consummate the Merger.
Unless waived by USPN and Parent, the obligations of USPN and Parent to
consummate the Merger are subject to the fulfillment of all of the following
conditions precedent at or prior to the Closing Date:
(a) The representations and warranties made by the Stockholder's and
the Company are true and correct in all material respects on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date;
(b) The Company and Stockholders shall have performed and complied in
all material respects with all of their respective obligations under this
Agreement required to be performed or complied with by Stockholders or the
Company on or prior to the Closing Date;
(c) No action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or change would (i)
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prevent consummation of the Merger; or (ii) materially and adversely affect the
right of the USPN to own the Company Assets and to operate the Business (and no
such injunction, judgment, order, decree, ruling or charge shall be in effect);
(d) Subject to subsection (f) below, all consents and approvals
necessary for the operation of the Business post-Closing shall have been
obtained;
(e) No material adverse change has occurred in the Business,
operations or prospects of the Company;
(f) Approval of the transfer or new issuance to USPN of the Business'
pawnshop license, firearms license and secondhand license pursuant to the
provisions of applicable ordinances or laws in the municipality or county where
the Business is located provided, however, that if, at the time of approval of
the transfer of the pawnshop license and the secondhand license, USPN has not
received approval for such transfer of the firearms licenses, then the Merger
shall be consummated and LW and/or MS, as the case may be, shall, and hereby
agrees to, for nominal consideration and compensation, enter into a management
agreement in form and substance acceptable to USPN for a period not to exceed 90
days regarding the sale of firearms at the Business, whereby LW and/or MS, as
the case may be, shall utilize thier firearms license to enable USPN to continue
the firearms portion of the Business, pending the approval of the firearms
license for the Business;
(g) Execution of a new lease with terms and conditions satisfactory to
USPN between USPN and Michael P. Sortino (or modification of the existing lease)
for the building known as 329 South Washington Street, Papillion, Nebraska with
substantially the following terms: (i) the lease shall commence on the Closing
Date and provide for a term ending on the date which is five years from the
Closing Date; (ii) the lease shall provide for two options, exercisable by USPN
each for an additional five year term; and (iii) the lease shall provide that
USPN will be granted a right of first refusal in the event of any proposed sale
of the aforesaid premises to purchase such premises on substantially the same
terms of such proposed sale;
(h) The execution of Articles of Merger in form satisfactory for
filing with the Secretaries of State of the States of Colorado and Nebraska;
(i) Parent shall have received an opinion from counsel to the Company,
effective as of the Closing Date, in form and substance reasonably satisfactory
to Parent;
(j) Since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, condition (financial or other) or results of operations of the Company;
and
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(k) The Employment Agreement, substantially in the form attached
hereto as Exhibit A, shall be executed by Jeff White.
SECTION 7.4 Contingencies. In addition to the foregoing, this Agreement and
USPN's and Parent's obligation to perform hereunder is specifically contingent
upon and subject to the Parent's satisfaction, in its sole discretion, with its
due diligence examination of the following which will be performed and completed
by Parent its agents within 15 business days of the execution of this Agreement;
(a) An accounting and audit verification of all assets and liabilities
of the Company by agents of Parent;
(b) Verification of the corporate status of the Company with the
Nebraska Secretary of State;
(c) Review of Company Articles of Incorporation, Bylaws, minutes of
any meetings of shareholders and board of directors, and stock certificate
records and ledgers of the Company which will be provided to Parent upon
execution of this Agreement;
(d) Review of pawn and other required business licenses of the Company
to conduct the Business in the state and local governmental jurisdictions; and
(e) Any other Business review procedures or documents required to
close the Merger as may be required or recommended by legal, accounting or tax
advisers to Parent.
If the Parent is not satisfied, in Parent's sole opinion, with its review
of any of the above, the Parent and USPN may terminate this Agreement in writing
on or before 20 business days from the execution of this Agreement, in which
event this Agreement and all obligations of the Parent hereunder shall
terminate.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. Anything to the contrary notwithstanding, this
Agreement may be terminated at any time prior to the Closing Date:
(a) By mutual written consent of Parent, USPN, the Company and the
Stockholders;
(b) By either Parent, USPN, the Company or the Stockholders if (i) the
Merger shall not have been consummated on or before August 31, 1997 (the
"Termination Date"), or (ii) any court or competent jurisdiction in the United
States or any State shall have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the Merger and such order, judgment or decree shall have become
final and nonappealable; or
(c) This Agreement may be terminated by Parent or USPN, by written
notice to the Company and the Stockholders, if any governmental or regulatory
body, the consent of which is a condition to the obligations of USPN to
consummate the transactions contemplated hereby, shall have determined not to
grant its consent.
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement by either Parent, USPN, the Company or the Stockholders as provided
herein, this Agreement shall forthwith become void and there shall be no
liability on the part of Parent, USPN, the Company, the Stockholders or their
respective officers or directors. Nothing in this Section shall relieve any
party from liability for any breach of this Agreement.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements made by any party in this
Agreement or pursuant hereto shall survive the Closing until December 31, 1998,
except for the representations, warranties, covenants and agreements regarding
Taxes which shall survive the Purchase until the expiration of the applicable
statutes of limitations with respect to such matters and Section 5.2 which shall
survive so long as any Stockholder owns any Merger Consideration.
SECTION 9.2 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties. At any time prior to the Effective Time, the parties hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant thereto,
and (c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party. No waiver by any party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
SECTION 9.3 Press Releases and Public Announcements. No party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior approval of the other parties; provided,
however, that any party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing party will use its
reasonable best efforts to advise the other party prior to making the
disclosure).
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SECTION 9.4 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (i) hand
delivered; (ii) sent by a nationally recognized overnight courier; (iii) sent by
registered or certified mail, return receipt requested, postage prepaid; or (iv)
sent by telephone facsimile transmission (with prompt oral confirmation of
receipt) as follows:
If to the Company:
Pawn Warehouse Outlet, Inc.
329 South Washington
Papillion, NB 68046
Telecopy No.
Copy To:
(post-Closing)
U.S. Pawn Nebraska, Inc.
c/o U.S. Pawn, Inc.
7215 Lowell Boulevard
Westminster, CO 80030
Telecopy No.: (303) 657-6341
and
(pre-Closing)
Lori White
Pawn Warehouse Outlet, Inc.
329 South Washington
Papillion, NB 68046
Telecopy No.
If to Parent or USPN:
U.S. Pawn Nebraska, Inc.
U.S. Pawn, Inc.
7215 Lowell Boulevard
Westminster, CO 80030
Telecopy No.: (303) 657-6341
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Copy To:
Larry M. Snyder, Esq.
3300 E. First Ave. #690
Denver, CO 80206-5809
Telecopy No.: (303) 399-5203
and
Brent T. Slosky, Esq.
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, Twenty-second Floor
Denver, Colorado 80202-4437
Telecopy No.: (303) 623-1956
If to the Stockholders:
Lori White
Pawn Warehouse Outlet, Inc.
329 South Washington
Papillion, NB 68046
Telecopy No.
and
Mike Sortino
P.O. Box 558
Gretna, NE 68028
Telecopy No.: (402) 332-3246
Any party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
SECTION 9.5 Entire Agreement. This Agreement (including the documents
referred to herein) fully sets forth the agreement of the parties described in
the letter dated February 26, 1997 and constitutes the entire agreement among
the parties and supersedes any prior understandings, agreements, or
representations by or among the parties, written or oral, to the extent they
related in any way to the subject matter hereof.
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SECTION 9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
SECTION 9.7 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
SECTION 9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF COLORADO WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF COLORADO OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO. IN ANY ACTION
BROUGHT UNDER OR ARISING OUT OF THIS AGREEMENT, THE PARTIES HEREBY CONSENT TO
THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF COLORADO AND CONSENT
TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY THE LAWS OF SUCH STATE.
SECTION 9.9 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other parties provided, however, that Parent and USPN may assign
their rights under this Agreement to a wholly owned subsidiary entity of Parent
without any prior consent.
SECTION 9.10 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.11 Expenses. Except as otherwise provided herein, each of the
parties will bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
SECTION 9.12 Exhibits and Schedules. All Exhibits and Schedules referred to
in this Agreement shall be attached hereto and are incorporated herein by
reference.
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SECTION 9.13 Non-competition and confidentiality.
(a) Non-Compete. MS and LW each agrees that for a period of five years
after the date hereof, without the prior written consent of the Board of
Directors of USPN, MS or LW will not (i) enter into any agreement with or
directly or indirectly, solicit or attempt to solicit employees (whether
full-time, part-time or temporary) or representatives of USPN or Parent, for the
purpose of causing, inviting or encouraging them to alter or terminate his, his
or its employment (whether or not such employment is pursuant to written
agreement, is for a determined period or is at will) or business relationship
with USPN or Parent; (ii) accept employment with, serve as a consultant to,
acquire an equity interest in, make loans to or for the benefit of, render any
services to, or accept compensation from any person, firm or corporation
(including any new business started by MS or LW alone or with others or at the
direction of MS or LW) whose business is similar to the business or whose
services compete with those offered by USPN or Parent (such similar products or
services include other pawn shop or similar buy/sell operations, but shall not
include the retail sale only of similar products or services) within a 25 mile
radius of any entity (now existing or, provided MS or LW does not have a prior
business presence similar to the Business within such geographic area, in the
future existing) 5% or more of which is directly or indirectly owned by USPN or
Parent and which engages in a business similar to the Business or in any
geographic market in which, to MS or LW's knowledge, as applicable, USPN or
Parent plans to do business, or (iii) contact, divert, appropriate or solicit or
attempt to contact, divert, appropriate or solicit, any customers of USPN or
Parent, for the purpose of diverting any existing or future business of such
customers to a competing source.
Notwithstanding the foregoing, ownership of not more than two
percent of the voting stock of a corporation whose stock is traded on a national
securities exchange or over-the-counter or employment with another affiliate of
USPN or Parent shall not of itself constitute a violation of this Section 9.13.
(b) Confidentiality. MS and LW each recognizes and acknowledges that
any and all compilations and lists of USPN's customers are valuable, special and
unique assets of the Business. MS and LW each agrees that he or she will not,
without the prior written consent of USPN, (1) disclose any trade secrets,
35
<PAGE>
intellectual property or information of the USPN, Parent or any affiliate
thereof (collectively, the "U.S. Pawn Entities") (including but not limited to
cost of pricing information, software specifications, customer lists, supply
information, internal business procedures, market studies, financial statements
or other financial information, information concerning pending or contemplated
acquisitions or expansion plans or the existence of negotiations concerning the
same, and similar non-public information relating to the U.S. Pawn Entities'
internal operations, business, plans, policies or practices (collectively,
"Confidential Information")) to any third party or (ii) use or permit the use of
any of the U.S. Pawn Entities' trade secrets or Confidential Information in any
way to compete (directly or indirectly) with the U.S. Pawn Entities or in any
other manner adverse to the U.S. Pawn Entities; provided; however, that the
trade secrets and Confidential Information referenced in the foregoing provision
shall not include any form of information or knowledge which: (i) is already in
the public domain, or enters the public domain, under any circumstances other
than a wrongful act by MS or LW; (ii) is received by MS or LW, as the case may
be, from any third party without similar restrictions and without breach of this
Non-Compete Section; or (iii) is lawfully required to be disclosed by any
governmental agency or applicable law; provided that, disclosure of such
information would not, directly or indirectly, place any of the U.S. Pawn
entities at a competitive disadvantage or otherwise adversely affect any of the
U.S. Pawn Entities, or their current or future operations or prospects, as
determined by USPN's Board of Directors, in its reasonable business judgment.
36
<PAGE>
IN WITNESS WHEREOF, Parent, USPN, the Company and the Stockholders have
caused this Agreement to be signed as of the date first written above.
U.S. PAWN, INC.
BY: /s/ Melvin Wedgle
------------------------------------
MELVIN WEDGLE
Chief Executive Officer
U.S. PAWN NEBRASKA, INC.
BY: /s/ Melvin Wedgle
------------------------------------
MELVIN WEDGLE, President
COMPANY:
PAWN WAREHOUSE OUTLET, INC.
BY: /s/ Michael P. Sortino
-----------------------------------
MICHAEL P. SORTINO, PRESIDENT
STOCKHOLDERS:
/s/ Lori White
-----------------------------------
LORI WHITE
/s/ Mike Sortino
-----------------------------------
MIKE SORTINO
217585.2
[6679\1]
37
<PAGE>
RESIGNATION AGREEMENT
---------------------
THIS RESIGNATION AGREEMENT ("Agreement") is entered into as of October 29,
1997, by and between U.S. PAWN, INC., a Colorado corporation (the "Company"),
and MELVIN WEDGLE ("Wedgle") (collectively, the "Parties").
RECITALS
--------
WHEREAS, Wedgle is currently the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company and the sole Director,
President and Secretary of each of U.S. Pawn Nevada, Inc., and U.S. Pawn
Nebraska, Inc. and a Director and President of U.S. Pawn Wyoming, Inc.
(hereinafter collectively referred to as the "Company");
WHEREAS, the Company is in the business of advancing money to customers on
the security of pledged goods and, if appropriate, selling such pledged goods,
otherwise known as a pawn shop (the "Business"). Wedgle, by virtue of his
employment by the Company, is in possession of confidential and proprietary
information relating to the Business and operations of the Company;
WHEREAS, on or about August 14, 1997, the Company received a demand from
holders of more than ten percent of the outstanding common stock of the Company
(the "Demanding Shareholders") for a Special Meeting of the Shareholders (the
"Special Meeting") for the purpose of removing the Board of Directors of the
Company;
WHEREAS, the Board of Directors believes that the Demanding Shareholders
have the ability to influence the votes of over 50% of the outstanding voting
stock of the Company; and
WHEREAS, the Board of Directors believes that it is in the best interest of
the Company to avoid the costs and time associated with holding the Special
Meeting and soliciting proxies therefor (given the Demanding Shareholders'
ability to influence the votes of the Company's voting stock) by, in part,
reaching the agreements contained herein allowing for an orderly change of
control of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
<PAGE>
AGREEMENT
---------
1. Resignation by Wedgle. Subject to the performance of all other covenants
and conditions herein, Wedgle agrees to resign all positions he presently holds
with the Company and its subsidiaries as of the date hereof.
2. Consideration. In consideration of Wedgle's agreements contained herein,
including but not limited to, the provisions of Section 3, the Company hereby
agrees that:
(a) Within two business days of the date hereof, the Company will
convey to Wedgle (i) the title to the 1994 Ford Explorer that Wedgle is
currently using, VIN# 1FMDU34X6RUB79872 and (ii) ownership of the furniture
previously located in Wedgle's office at the Company, free and clear of all
liens and encumbrances.
(b) Within 30 calendar days of the date hereof, the Company will
purchase from Wedgle the real property situated within the County of Arapahoe,
State of Colorado, more particularly described on Exhibit A attached hereto and
incorporated herein by this reference, together with the improvements thereon,
all easements, rights-of-way, privileges, appurtenances and rights to the same
belonging and inuring to the benefit of said real estate (said real property and
said improvements, rights and privileges are hereinafter referred to as the
"Property"), which is presently the site of the Company's Aurora store. The
purchase price for the Property shall consist of (i) the Company's forgiving all
promissory notes and loans which Wedgle currently owes to the Company which, as
of the date hereof, total $108,641.41 ($65,000.00 note plus $13,391.41 interest
to the date hereof and $30,250.00 account receivable) and (ii) the Company's
assumption or refinancing (in the Company's sole discretion) of the mortgage
encumbering the Property in the original principal amount of $247,500 (the
"Mortgage"). The Property shall be conveyed by Wedgle to the Company free and
clear of all liens or other encumbrances except those shown on a standard ALTA
title insurance policy which is acceptable to the Company and which the Company
shall obtain at its expense. In addition, effective upon the closing for the
Property, the Company agrees to defend and save harmless Wedgle and his
successors and assigns from and against any and all claims, demands, causes of
actions, damages, costs, expenses, lawsuits and liabilities, at law or in
equity, of every kind or nature whatsoever, directly or indirectly arising out
of or attributable to the Property or the Mortgage.
(c) The Company shall, on the date hereof, redeem all of the options
to purchase 223,250 shares of common stock, no par value, of the Company
("Company Stock Options") owned by Wedgle. The purchase price for the Company
Stock Options (the "Option Purchase Price") shall be $265,360 which represents a
$3.00 per share value less the exercise price of such Company Stock Options. The
2
<PAGE>
Option Purchase Price shall be payable by the Company in three monthly
installments with the first payment of $88,453.33 due upon execution of this
Agreement; the second payment of $88,453.33 due 30 days from the date hereof;
and the third payment of $88,453.34 due 60 days from the date hereof. Wedgle
hereby represents and warrants that the Company Stock Options are free and clear
of all liens, pledges, encumbrances or any other rights of third parties as of
the date hereof.
3. Non-competition and Confidentiality.
(a) Non-Compete. Wedgle agrees that for a period of two years from the
date hereof, without the prior written consent of the Board of Directors of the
Company, Wedgle will not (i) enter into any agreement with, directly or
indirectly solicit employees or representatives of the Company for the purpose
of causing them to leave the Company to take employment with him or any other
person or business entity; (ii) compete directly or indirectly with the Company
within a two mile radius of any pawn store or business now or (provided Wedgle
does not have a prior business presence similar to the Business within such two
mile radius) hereafter owned, operated or managed by the Company; (iii) act as
an officer, director, employee, consultant, shareholder, partner, lender, agent,
associate or principal of any entity engaged in any pawn shop business of the
same nature as, or in competition with, the Company within a two mile radius of
any pawn store or business now or (provided Wedgle does not have a prior
business presence similar to the Business within such two mile radius) hereafter
owned, operated or managed by the Company; (iv) participate in the ownership,
management, operation or control of any business directly or indirectly whose
business is similar to the Business or whose services compete with those offered
by the Company (such similar products or services include other pawn shop or
similar buy/sell operations, but shall not include the retail sale only of
similar products or services), within a two mile radius of any entity (now
existing or (provided Wedgle does not have a prior business presence similar to
the Business within such two mile radius) in the future existing) 5% or more of
which is directly or indirectly owned by the Company and which engages in a
business similar to the Business or in any geographic market in which, as of the
date hereof, to Wedgle's knowledge, the Company plans to do business; (v)
solicit customers or potential customers of the Company; (vi) own or apply for a
pawn license with respect to a location within a two mile radius of the location
of any pawn store or pawn business now or (provided Wedgle does not have a prior
business presence similar to the Business within such two mile radius) hereafter
owned, operated or managed by the Company; or (vii) directly or indirectly
interfere with or agitate in any way any employee or representative of the
Company for the purpose of causing such employee or representative to terminate
employment or any contractual relationship with the Company or to be
dissatisfied with their employment or contractual relationship. The term
"participate in" and "participation" shall mean that Wedgle shall directly or
indirectly, for his own benefit, or for, with or through any person, firm or
corporation, own, manage, operate or control a pawn business, loan money to or
participate in the ownership, management or control of a pawn business, or be
connected or associated with a pawn business as a director, shareholder,
officer, employee, partner, consultant, agent, independent contractor, lender or
otherwise.
3
<PAGE>
Notwithstanding the foregoing, ownership of not more than two percent of
the voting stock of a corporation whose stock is traded on a national securities
exchange or over-the-counter shall not of itself constitute a violation of this
subparagraph (a).
(b) Confidentiality. Wedgle recognizes and acknowledges that any and
all compilations and lists of the Company's customers are valuable, special and
unique assets of the Business. Wedgle agrees that he will not at any time, (i)
disclose any trade secrets, intellectual property or information of the Company
(including but not limited to cost of pricing information, software
specifications, customer lists, supply information, internal business
procedures, market studies, financial statements or other financial information,
information concerning pending or contemplated acquisitions or expansion plans
or the existence of negotiations concerning the same, and similar non-public
information relating to the Company's internal operations, business, plans,
policies or practices (collectively, "Confidential Information")) to any third
party or (ii) use or permit the use of any of the Company's trade secrets or
Confidential Information in any way to compete (directly or indirectly) with the
Company or in any other manner adverse to the Company; provided; however, that
the trade secrets and Confidential Information referenced in the foregoing
provision shall not include any form of information or knowledge which: (i) is
already in the public domain, or enters the public domain, under any
circumstances other than a wrongful act by Wedgle; (ii) is received by Wedgle
from any third party without similar restrictions and without breach of this
Non- Compete Section; or (iii) is lawfully required to be disclosed by any
governmental agency or applicable law; provided that, disclosure of such
information would not, directly or indirectly, place the Company at a
competitive disadvantage or otherwise adversely affect the Company, or their
current or future operations or prospects, as determined by the Company's Board
of Directors, in its reasonable business judgment.
(c) Severability. It is hereby agreed that the provisions of this
Section 3 are separate and independent from the other provisions of this
Agreement, that these provisions are specifically enforceable by the Company
notwithstanding any claim by Wedgle that the Company has violated or breached
this Agreement or any claim that Wedgle is entitled to any offset or
compensation.
(d) Reformation. The parties hereto have endeavored to limit Wedgle's
rights to compete to the extent necessary to protect the Company from unfair
competition in connection with the transactions contemplated by this Agreement
and the future business of the Company, and they recognize that reasonable
people may differ in making such a determination. Therefore, if any temporal,
territorial, or activity-related restriction contained in this Non-Compete
Section is too broad to permit enforcement thereof to its fullest extent, then
such restriction shall be enforced to the maximum extent permitted by law, and
Wedgle hereby consents and agrees that this Non- Compete Section may be
judicially reformed, revised, modified, or partially enforced in any proceeding
brought by the Company to enforce this Non-Compete Section. Subject to the
foregoing, if any provision of this Non-Compete Section is deemed invalid or
unenforceable by a court of law, such provision shall be considered to be
automatically deleted from this Non-Compete Section. Any such deletion shall
apply only to that portion of any provision so adjudicated, and the operation of
such provision shall only be deemed inapplicable in the particular jurisdiction
in which the adjudication is made.
4
<PAGE>
(e) Remedies. Wedgle acknowledges and agrees that the provisions of
this Non-Compete Section are a reasonable and necessary protection of the
immediate and substantial interests of the Company, that any violation of these
restrictions would cause substantial injury to the Company, and that the Company
would not have entered into this Agreement without the additional consideration
offered by Wedgle in binding himself to the provisions of this Non-Compete
Section. In the event of a breach or threatened breach by Wedgle of any
provision of this Non-Compete Section, the Company shall be entitled to apply to
any court of competent jurisdiction for a temporary or permanent injunction
restraining Wedgle from such breach or threatened breach; provided, however,
that nothing herein contained shall be construed to preclude the Company from
pursuing any other available remedy for such breach or threatened breach in
addition to, or in lieu of, such injunctive relief and any available remedy
shall not be subject to any limits on liability that may be contained in this
Agreement.
In connection with the bringing of any legal or equitable action for the
enforcement of this Section, the prevailing party shall be entitled to recover
such reasonable attorneys' fees and expenses as may be incurred in prosecution
of a claim for breach hereof.
4. Complaints. Wedgle represents that he has not filed any complaints or
charges or lawsuits against the Company with any governmental agency or any
court, and represents that he does not intend to do so at any time hereafter;
provided, however, this shall not prevent Wedgle from filing a lawsuit for the
sole purpose of enforcing Wedgle's rights under this Agreement.
5. No Admission. This Agreement shall not in any way be construed as an
admission by the Company that it has acted wrongfully with respect to Wedgle or
any other person, or that Wedgle has any rights whatsoever against the Company,
and the Company specifically disclaims any liability to or wrongful acts against
Wedgle or any other person, on the part of itself, its employees or its agents.
6. General Release. Excluding claims arising out of or related to this
Agreement, as a material inducement to the parties hereto to enter into this
Agreement, (i) Wedgle individually and on behalf of his heirs, successors and
assigns, and (ii) the Company, its successors, assigns, parents, subsidiaries,
affiliates, and employees, hereby irrevocably and unconditionally releases,
acquits and forever discharges each other and, as applicable, their owners,
successors, assigns, agents, directors, officers, employees, representatives,
attorneys, parents, divisions, subsidiaries and affiliates (and agents,
directors, officers, employees, representatives and attorneys of such parents,
division, subsidiaries and affiliates), and all persons acting by, through,
under or in concert with any of them (collectively "Releasees"), or any of them,
of and from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
5
<PAGE>
rights, demands, costs, losses, debts and expenses (including attorneys' fees
and costs actually incurred) of any nature whatsoever, known or unknown,
suspected or unsuspected, including, but not limited to, rights arising out of
alleged violations of any contracts, express or implied, any covenant of good
faith and fair dealing express or implied, or any tort, or any legal
restrictions on the Company's right to terminate employees, or any federal,
state or other governmental statute, regulation, or ordinance ("Claim" or
"Claims") arising from or in any way related to Wedgle's employment by or
association with the Company, or the termination of said employment based in
whole or in part upon any act or omission occurring on or before the date
hereof, which each now has, owns or holds, or claims to have, own or hold, or
which each at any time heretofore had, owned or held, or claimed to have, own or
hold, or which each at any time hereinafter may have, own or hold, or claim to
have, own or hold against each or any of the Releasees.
(a) In the event that legal action is required to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover its costs
along with reasonable attorneys fees.
(b) Wedgle represents and acknowledges that in executing this
Agreement, Wedgle does not rely and has not relied upon any representation or
statement not set forth herein made by any of the Releasees or by any of the
Releasees' agents, representatives, or attorneys with regard to the subject
matter, basis or effect of this Agreement or otherwise.
7. Governing Law. Wedgle and the Company agree that any action brought by
either Wedgle or the Company in connection with the rights or obligations
arising out of this Agreement shall be instituted in a federal or state court of
competent jurisdiction with venue only in Denver County, Colorado (county of
last employment) or the 10th District federal district and ANY SUCH ACTION SHALL
BE GOVERNED BY THE LAW OF COLORADO, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF
LAW PROVISIONS THEREOF. Either party to this Agreement named as a defendant in
an action brought in connection with this Agreement in any other court outside
of the above-designated county or federal district shall have the right to have
the venue of said action changed to the above-designated county or district, or,
if necessary, have the case dismissed, requiring the other party to refile said
action in an appropriate court in the above-designated county or federal
district. Wedgle and the Company hereby agree to submit personally to the
jurisdiction of a court of competent subject matter jurisdiction located in the
above-designated state and county or federal district. Wedgle and the Company
acknowledge that this Agreement is executed in and that a material portion of
the obligations to be performed hereunder are to be performed in the
above-designated state and county or federal district.
8. Entire Agreement. This Agreement sets forth the entire agreement between
the parties hereto, and filly supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
6
<PAGE>
9. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute one and the same Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
U.S. PAWN, INC.
/s/ Gary A. Agron
-----------------------------------
By: Gary A. Agron
Title: Director
MELVIN WEDGLE
/s/ Melvin Wedgle
-----------------------------------
8
SETTLEMENT AGREEMENT
--------------------
THIS SETTLEMENT AGREEMENT entered into this 14th day of November, 1997, by
and between U.S. PAWN, INC., a Colorado corporation ("USP"), U.S. PAWN, NEVADA,
INC., a Colorado corporation and wholly-owned subsidiary of USP ("USPN"),
BOBBY'S PAWNSHOP, INC., d/b/a Bobby's Jewelry & Loan, a Nevada corporation and
wholly-owned subsidiary of USPN ("BOBBY'S"), PAWNBROKER, INC. d/b/a QUICK
BILL'S, Nevada corporation ("PAWNBROKER"), ROY M. YORK, an individual residing
in Clark County, Nevada ("DWH"), with reference to the following:
RECITALS
--------
WHEREAS, on or about December 9, 1996, USP entered into a letter of intent
with RMY and DWH with regard to the purchase and acquisition of PAWNBROKER and
the extension of offers of employment to RMY, DWH and their respective spouses
upon completion of the acquisition; and
WHEREAS, on or about December 10, 1996, USP entered into a letter of intent
with RMY and Mr. Robert T. Lord, Jr. for the purchase and acquisition of BOBBY'S
and the extension of an offer of employment to RMY; and
WHEREAS, the respective parties installed USP'S custom computers and
software at BOBBY'S and PAWNBROKER'S respective pawn shop locations; and
WHEREAS, on April 11, 1997, USPN, RMY and Mr. Lord executed a Stock
Purchase Agreement for the acquisition of BOBBY'S, and held the closing for such
transaction on that same date; in accordance with the Stock Purchase Agreement,
USPN and BOBBY'S entered into an Employment and Non-Compete Agreement with RMY
wherein RMY was employed as the Vice- President-Bobby's of USPN and BOBBY'S;
WHEREAS, at the same time as the closing of the BOBBY'S transaction, USPN
withheld the sum of Twenty Thousand Dollars ($20,000.00) ("Escrow Funds") from
RMY'S share of the sales proceeds as collateral for the computer hardware and
software installed at the PAWNBROKER shop location; and
WHEREAS, subsequent to the closing of the BOBBY'S transaction, and during
the course of negotiating the terms of the Agreement and Plan of Merger for the
acquisition of PAWNBROKER, a dispute arose between the parties regarding USPN'S
purchase of PAWNBROKER and USPN'S desire to terminate the services of RMY under
the Employment and Non-Compete Agreement referenced above pursuant to
allegations of "just cause" therein; and
WHEREAS, RMY has expressly denied the above allegations of "just cause" for
termination under the Employment and Non-Compete Agreement and RMY and DWH have
-1-
<PAGE>
further informed USP that they have incurred specific damages in reliance on the
letter of intent to acquire PAWNBROKER and material changes made to the
PAWNBROKER pawn shop operations in anticipation of the completion of such
acquisition; and
WHEREAS, the parties to this Settlement Agreement wish to resolve for all
times their differences concerning such matters and any claims or causes of
action regarding the same.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties agree as follows:
1. SETTLEMENT FUNDS. USP shall pay to RMY and DWH the sum of Two Hundred
Twenty Thousand Dollars ($220,000.00) as follows: USP and USPN shall jointly
execute a promissary note in the principal amount of $220,000.00, payable to RMY
or Kathleen I. York, with interest of eight percent (8%) per annum; accrued
interest on the note principal shall be paid monthly on the fifteenth (15th) day
of each month, beginning on December 15, 1997; USP and/or USPN shall make
principal payments in the amount of Fifty Thousand Dollars ($50,000.00) on each
of November 15, 1997, February 15, 1998, May 15, 1998, August 15, 1998, and
payment of the remaining balance of the principal shall be due and payable on
November 1, 1998. The promissary note shall be substantially in the form of the
promissary note attached hereto as Exhibit "A" and incorporated herein by
reference. All payments of principal and interest herein shall be tendered by
wire transfer pursuant to the wire instructions that may be provided at a later
date. RMY and DWH shall allocate the settlement funds between themselves, in
their sole discretion according to the respective interests of each in the
BOBBY'S transaction (and the employment agreement therein) and the PAWNBROKER
transaction.
2. COMPUTER HARDWARE AND SOFTWARE. PAWNBROKER shall purchase the computer
hardware and software ("computer system") installed at the PAWNBROKER pawn shop
location for the purchase price of Twenty Thousand Dollars ($20,000.00). Said
purchase price shall be paid by USP retaining the Escrow Funds referenced in the
Recitals above, as full and final payment for such system. USP shall promptly
deliver to PAWNBROKER a bill of sale for the computer system, together with any
and all operating manuals, registration materials, or other documentation on the
computer system in USP'S, USPN'S, and/or BOBBY'S possession.
A. From the time that this Agreement is initially signed by any party
until USP has delivered the above-referenced bill of sale and required
documentation, USP shall pay any and all monthly service fees with Vertical
Computer Systems, Inc. (approximately $110 per month) incurred by
PAWNBROKER, RMY or DWH for the use or operation of the computer system.
-2-
<PAGE>
B. The parties acknowledge and state that the computer system as
tendered has been modified and configured to conform with USP and/or USPN'S
operational systems and procedures, and that the some cost will be
necessarily incurred to remove such modifications and configurations. USP
agrees to pay PAWNBROKER the total sum of One Thousand Five Hundred Dollars
($1,500.00) as full and complete consideration for any configurations. Such
consideration shall be tendered on or before November 17, 1997 by wire
transfer, simultaneously with, but in addition to, the funds to be wire
transferred in Section 1 above. PAWNBROKER, RMY and DWH acknowledge and
agree that any cost of re-modifying or re-configuring the computer system,
or any cost of training on such computer system, over and above the
consideration paid by USP herein shall be their sole responsibility.
3. EMPLOYMENT OF RMY. Upon execution of the Settlement Agreement, RMY
shall tender, in written form, his resignation from employment with
USPN and BOBBY'S. Upon receipt of RMY'S resignation, USPN and/or
BOBBY'S shall promptly pay to RMY any and all compensation and
benefits accrued to RMY through the date of his resignation as
determined under the terms of the Employment and Non-Compete Agreement
executed on or about April 11, 1997. Upon payment of the accrued
compensation and benefits to RMY, the Employment and Non- Compete
Agreement shall be immediately cancelled and the parties to such
agreement shall be thereafter released from any obligations or
conditions contained therein.
4. INDEMNIFICATION OF PARTIES.
A. Except as provided in the subparagraph immediately below, USP, USPN
and BOBBY'S agree to indemnify RMY, and his heirs, assigns, agents, and
successors, from any and all liability, demands, claims, actions or causes
of action, assessments, losses, fines, penalties, costs, damages, and
expenses, including reasonable attorney's fees, costs and disbursements
(collectively "Damages") which arise out of or are connected with the
operations or transactions of USP, USPN, AND BOBBY'S that occurred on or
after April 11, 1997 ( the closing date of the BOBBY'S transactions),
including but not limited to the Lease and Lease Amendment existing between
BOBBY'S and the Welt Family Trust, and the Sublease Agreement existing
between BOBBY'S and Mr. Eduardo Rodrigues d/b/a AAAACE Jewelry.
B. Notwithstanding the subparagraph immediately above, USP, USPN and
BOBBY'S shall not be required to indemnify, and shall not be responsible
to, RMY, or his heirs, assigns, agents, and successors, for any Damages
sustained or incurred by RMY as a result of (i) any alleged criminal
activity committed by him during his tenure as an employee of USPN and/or
BOBBY'S, and for which RMY is convicted by a court of law; (ii) any civil
liability due to RMY'S intentional malicious or fraudulent acts within the
scope of his employment with USPN and BOBBY'S; and (iii) any civil
liability due to the extent that such Damages were not caused by the acts,
errors, omissions, or involvement, direct or indirect, intentional or
otherwise, of any other employee, agent, principal, or representative of
USP, USPN, and/or BOBBY'S.
-3-
<PAGE>
5. MUTUAL RELEASES. Except as herein provided, each respective party, for
himself and his respective heirs, successors, assigns, legal representatives,
officers, directors, stockholders, employees, agents, and affiliates, does
hereby release and discharge the other parties, and their respective heirs,
successors, assigns, legal representatives, officers, directors, stockholders,
employees, agents, and affiliates, from any and all liability now existing or
which may hereafter accrue, contingent or otherwise, from any and all claims,
demands, rights, causes of action, or other liability, whether known or unknown,
suspected or unsuspected, which he may have against the other parties involving
or in any way related to any and every claim alleged in the above-described
disputes, including any claims that may exist as a result of the letters of
intent referenced in the Recitals above. It is understood by the parties that
the facts in respect of which this agreement is made may subsequently prove to
be other than or different from the facts now known by any party or believed by
any party to be true, as set out in this agreement. Each of the parties
expressly accepts and assumes the risk of the facts proving to be so different,
and each of the parties agrees that all the terms of this agreement shall be in
all respects effective and not subject to termination or rescission by any such
difference in facts. Notwithstanding the above release and discharge, in the
event of a breach of this Settlement Agreement, each party reserves its rights
to all claims and causes of action arising from the above-described disputes and
to present the facts and circumstances of such disputes as evidence of
reasonableness or bad faith in any collateral proceeding. To the extent
applicable to any individual party, the mutual releases under this section shall
include a release of any marital or community property right that the spouse of
any married party may have in the claims and disputes settled by the terms of
this Agreement.
6. NON-DISPARAGEMENT OF RESPECTIVE PARTIES. Each party shall refrain from
making any false, misleading, ambiguous, slanderous, obscene, profane, vulgar,
repulsive or offensive statement or announcement to any person regarding any
other party to this Agreement, and shall further refrain from making any comment
or statement that is intended to or shall defame or disparage any other party to
this Agreement, or such party's business, products, services, officers,
directors, employees, or shareholders.
7. ADDITIONAL DOCUMENTS. From time to time, as and when reasonably
requested by a party hereto, each of the parties shall execute and deliver or
cause to be executed and delivered such other instruments and documents as may
be required, necessary or desirable in order to carry out the terms and
conditions of this Settlement Agreement. It is the stated intention of the
parties to this Settlement Agreement to settle in good faith, and each party
hereto agrees to use its best efforts to take, or cause to be taken, all actions
that may reasonably be required in order to effectuate the completion of this
Agreement.
8. NO ADMISSION OF LIABILITY. Each party recognizes and understands that no
party admits liability of any sort or to any extent by virtue of any
consideration given to another party pursuant to this Settlement Agreement, but,
-4-
<PAGE>
rather, recognizes and agrees that this Settlement Agreement has been entered
into for the sole purpose of compromising and settling the disputed claims,
discharging and terminating all claims of the parties, and avoiding the costs
and commitments of a formal court or arbitration proceeding. Accordingly, it is
expressly understood and agreed, as a condition hereof, that this agreement
shall not constitute or be construed to be an admission on the part of any party
hereto or as evidencing or indicating in any degree an admission of the truth or
correctness of any claims asserted.
9. NOTICES. Any notices permitted or required under this Agreement shall be
deemed given upon the date of personal delivery or 48 hours after deposit in the
United States mail, postage fully prepaid, return receipt requested, addressed
as follows:
TO USP, USPN, and/or
BOBBY'S: U.S. Pawn Nevada, Inc.
U.S. Pawn, Inc. c/o U.S. Pawn, Inc.
7215 Lowell Blvd. 7215 Lowell blvd.
Westminster, CO 80030 Westminster, CO 80030
Attn: Charles C. Van Gundy Attn: Charles C. Van Gundy
Bobby's Pawnshop, Inc
c/o U.S. Pawn, Inc.
7215 Lowell Blvd.
Westminster, CO 80030
Attn: Charles C. Van Gundy
With Copy to: Brent T. Slosky, Esq.
Brownstein Hyatt Farber & Strickland, P.C.
410 17TH Street, Twenty-Second Floor
Denver, CO 80202-4437
and
Larry Snyder, Esq.
3300 E. First Avenue, Suite 690
Denver, CO 80206-5809
TO RMY, DWH and/or
PAWNBROKER:
Roy M. York Dwight William Harper Pawnbroker, Inc.
508 S. Boulder Hwy. 508 S. Boulder Hwy. 508 S. Boulder Hwy.
Henderson, NV 89015 Henderson, NV 89015 Henderson, NV 89015
Attn: Roy York or
Dwight William Harper
With copy to: S. Craig Stone II, Esq.
Bryan A. Lowe Professional Law Corporation
4011 Meadows Lane, Suite 102
Las Vegas, NV 89107
or at any other address as any party may, from time to time, designate by notice
given in compliance with this section.
-5-
<PAGE>
10. WAIVER. Failure of either party at any time to require performance of
any provision of this Agreement shall not limit the party's right to enforce the
provision, nor shall any waiver of any breach of any provision be a waiver of
any succeeding breach of any provision or a waiver of the provision itself for
any other provision.
11. ARBITRATION. If at any time during the term of this Settlement
Agreement any dispute, difference, or disagreement shall arise upon or in
respect of the Settlement Agreement, and the meaning and construction hereof,
every such dispute, difference, and disagreement shall be referred to a single
arbiter agreed upon by the parties, or if no single arbiter can be agreed upon,
an arbiter or arbiters shall be selected in accordance with the rules of the
American Arbitration Association and such dispute, difference, or disagreement
shall be settled by arbitration in accordance with the then prevailing
commercial rules of the American Arbitration Association, and judgement upon the
award rendered by the arbiter may be entered in any court having jurisdiction
thereof.
12. ATTORNEY'S FEES. In the event an arbitration, suit or action is brought
by any party under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorney's fees to be fixed by the arbitrator, trial court, and/or
appellate court.
13. CONSTRUCTION. This Settlement Agreement or any section thereof shall
not be construed against any party due to the fact that said Settlement
Agreement or any section thereof was drafted by said party. The recitals at the
beginning of this agreement are intended to be covenants of the parties and are
a material part of this agreement and binding on the parties. All article,
section and paragraph titles or captions contained in this Settlement Agreement
are for convenience only and shall not be deemed part of the context nor affect
the interpretation of this Settlement Agreement. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the party or parties may require.
14. ENTIRE AGREEMENT. This Settlement Agreement contains the entire
understanding between and among the parties and supercedes and replaces any
prior understandings and written or oral agreements among them respecting the
subject matter of this Settlement Agreement.
15. BINDING AGREEMENT. The terms, conditions, covenants and agreements
contained herein shall inure tot he benefit of and be binding upon the parties
hereto and their repective executors, administrators, assigns and legal
representatives.
16. SEVERABILITY. If any provision of this Settlement Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
///
-6-
<PAGE>
17. GOVERNING LAW AND VENUE. The parties agree that jurisdiction and venue
of any dispute concerning this Settlement Agreement shall exist in Clark County,
Nevada, and that this Settlement Agreement shall be construed under the laws of
the State of Nevada.
18. REPRESENTATION. Each party covenants and warrants to each other party
that each has had the benefit of legal representation and fully understands the
nature of this Settlement Agreement; and further waives any right, statutory or
otherwise, to dispute the scope of this Settlement Agreement on a basis that it
may extend to facts or claims of which such party is not actually aware.
-7-
<PAGE>
19. COUNTERPARTS. This Settlement Agreement may be executed in
counterparts, each of which will be deemed an original document, but all of
which will constitute a single document. This document shall not be binding on
or constitute evidence of a settlement agreement between the parties until such
time as an identical counterpart of this document has been executed by each
party and a copy thereof delivered to each party of this Settlement Agreement.
IN WITNESS WHEREOF, the parties hereby signify their agreement by their
signatures below.
U.S. PAWN, INC. U.S. PAWN NEVADA, INC.
By:/S/ Charles C. Van Gundy By:/S/ Charles C. Van Gundy
--------------------------- ---------------------------
Charles C. Van Gundy Charles C. Van Gundy
Chief Executive Officer Chief Executive Officer
BOBBY'S PAWNSHOP, INC.
d/b/a Bobby's Jewelry & Loan
By:/S/ Charles C. Van Gundy
---------------------------
Charles C. Van Gundy
Chief Executive Officer
ROY M. YORK DWIGHT WILLIAM HARPER PAWNBROKER, INC. d/b/a
QUICK BILL'S
/S/ Roy M. York /S/ Dwight William Harper By: /S/ Dwight William Harper
- --------------- ------------------------- -----------------------------
Dwight William Harper
President
-8-
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