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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>/in/edgar/work/0000849116-00-000011/0000849116-00-000011.txt : 20000929
<SEC-HEADER>0000849116-00-000011.hdr.sgml : 20000929
ACCESSION NUMBER: 0000849116-00-000011
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20000630
FILED AS OF DATE: 20000927
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ACE CASH EXPRESS INC/TX
CENTRAL INDEX KEY: 0000849116
STANDARD INDUSTRIAL CLASSIFICATION: [6099
] IRS NUMBER: 752142963
STATE OF INCORPORATION: TX
FISCAL YEAR END: 0630
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-20774
FILM NUMBER: 729658
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 1231 GREENWAY DR STE 800
CITY: IRVING
STATE: TX
ZIP: 75038
BUSINESS PHONE: 2145505000
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 1231 GREENWAY DR #800
CITY: IRVING
STATE: TX
ZIP: 75038
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K FOR YEAR ENDED JUNE 30, 2000
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___TO___
COMMISSION FILE NUMBER 0-20774
ACE CASH EXPRESS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2142963
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1231 GREENWAY DRIVE, SUITE 800
IRVING, TEXAS 75038
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (972) 550-5000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 14, 2000, 9,955,763 shares of Common Stock were outstanding. As
of such date the aggregate market value of voting stock (based upon the last
reported sales price in The Nasdaq Stock Market) held by nonaffiliates of the
registrant was approximately $78,041,908.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Ace Cash Express, Inc. ("ACE" or the "Company") is a significant provider of
retail financial services in the United States. The Company is also the largest
owner, operator, and franchisers, of check cashing stores in the United States.
As of August 31, 2000, the Company had a total network of 1,084 stores in 33
states and the District of Columbia, consisting of 921 Company-owned stores and
163 franchised stores. The Company's growth strategy is to integrate
acquisitions, new store openings, and franchising in new and existing markets
and to develop new products for introduction into the existing store base. The
Company's general objective is to provide a full range of retail financial
services and transaction processing in its markets. Additionally, it is the
Company's objective to develop and maintain the largest network of stores in
markets where the Company operates.
ACE stores offer check cashing services and other retail financial services
at competitive rates in clean, convenient settings. Services include cashing
payroll checks, government checks, and insurance drafts; selling money orders;
and providing money transfer services using the MoneyGram network. Many
Company-owned stores also offer bill-payment services, lottery and lotto
tickets, small consumer loans, and other retail financial and transaction
processing services.
INDUSTRY OVERVIEW
The primary industry in which ACE operates is check cashing. Industry sources
indicate that there are approximately 6,000 check cashing stores nationally.
Though there is limited public information available, the Company believes that
there are six other check cashing companies operating or franchising over 100
stores, three companies that operate or franchise between 50 and 100 locations,
with the remaining companies operating less than 50 stores.
The Company believes that it and other check cashing companies have grown by
offering services that banks do not provide, and operating at locations and
during hours that are more convenient than those traditionally offered by banks.
Unlike many banks, check cashing stores are willing to assume the risk that
checks they cash will "bounce." For instance, it is not unusual for a bank to
refuse to cash a check for a customer who does not maintain a deposit account
with the bank and to require its depositors to maintain sufficient funds in an
account to cover a check to be cashed or wait several days for the check to
clear. As a result, the Company believes check cashing stores provide an
attractive alternative to customers without bank accounts or with relatively
small account balances. Although these customers might save money by depositing
their checks in a bank and waiting for them to clear, many prefer paying a fee
to take advantage of the convenience and availability of immediate cash offered
by check cashing stores.
The core business of check cashing stores is generally cashing checks for a
fee. These fees are intended to provide the check casher with a profit after
covering operating expenses, including any interest expense incurred by the
check casher on the funds advanced to customers between the time checks are
cashed and the time the checks clear through the banking system. The risk a
check cashing store assumes upon cashing a check is that the check will be
uncollected because of insufficient funds, stop payment orders, or fraud. In
order to minimize this risk and the losses associated with uncollected checks,
many check cashing stores cash only payroll or government entitlement checks,
charge higher fees, or have stricter approval procedures for cashing personal
checks. ACE does not promote the cashing of personal checks in its stores. For
the fiscal year ended June 30, 2000, less than 1% of the checks cashed by the
Company were one-party personal checks.
In addition to check cashing services, most check cashing stores offer
customers a range of other services, including access to small consumer loans,
bill payments, money orders, and wire transfers of cash. Some check cashing
stores also offer lottery and lotto tickets, public transportation passes,
copying and fax transmission services, and postage stamps.
<PAGE>
The Company believes that the deregulation of the banking and savings and
loan industry has increased the role played by check cashing stores in providing
basic financial transaction services to low-income and middle-income customers.
At the same time, the Company believes that competition, regulatory scrutiny and
complexity are contributing to consolidation of the industry. The Company's
strategy is to position itself to benefit from industry consolidation and the
competitive advantages available to large operators and franchisors of retail
financial services.
GROWTH STRATEGY
ACE's growth strategy consists principally of combining acquisitions and new
store openings with the objective of having the largest number of retail
financial services locations in each of its markets and developing new products
for introduction into the existing store base. ACE defines its target markets as
cities of 100,000 or more. The Company has expanded from 276 Company-owned
stores in 10 metropolitan areas as of June 30, 1993, to 915 Company-owned stores
in 272 cities as of June 30, 2000. In fiscal 2000, the Company opened 99 newly
constructed stores, acquired 36 stores, franchised 56 stores, and closed 18
company-owned stores. The Company currently anticipates that it will construct
and open 50 stores, primarily in existing markets, during the fiscal year ending
June 30, 2001.
<PAGE>
The following table illustrates the development of Company-owned stores
since 1994 by showing the number of stores open in each market area at the
end of each of the indicated periods:
<TABLE>
<CAPTION>
COMPANY-OWNED STORES
-------------------------------------------------------
June 30,
-------------------------------------------------------
MARKET AREA 2000 1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
TEXAS:
Dallas/Fort Worth/East Texas 129 122 117 114 112 103 98
Houston/Galveston/Corpus Christi 112 83 76 74 72 60 55
San Antonio/Austin/El Paso 68 59 51 42 28 24 23
MARYLAND/WASHINGTON D.C./VIRGINIA:
Baltimore/Washington D.C./
Northern VA/Norfolk/Virginia Beach 93 81 77 72 74 71 62
FLORIDA:
Jacksonville/Orlando/Palm Beach/Tampa 90 73 60 46 38 - -
ARIZONA;
Phoenix/Tuscon 73 69 59 58 46 37 4
GEORGIA:
Atlanta/Albany/Augusta/Macon/
Savannah 54 52 50 47 47 49 42
COLORADO:
Denver/Colorado Springs/Pueblo 52 51 45 44 41 39 30
NORTH & SOUTH CAROLINA
Charlotte/Charleston/Columbia/
Greenville/Spartanburg/Orangeburg 34 29 17 16 16 15 11
CALIFORNIA:
Los Angeles/Van Nuys/San Bernadino 30 16 9 - - - -
TENNESSE:
Memphis/Nashville 26 22 18 15 5 2 -
LOUISIANA:
New Orleans/Baton Rouge/Shreveport 25 25 25 25 19 19 14
INDIANA:
Indianapolis 25 23 14 9 4 - -
WASHINGTON:
Seattle/Tacoma/Everette 14 12 10 8 6 - -
NEVADA:
Las Vegas 14 11 4 - - - -
OKLAHOMA:
Oklahoma City 12 14 13 13 12 12 -
OHIO:
Cleveland 11 10 10 10 8 7 4
MISSOURI:
St. Louis 11 10 6 6 3 3 -
OREGON:
Portland 9 8 5 5 - - -
NEW MEXICO:
Albuquerque 8 8 7 7 7 7 -
ARKANSAS:
Little Rock 8 7 7 6 6 4 -
UTAH:
Salt Lake City/Layton/Ogden 5 3 - - - - -
KANSAS:
Wichita 4 3 2 - - - -
ALABAMA:
Birmingham/Homewood 3 4 1 - - - -
PENNSYLVANIA:
Pittsburg 3 - - - - - -
KENTUCKY:
Paducah /Murray 2 3 - - - - -
--- --- --- --- --- --- ---
TOTAL 915 798 683 617 544 452 343
=== === === === === === ===
</TABLE>
<PAGE>
Acquisitions. During fiscal 2000, the Company acquired 36 stores in eight
separate transactions. The Company believes its experience with acquisitions
permits it to successfully integrate additional acquisitions. Of the 915 ACE
company-owned stores currently in operation, 325, or 36%, have been acquired
stores. The Company does not have any current plan or expectation as to the
number of stores that it may acquire during the fiscal year ending June 30,
2001. The Company intends to continue searching for strategic opportunities in
both existing and new markets.
FRANCHISE OPERATIONS
With the acquisition of Check Express, Inc. and its wholly owned franchising
subsidiaries in February 1996, the Company became one of the largest franchisors
of check cashing stores in the United States. In fiscal 1996, ACE created the
ACE Franchise Group to service and market new ACE franchises. ACE franchises are
marketed through a commissioned employee sales force, supplemented by
advertising in newspapers, trade journals, and other media. As of June 30, 2000,
there were 157 Company-franchised stores open and operating in 27 states, as
follows:
Number of stores
----------------
Texas 48
California 15
Louisiana 13
Florida 12
Oklahoma 11
Ohio 9
South Carolina 7
Georgia 6
North Carolina 5
Colorado 3
Missouri 3
Oregon 3
Arizona 2
Arkansas 2
Connecticut 2
Indiana 2
Kentucky 2
Tennessee 2
Washington 2
Other states (8) 8
---
Total 157
===
The Company intends to continue its expansion through the sale of new
franchises and the opening of additional units under existing franchise
agreements. The Company is actively marketing several types of ACE franchises
depending on the style of business being conducted. These include a standard
store franchise, a store-within-a-store (or "kiosk") franchise, and a conversion
franchise that permits an existing check cashing business to convert to an ACE
franchisee. The Company opened 56 new franchised stores, sold six franchised
stores, closed six franchised stores, and acquired seven former franchised
stores during fiscal 2000. The majority of franchised stores operate under the
"ACE" name, by license from the Company.
CUSTOMERS AND SERVICES
Management believes the Company's core customer group is composed primarily
of individuals whose average age is 29 and who rent their house or apartment and
hold a wide variety of jobs in the service sector or are clerical workers,
craftsmen, and laborers. These customers tend to change jobs and residences more
often than average, have annual family incomes under $30,000, often pay their
bills with money orders, and prefer the availability of immediate cash provided
by cashing checks at the Company's stores.
<PAGE>
The following table reflects the major categories of services that ACE
currently offers and the revenues (in thousands) from these services for the
indicated fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- -------------------------- --------------------------------------------------------
REVENUE CATEGORY 2000 1999 1998 1997 1996
- -------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Check cashing fees $ 89,641 $ 78,839 $ 68,987 $ 62,835 $ 51,327
Loan fees and interest 17,872 14,257 10,137 5,703 2,462
Bill payment services 9,447 8,394 4,146 2,197 1,320
Money transfer services 8,944 7,951 6,082 5,749 4,740
Money order fees 7,032 5,332 2,879 2,757 2,413
New customer fees 2,164 2,296 2,207 2,051 1,338
Franchise revenues 2,537 2,117 1,665 1,398 633
Other fees 2,999 3,128 4,091 4,702 4,726
-------- -------- -------- -------- --------
Total revenue $140,636 $122,314 $100,194 $ 87,392 $ 68,959
======== ======== ======== ======== ========
</TABLE>
Check cashing. ACE's primary business is cashing checks for a fee. The
principal type of check the Company cashes is a payroll check. The Company also
cashes government assistance, tax refund, and insurance checks or drafts.
Subject to market conditions at different locations, the Company's check cashing
fees for payroll checks approximate 2.2% of the face amount of the check. The
Company imposes a surcharge for cashing out-of-state checks, handwritten checks,
money orders, tax refund checks, and insurance checks or drafts. Unlike many of
its competitors, the Company displays its check cashing fees in full view of its
customers on a "menu board" in each store and provides a detailed receipt for
each transaction. Although the Company has established guidelines for approving
check cashing transactions, it has no preset limit on the size of the checks it
will cash.
If a check cashed by the Company is not paid for any reason, the Company
accounts for the amount of the check as a loss in the period in which it is
returned. ACE then transfers the check to its collection department, which
contacts the maker and payee of each returned check and, if necessary, commences
legal action. The collection department utilizes an automated tracking system on
the Company's central computer system to monitor the status of all returned
items. See "Selected Financial Data -- Collections Data."
Loan services. The Company is engaged in the small consumer loan business,
because the Company believes that many consumers may have limited access to
other sources of consumer credit. During the year ended June 30, 2000, the
Company offered payday loans at various of its locations, and offered short-term
bank loans made by Goleta National Bank at certain of its locations. See " --
Bank Loans" below.
Where permitted by law, the Company has offered a service commonly referred
to in the check-cashing industry as a "payday loan." That service consists of
providing a customer cash in exchange for the customer's check (in the amount of
that cash plus a service fee), with an agreement to defer the presentment or
deposit of that check until the customer's next payday, usually a period of two
to four weeks. ACE has been a licensed provider of such payday loans in
Arkansas, California, Colorado, Florida, Indiana, Kansas, Kentucky, Louisiana,
Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Ohio, Oregon, Tennessee,
Washington, and Washington D.C. During the year ended June 30, 2000, the average
amount of cash provided to a customer in such a transaction was approximately
$220, and the fee received by the Company was approximately $31.07. As of June
30, 2000, this service was offered in 45 of the Company's stores. The Company
has now ceased to offer this service at almost all of its stores.
The payday loan service has been subject to extensive regulation. As
required, each ACE store that has offered payday loans has been licensed under
state laws, which establish allowable fees and other charges on these loans to
consumers. In addition, many states regulate the maximum amounts and maturities
of these loans.
Certain jurisdictions in which the Company operates do not permit payday
lending; one of those states is Texas, the state in which the Company has the
most locations. Further, the regulations in the various states in which payday
lending is permitted are not uniform. Because the Company believes that its
business would benefit by making a single or standard loan product available to
its customers in all jurisdictions, it is now offering short-term loans from
Goleta National Bank at almost all of the ACE locations.
<PAGE>
Bill-payment services. The Company's stores serve as payment locations for
customers to pay their utility, telephone, and other bills to third parties.
Upon acceptance of the customer's payment, the Company remits the amount owed to
the third-party payee under an agreement with that payee and either receives a
service fee from the payee or collects a fee from the consumer.
Under a Bill-Payment Processing and Funds Transfer Services Agreement (the
"MoneyLine Agreement") with Travelers Express Company, Inc. ("Travelers
Express") and its affiliate MoneyLine Express, Inc. ("MoneyLine"), the Company
acts as an agent for MoneyLine, which has agreements with various third-party
payees for consumer services. The Company's services and obligations under the
MoneyLine Agreement are similar to those in its other bill-payment agreements
directly with the payees, though consumer payments accepted by the Company are
transmitted to MoneyLine instead of directly to the payees. The MoneyLine
Agreement permits the Company to offer its customers bill-payment services to
virtually any third-party payee.
Money transfer services. ACE is an agent for the transmission and receipt of
wire transfers through the MoneyGram network. Through this network, ACE
customers can transfer funds electronically to any of approximately 15,000
MoneyGram locations nationwide (including other ACE stores) and over 30,000
locations worldwide. MoneyGram Payment Systems, Inc. establishes the fees for
this service, and the Company is paid a percentage of the fees it collects from
customers as a commission and remits the balance to MoneyGram Payment Systems,
Inc.
Money orders. The Company sells money orders issued by Travelers Express in
denominations up to $1,000. These money orders are generally used by the
Company's customers for bill payments, rent payments, and other general
disbursements. The Company sold 12.3 million, 14.5 million, and 14.1 million
money orders during the 2000, 1999, and 1998 fiscal years, respectively. The
fees charged for money orders depend on local market conditions and the size of
the money order. The Company remits the face amount of each money order sold to
Travelers Express. ACE's money order revenues include that portion of the fees
retained by the Company.
New customer fees. The Company charges a one-time fee for new check cashing
customers to cover the costs of initial set-up in the ACE customer database and
establishment of an identification verification system.
Franchise revenues. The Company's franchise revenues consist of royalties,
initial franchise fees, and buyback fees from its franchisees. There were 157
Company-franchised stores in operation as of June 30, 2000.
Other services and products. In many Company-owned stores, ACE also offers a
variety of other retail financial products and services to its customers,
including lottery and lotto ticket sales, public transportation passes, copying
and fax transmission services, postage stamps, and prepaid long-distance
telephone cards.
STORE OPERATIONS AND NEW STORE ECONOMICS
The Company's objective is to locate its Company-owned stores in highly
visible, accessible locations and to operate the stores during convenient hours.
The Company attempts to locate stores on high traffic streets or intersections,
in many cases in or near destination shopping centers. The Company's stores
occupy 1,100 square feet on average and are located in strip shopping centers,
free-standing buildings, and kiosks located inside major retail stores. The
Company is focused on increasing the market's awareness of ACE by using
consistent signage and design at each store location. All but two of the
Company-owned stores are leased.
Normal business hours of the Company-owned stores are from 9:00 a.m. until
7:00 p.m., Monday through Thursday, 9:00 a.m. until 8:00 p.m. on Friday, and
9:00 a.m. until 6:00 p.m. on Saturday. Currently, 160 stores are also open on
Sunday, generally from 10:00 a.m. until 5:00 p.m., and several stores are open
24 hours. The business hours of any store may be changed due to local market
conditions.
<PAGE>
The Company's store construction and facilities planning staff reviews and
negotiates lease agreements for store locations, supervises the construction of
new stores, the remodeling of existing stores, and performs lease management
once the leases are executed. Although the size and shape of a Company-owned
store may vary, and since many of the stores are built out of existing space,
the work area of each store is a modular-designed unit that can be customized to
meet the requirements of each location while giving a uniform appearance. These
modular units may be moved from one location to the next, thus reducing the
costs associated with opening new stores and relocating existing stores.
The tables below show the average annual store revenues and the average store
contribution for Company-owned stores which were opened and remain open as of
June 30, 2000.
<TABLE>
<CAPTION>
AVERAGE STORE REVENUES
YEAR ENDED JUNE 30,
NUMBER OF (IN THOUSANDS)
STORES OPEN AT ------------------------------------------------------------
YEAR OPENED: JUNE 30, 2000 2000 1999 1998 1997 1996
----------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1991 and earlier 145 $198.1 $185.1 $167.2 $158.6 $151.7
1992 22 232.0 228.0 202.0 177.4 154.2
1993 37 200.6 186.9 159.8 143.1 127.8
1994 35 177.3 168.2 148.8 134.0 114.4
1995 34 164.9 156.7 126.5 113.2 85.8
1996 29 184.2 164.8 141.1 107.6 33.8
1997 40 152.6 138.4 103.0 32.3 -
1998 59 124.0 93.0 25.6 - -
1999 90 82.4 28.6 - - -
2000 99 22.8 - - - -
-----------------
590
Acquired stores 325
-----------------
915
=================
</TABLE>
<TABLE>
<CAPTION>
AVERAGE STORE CONTRIBUTION (1)
YEAR ENDED JUNE 30,
NUMBER OF (IN THOUSANDS)
STORES OPEN AT ------------------------------------------------------------
YEAR OPENED: JUNE 30, 2000 2000 1999 1998 1997 1996
----------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1991 and earlier 145 $ 86.5 $ 76.9 $64.7 $58.9 $54.6
1992 22 112.7 109.3 88.8 69.8 52.7
1993 37 81.3 76.0 58.4 47.6 35.9
1994 35 68.1 58.6 45.3 43.3 26.8
1995 34 52.3 44.4 23.4 18.5 (1.4)
1996 29 71.4 51.9 36.1 8.6 (7.9)
1997 40 34.4 26.6 (1.5) (12.4) -
1998 59 19.8 6.2 (13.9) - -
1999 90 (19.2) (19.5) - - -
2000 99 (16.5) - - - -
-----------------
590
Acquired stores 325
-----------------
915
=================
</TABLE>
- -----------------------------------------------------
(1) "Average store contribution" equals revenues less direct store expenses
and store-related depreciation and amortization. Direct store expenses
consist of store salaries and benefits, occupancy costs (rent,
maintenance, taxes and utilities), returned checks net of collections,
cash shortages, armored security costs, loan losses,and bank charges.
Direct store expenses exclude region or corporate overhead,
depreciation, and amortization expenses.
The capital cost of opening a new store varies depending on the size and type
of store. During fiscal 2000, the Company opened 99 Company-owned stores at an
average capital cost of approximately $61,000 per store.
<PAGE>
There can be no assurance that the Company's stores will continue to generate
the same level of revenues or revenue growth as in the past or that any new or
acquired store will perform at a level comparable to any of the Company's
existing stores.
ADVERTISING AND MARKETING
ACE markets and promotes service and product offerings by a variety of
methods. The Company believes that its most effective marketing is through
in-store programs, combining the selling efforts of store personnel with various
selling messages on point-of-purchase material. The Company emphasizes courteous
service and trains service associates to recognize and develop good
relationships with customers. All check cashing customers join the ACE PLUS gold
card retention program, which rewards members with benefits like free check
cashing commensurate with the volume of check cashing done at ACE. Also, through
its branding with standardized signage and store design, the Company attempts to
foster an image that attracts customers and inspires consumer confidence. The
Company also benefits from vendor-sponsored media advertising in some markets.
SUPERVISION AND TRAINING
The Company's operations are organized in "regions," which generally
correspond to the market areas in which ACE operates its stores. Each region has
a regional vice president ("RVP"), who reports to the Executive Vice President
of Operations and is responsible for the operations, administration, training,
and supervision of the Company-owned stores in his or her region. The Company
currently has 11 RVP's who supervise an average of 83 stores each. The Company
currently has 56 district supervisors, each of whom reports to the RVP for his
or her region and is directly responsible for the general management of 6 to 30
stores within his or her territory. These district supervisors are responsible
for operations, training, scheduling, marketing, and staff motivation. Each
store manager reports to a district supervisor, has direct responsibility over
his or her store's operations, and supervises the service associates who staff
the stores.
Service associates, managers, district supervisors, and RVP's must complete
formal training programs conducted by the Company. ACE has a Company-wide
training program, with higher-level training conducted at the corporate office
and new-hire training conducted in each regional office by corporate-trained
personnel. The purpose of this training, which covers topics ranging from
customer service to loss reduction, is to improve the Company's delivery of
products and services.
POINT-OF-SALE SYSTEM
ACE has developed and implemented a proprietary personal computer based
point-of-sale system, which has been fully operational in all Company-owned
stores since 1991. In addition to other management information and control
functions, ACE's point-of-sale system allows the Company to:
1) capture, analyze, and update on a daily basis data relating to customers and
transactions, including the makers of cashed checks, which allows the Company to
provide service associates with on-demand access to current information for use
in approving check cashing transactions;
2) utilize an automated decision
methodology to guide service associates to take appropriate actions and to
better manage risk in check cashing transactions;
3)monitor daily revenues by product or service on a company, regional, per
store, and per employee basis;
4) monitor and manage daily store exception reports, which record, for example,
any cash shortages and late store opening times;
5) identify cash differences between bank statements and the Company's records
(such as differences resulting from missing items and deposits);
6) determine, on a daily basis, the amount of cash needed at each store
location, allowing centralized cash management personnel to maintain the optimum
amount of cash inventory in each store;
7) reduce the risk of transaction errors by, for example, automatically
calculating check cashing and other transaction fees;
8) provide products and services in a standardized and efficient manner, which
the Company believes allows it to operate its stores with fewer personnel than
many of its competitors (with many of the Company's stores being operated by
only one person);
<PAGE>
9) electronically transmit information and documents to third-party providers of
services or products offered at the stores; and
10)facilitate compliance with regulatory requirements.
The data captured by the point-of-sale system is transmitted daily from each
store to a centralized database maintained at ACE's headquarters and is
automatically integrated into its general ledger system.
SECURITY
All Company-owned store employees work behind bullet-resistant Plexiglas and
steel partitions. Each Company-owned store's security measures include safes,
alarm systems monitored by third parties, teller area entry control, perimeter
opening entry detection, and tracking of all employee movement in and out of
secured areas. All centers are currently using centralized security; acquired
centers are typically converted within one month of acquisition. The centralized
system includes the following security measures in addition to those described
above: identical alarm systems in all stores, remote control over alarm systems,
arming/disarming and changing user codes, and mechanically and electronically
controlled time-delay safes.
Since ACE's business requires its stores to maintain a significant supply of
cash, the Company is subject to the risk of cash shortages resulting from theft
and employee errors. Although the Company has implemented various programs to
reduce these risks and provide security for its facilities and employees, there
can be no assurance that these problems will be eliminated. During the 2000 and
1999 fiscal years, cash shortages from employee errors and from theft were
approximately $2.8 million (2.0% of revenues) and $2.5 million (2.0% of
revenues), respectively.
The Company's point-of-sale system allows management to detect cash shortages
on a daily basis. In addition to other procedures, district supervisors conduct
random audits of each Company-owned store's cash position and inventories on an
unannounced, random basis.
Daily transportation of currency and checks is provided by nationally
recognized armored carriers, such as Loomis, Fargo & Company. ACE employees are
not authorized to transport currency or checks.
EMPLOYEES
At June 30, 2000, ACE employed 2,046 persons: 1,092 store employees, 677
store managers, 56 district supervisors, 11 regional vice presidents, 117
regional support personnel, 81 corporate employees, and 12 franchise personnel.
Third-party firms hired by the Company conduct background checks of the
Company's new hires.
The Company considers its employee relations to be good. ACE's employees are
not covered by a collective bargaining agreement, and the Company has never
experienced any organized work stoppage, strike, or labor dispute. Generally,
the Company's employees are not bonded.
COMPETITION
The Company believes that the principal competitive factors in the check
cashing industry are location, customer service, fees, convenience, and range of
services offered. The Company faces intense competition and believes that the
check cashing market is becoming more competitive as the industry matures and
consolidates. The Company competes with other check cashing stores, grocery
stores, banks, savings and loans, short-term consumer lenders, other financial
services entities, and any retail businesses that cash checks, sell money
orders, provide money transfer services, or other similar financial services.
Certain competitors of the Company, other than check cashing stores, cash checks
without charging a fee under limited circumstances. Some of the Company's
competitors that are not check cashing companies have larger and more
established customer bases and substantially greater financial, marketing, and
other resources. There is no assurance that the Company will be able to compete
successfully with its competitors.
<PAGE>
TRADEMARKS
The Company has obtained several federal trademark registrations, including
for "A-C-E America's Cash Express(R)", "ACE(R)" and its logo design.
REGULATION
General. The Company is subject to regulation in several jurisdictions in
which it operates, including jurisdictions that regulate check cashing fees or
require the registration of check cashing companies or money transmission
agents. The Company is also subject to federal and state regulation relating to
the reporting and recording of certain currency transactions. Further, the
Company has been subject to regulation in the jurisdictions in which it has
offered the service commonly referred as a "payday loan."
State Regulations. The Company operates in 18 states that have licensing
and/or fee regulations regarding check cashing: Arkansas, Arizona, California,
Florida, Georgia, Indiana, Kentucky, Louisiana, Maryland, Nevada, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Utah, Washington, and
the District of Columbia. The Company is licensed in each of the states in which
a license is currently required for it to operate as a check cashing company. To
the extent these states have adopted ceilings on check-cashing fees, those
ceilings are in excess or equal to the fees charged by the Company.
The adoption of check cashing fee ceilings in additional jurisdictions could
have an adverse effect on the Company's business, and existing fee ceilings
could restrict the ability of the Company to expand its check-cashing operations
into certain states.
In some jurisdictions, check cashing companies or money transmission agents
are required to meet minimum bonding or capital requirements and are subject to
record-keeping requirements. In addition, in those jurisdictions in which the
Company has operated as a "payday lender," it has been licensed as such and has
had to comply with the regulations governing payday loans. Those various
licenses, and compliance with those various regulations, may not be necessary
for the offering of the Bank Loans at the Company's locations. The Bank Loans
are subject primarily to federal regulation applicable to Goleta as a lending
national bank.
Federal Regulations. Under the Bank Secrecy Act regulations of the U.S.
Department of the Treasury (the "Treasury Department"), transactions involving
currency in an amount greater than $10,000 or the purchase of monetary
instruments for cash in amounts from $3,000 to $10,000 must be reported. In
general, every financial institution, including the Company, must report each
deposit, withdrawal, exchange of currency or other payment or transfer, whether
by, through or to the financial institution, that involves currency in an amount
greater than $10,000. In addition, multiple currency transactions must be
treated as single transactions if the financial institution has knowledge that
the transactions are by, or on behalf of, any person and result in either cash
in or cash out totaling more than $10,000 during any one business day.
Management believes that the Company's point-of-sale system and
employee-training programs are essential to the Company in complying with these
statutory requirements.
The Money Laundering Suppression Act of 1994 added a section to the Bank
Secrecy Act requiring the registration of "money services businesses," like the
Company, that engage in check cashing, currency exchange, money transmission, or
the issuance or redemption of money orders, traveler's checks, and similar
instruments. The purpose of the registration is to enable governmental
authorities to better enforce laws prohibiting money laundering and other
illegal activities. The registration requirement was suspended pending the
adoption of regulations implementing the statute, and in May 1997 the Financial
Crimes Enforcement Network of the Treasury Department ("FinCEN") proposed
regulations for comment. In August 1999 FinCEN announced the adoption of final
implementing regulations, effective September 20, 1999. The regulations require
money services businesses to register with the Treasury Department, by filing a
form to be adopted by FinCEN, by December 31, 2001 and to re-register at least
every two years thereafter. The regulations also require that a money services
business maintain a list of names and addresses of, and other information about,
its agents and that the list be made available to any requesting law enforcement
agency (through FinCEN). That agent list must first be maintained by January 1,
2002 and must be updated at least annually. Though FinCEN must adopt further
regulations and procedures to more fully implement these requirements, based on
these regulations, the Company does not believe that compliance with these
requirements will have any material impact on its operations.
<PAGE>
In March 2000 FinCEN adopted additional regulations, implementing the Bank
Secrecy Act, that are also addressed to money services businesses. In pertinent
part, those regulations will require money services businesses like the Company
to report suspicious transactions involving at least $2,000 to FinCEN. The
regulations generally describe three classes of reportable suspicious
transactions -- one or more related transactions that the money services
business knows, suspects, or has reason to suspect (1) involve funds derived
from illegal activity or are intended to hide or disguise such funds, (2) are
designed to evade the requirements of the Bank Secrecy Act, or (3) appear to
serve no business or lawful purpose. FinCEN indicated that it would subsequently
provide guidance in the form of examples of reportable transactions, but (so far
as the Company is aware) no such examples have yet been published. Again, this
reporting requirement will not apply until December 31, 2001, and because of the
Company's point-of-sale system and employee-training programs, the Company does
not believe that compliance will have any material impact on its operations.
In May 1997 FinCEN proposed for comment one other set of regulations
implementing the Bank Secrecy Act that could affect the Company. That proposed
set of regulations requires "money transmitters" and their "agents" to report
and keep records, and verify the senders of transactions in currency or monetary
instruments of at least $750, but not more than $10,000, in connection with the
transfer of funds to a person outside the United States. Because the Company is
an agent in the MoneyGram network and an agent for MoneyLine regarding
bill-payment services, the Company would be an agent of money transmitters under
this proposed set of regulations. In its August 1999 announcement, FinCEN
indicated that the proposed regulations regarding transmission of funds to
persons outside the United States was being deferred and provided no further
explanation.
Bank Loans. As a national bank, Goleta is subject to regulation, supervision,
and regular examination by various federal regulatory authorities, including the
Office of the Comptroller of the Currency (the "OCC"). To the extent an
examination involves review of the Bank Loans and related processes, the OCC or
other regulatory authority may request, and the Company will typically grant,
access to certain of the Company's locations, personnel, and records regarding
Bank Loans. The OCC is conducting a scheduled examination of Goleta during
September and October 2000, and the Company is cooperating with the OCC's
requests for information regarding Bank Loans. The Company does not anticipate
any material adverse consequences as the result of the current examination of
Goleta or the Company's involvement in that examination. But the Company's
ability to offer Bank Loans at its locations could be affected by any adverse
determination by the OCC or by other actions or determinations made from time to
time by any of the authorities that regulate Goleta.
From time to time local and national media have published or broadcast
stories that are critical of payday loans and other small short-term consumer
loans. Those stories focus on the cost to a consumer for that service or loan,
which is higher than the interest typically charged by credit-card issuers to a
more creditworthy consumer. This difference in credit cost is more significant
if a consumer does not promptly repay the payday loan or other short-term loan,
but renews and extends (or "rolls over") that loan for one or more additional
short-term (e.g., two-week) periods. Those stories -- which have not been
concerned solely with ACE's products or practices -- typically advocate
governmental action to eliminate or restrict payday loans and other similar
loans. From time to time over the past two years, bills have been introduced in
the United States Congress and in certain state legislatures, and regulatory
authorities have proposed or publicly addressed the possibility of proposing
regulations, that would so eliminate or restrict payday loans and other similar
loans. So far as the Company is aware, however, none of those bills or proposals
have made any significant progress in the legislative or regulatory process.
Though the Company does not currently anticipate any legislative or regulatory
action that would prohibit or materially restrict its loan services, the
occurrence of any such prohibition or restriction in the future could have a
material adverse effect on the Company's business.
RELATIONSHIPS WITH THE MONEY ORDER AND MONEYGRAM SUPPLIERS
Money Order Agreement. In April 1998, the Company signed a money order
agreement with Travelers Express which became effective December 17, 1998. Under
this five-year agreement, the Company exclusively sells Travelers Express money
orders that bear the Company's logo. In conjunction with this agreement and the
MoneyLine Agreement (which also has a five-year term), the Company received $3
million from Travelers Express in April 1998, received $400,000 in each of April
1999 and April 2000, and is entitled to receive an additional $400,000 per year
for the next three years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and Note
4 of Notes to Consolidated Financial Statements. If the money order agreement is
terminated under certain circumstances before the expiration of its five-year
term, the Company will be obligated to repay a portion of the $3 million and the
annual amounts received from Travelers Express. The money order agreement with
Travelers Express does not allow an extended deferral of remittances of money
order proceeds. The Company's payment and other obligations to Travelers Express
under the money order agreement are secured by a subordinated lien on the
Company's assets in accordance with the Amended Collateral Trust Agreement
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Credit Facilities."
<PAGE>
Existing MoneyGram Services. The Company is an agent for the receipt and
transmission of wire transfers of money through the MoneyGram network. The
Company's agency relationship is currently governed by the 1996 MoneyGram Master
Agreement, as amended (the "Existing MoneyGram Agreement"), with MoneyGram
Payment Systems, Inc. ("MPS"), an affiliate of Travelers Express. The Existing
MoneyGram Agreement expires by its terms on December 31, 2000.
In June 1996, upon the extension of the Existing MoneyGram Agreement to its
current expiration date, the Company received a bonus of $2 million. The Company
also receives incentive bonuses under the Existing MoneyGram Agreement for
opening or acquiring new MoneyGram service locations. All of the bonuses
received by the Company under the Existing MoneyGram Agreement have been
deferred and included in "Other liabilities" in the Company's consolidated
balance sheets and are amortized to revenues over the term of the Existing
MoneyGram Agreement. During the fiscal year ended June 30, 2000, $2.6 million of
this amortization was recorded and included in money transfer services revenues.
New Money Transfer Agreement. In June 2000, the Company signed a Money
Transfer Agreement with Travelers Express and MPS to become effective upon the
expiration of the Existing MoneyGram Agreement (the "New MoneyGram Agreement").
During the seven-year term of the New MoneyGram Agreement, the Company will
exclusively offer and sell MoneyGram wire transfer services. Under the New
MoneyGram Agreement (as under the Existing MoneyGram Agreement), the Company
will earn commissions for each transmission and receipt of money through the
MoneyGram network effected at a Company-owned location; those commissions will
equal varying percentages of the fees charged by MPS to consumers for the
MoneyGram services.
Under the New MoneyGram Agreement, the Company will also be entitled to
receive a total of approximately $12.5 million in incentive bonuses, payable in
equal monthly installments (without interest) over the seven-year term. The
amount of those monthly installments will be subject to reduction if the Company
closes or sells a significant number of those locations at which MoneyGram
services are offered at the beginning of the New MoneyGram Agreement. In
addition, the Company will be entitled to receive certain incentive payments
regarding new MoneyGram service locations that it opens or acquires during the
term of the New MoneyGram Agreement.
The Company's execution of the New MoneyGram Agreement extends and strengthens
the Company's relationship with Travelers Express and its affiliates. That
relationship includes the money order agreement as well as the MoneyLine
Agreement for bill-payment services, and is therefore significant to the
Company's business. Though the Company does not anticipate any disruption of
that relationship, if such a disruption were to occur, the Company's business
could be materially and adversely affected.
BANK LOANS
In August 1999 the Company entered into a Master Loan Agency Agreement (the
"Goleta Agreement") with Goleta National Bank, a national bank located in
Goleta, California ("Goleta"). Under the Goleta Agreement, the parties agreed to
develop and implement an arrangement under which short-term loans made by Goleta
would be offered at the Company's owned locations. Since entering into the
Goleta Agreement, the parties have developed software and various procedures to
offer the short-term loans contemplated by the Goleta Agreement ("Bank Loans");
and since March 2000, the parties have implemented those procedures and offered
Bank Loans at an increasing number of the Company's locations. As of August 31,
2000, Bank Loans were offered at 896 of the Company's owned locations.
The terms of the Bank Loans are established, and subject to change from time
to time, solely by Goleta. Currently, a Bank Loan may be up to $500 and must be
repaid in 14 days. A Bank Loan may be renewed by a borrower only if at least
five percent of the outstanding principal amount is paid. A borrower may have
only one Bank Loan outstanding at a time.
<PAGE>
Goleta determines, in accordance with its credit criteria, those applicants to
whom a Bank Loan will be made. The Company's involvement in the Bank Loan
process is limited to the electronic transmission of information and documents
in accordance with procedures established by Goleta. A Bank Loan is funded into
the borrower's account at Goleta. Access to those funds is through a debit card
and personal identification number issued by Goleta in the Bank Loan process.
That debit card (with identification number) may be used at various ATM machines
or retail stores or at the Company's locations.
A Bank Loan may be repaid at an ACE location, for transmission to Goleta and
credit to the borrower's bank account. Goleta has appointed the Company as
servicing agent for any necessary collection activity regarding past-due Bank
Loans, subject to Goleta's reasonable direction. Goleta has sole authority to
modify the terms, or extend the payment, of any Bank Loans.
Under the Goleta Agreement, the Company must purchase from Goleta a
participation interest in all Bank Loans made on a previous day or previous
days. That participation entitles the Company to substantially all of the
interest received by Goleta from the borrowers, and subjects the Company to
substantially all of the risk of nonpayment by the borrowers. The Company must
pay participation processing fees regarding the Bank Loans under the Goleta
Agreement.
The Company is responsible under the Goleta Agreement for up to substantially
all of any third-party claims regarding the Bank Loans other than claims
resulting solely from Goleta's misconduct.
The Company has agreed in the Goleta Agreement not to offer at its locations
any short-term loan that is substantially similar to the Bank Loans, except
where the Company is precluded from offering Bank Loans by contract, law, or
regulatory authority. The Company may offer its payday loan service or other
short-term loans where Bank Loans cannot be offered. Goleta agreed in the Goleta
Agreement not to offer or make Bank Loans or any substantially similar
short-term loan anywhere in the United States except at an office of Goleta or
as required by law. The parties' exclusivity obligations will be effective so
long as applications for a minimum number of Bank Loans are submitted to Goleta
from ACE locations during each 12-month period beginning April 14, 2000.
The term of the Goleta Agreement will expire on April 13, 2005, at the
earliest. That term will be extended annually if applications for a certain
number of Bank Loans are submitted to Goleta from ACE locations during each
12-month period beginning April 14, 2000.
Either party may terminate the Goleta Agreement because of (1) the other
party's insolvency, (2) the other party's failure to make any required payment
or to perform any other material obligation that is not cured after notice, or
(3) any action by a regulatory authority that requires Goleta to cease making
Bank Loans or imposes restrictions that would materially and adversely affect
Goleta's ability to make Bank Loans. In addition, the Company may terminate upon
its determination that any change by Goleta in the terms of the Bank Loans or
its credit criteria has adversely affected or would adversely affect the market
for Bank Loans.
Because the Company's economic interest in the Bank Loans results from the
purchase of participations, the Company is dependent on Goleta's originating the
Bank Loans. If any change in the terms of, or the credit criteria for, the Bank
Loans were to result in losses that the Company deems unacceptable, the
Company's sole legal recourse would be exercise its right to terminate the
Goleta Agreement.
The Goleta Agreement permits the Company to expand its offering of loan
services; the Company can offer Bank Loans at many more of its locations than it
could offer its "payday loan" service. If the Goleta Agreement were terminated
or the Company's ability to offer Bank Loans at a significant number of its
locations were otherwise restricted, then (even though the Company might again
be able to offer a payday loan service at many locations) the Company's
loan-related revenues could be materially and adversely affected.
INVESTMENT IN EPACIFIC
In March and April 2000, the Company invested a total of $1 million in
ePacific Incorporated ("ePacific"), a private company in the business of
providing customized debit-card payment systems and electronic funds transfer
processing services, which has been recorded under the cost method and is
included in other assets. ePacific, formerly a controlled subsidiary of Goleta,
provides the debit-card system and processing services to Goleta to enable it to
make the Bank Loans described above in "-- Bank Loans."
<PAGE>
The Company's investment in ePacific was made at the same times, and on the
same terms, as the investment by two venture capital investors. The Company
purchased approximately 14% of the shares of ePacific's Series A Convertible
Preferred Stock purchased by the group of investors. The terms of those shares
are typical of preferred stock issued and purchased in venture capital
investments, and include the right to periodic dividends from ePacific, the
right to a preferential distribution upon liquidation of ePacific, voting rights
with ePacific common stock, and the right to convert the preferred stock into
ePacific common stock. Under a stockholders' agreement with ePacific and its
other stockholders, the Company agreed to certain restrictions on transfer of
its ePacific stock, received certain securities registration rights regarding
resale of its ePacific stock, and received the right to designate one person to
serve as a director of ePacific. The Company designated Jay Shipowitz, its
President and Chief Operating Officer, to serve as a director of ePacific.
The investment in ePacific was motivated by the Company's belief that the
market for financial-services products delivered through debit-ATM cards will
continue to expand; a reason for that expansion is the technology that now
permits value to be placed or "loaded" on a debit-ATM card for a consumer in a
retail environment. The Company also believes that ePacific has developed unique
debit-card processing applications for internet users that may allow it to
compete effectively with some of the larger debit-card processors.
ARRANGEMENTS REGARDING SECURED NOTES
In December 1996, the Company consummated a private placement of $20 million
of its 9.03% Senior Secured Notes ("Notes") and issued the Notes to Principal
Life Insurance Company (formerly known as Principal Mutual Life Insurance
Company) ("Principal") under the terms of a Note Purchase Agreement dated as of
November 15, 1996 (the "Note Purchase Agreement"). The net proceeds of the
issuance of the Notes were used to pay in full the then outstanding $18.5
million principal amount of the Company's term-loan indebtedness (incurred for
acquisitions and capital expenditures), plus corresponding interest and fees,
and for general corporate purposes of the Company.
Interest on the unpaid principal amount of the Notes, accruing at 9.03% per
annum, is payable semiannually on May 15 and November 15 of each year,
commencing May 15, 1997. The principal amount of the Notes is payable in five
equal installments of $4 million on November 15 of each year, commencing
November 15, 1999. All principal and accrued interest is payable at the
scheduled maturity of the Notes on November 15, 2003.
The Company may prepay the Notes, at any time or from time to time, in the
principal amount of at least $1 million, plus accrued interest on the principal
amount being prepaid, plus an amount approximately equal to the discounted
present value of the return that the holders of the prepaid Notes would have
received if the prepayment were not made. Any prepayment will ratably reduce the
amount of each scheduled principal payment on the Notes due thereafter.
The Note Purchase Agreement contains certain restrictive covenants affecting
the business and affairs of the Company and its subsidiaries. Those covenants
address, among other things, the maintenance of specified financial ratios, the
incurrence and payment of other indebtedness, the disposition of assets or of
the ownership of any subsidiary of the Company, the grant or existence of other
liens on the assets of the Company and its subsidiaries, and transactions
between the Company or its subsidiaries and any of their affiliates.
The Note Purchase Agreement also specifies events of default that could result
in the acceleration of the maturity of the Notes. Those events include (a) any
failure by the Company to pay any amount due under the Notes, (b) any failure by
the Company to comply with various covenants set forth in the Note Purchase
Agreement and ancillary documents, (c) any misrepresentation or breach of
warranty by the Company, (d) any failure by the Company or any of its
subsidiaries to pay, or perform its obligations under, any indebtedness for
borrowed money or under capital leases in excess of $1 million, (e) various
events of bankruptcy or insolvency of the Company or any of its subsidiaries,
and (f) any final judgment of any court in excess of $1 million against the
Company or any of its subsidiaries remaining in effect 30 days after the entry
thereof.
<PAGE>
The Company's obligations under the Notes, the Note Purchase Agreement, and
all ancillary documents entered into with Principal are secured by liens on all
of the assets of the Company. Concurrent with the Note Purchase Agreement, the
Company entered into a Collateral Trust Agreement dated as of November 15, 1996
(the "Original Collateral Trust Agreement"), with Wilmington Trust Company, as
trustee (the "Collateral Trustee"), Principal, and the Company's other secured
lender at the time. The Original Collateral Trust Agreement created a collateral
trust to secure the Company's obligations to both of its then existing secured
lenders and, under conditions set forth therein, future secured lenders to the
Company. The Original Collateral Trust Agreement was amended and superseded in
connection with the Company's Credit Agreement described below under "- Credit
Facilities."
CREDIT FACILITIES
In July 1998, the Company entered into a Credit Agreement with a syndicate of
banks (the "Lenders") represented by Wells Fargo Bank (Texas), National
Association ("Wells Fargo Bank"), as lead agent and Chase Bank of Texas as
co-agent (the "Credit Agreement"). The Credit Agreement was renewed in December
1999, with Wells Fargo Bank as lead agent. The credit facilities under the
Credit Agreement consist of a revolving (line-of-credit) facility of $130
million (the "Revolving Facility") and a term-loan facility of $35 million (the
"Term-Loan Facility"). The Revolving Facility is used for working capital and
general corporate purposes of the Company, and the Term-Loan Facility is used
for store construction and relocation and other capital expenditures of the
Company, including acquisitions, and refinancing other debt. Also, upon certain
conditions, in addition to the Revolving Facility, the Company has available
from Wells Fargo Bank (a) an additional 25-day revolving advance facility of up
to $25 million and (b) a standby letter-of-credit facility of up to $1.5
million. The terms of the Credit Agreement and ancillary documents are described
in more detail at "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Credit
Facilities."
ITEM 2. PROPERTIES
All but two of the Company's stores are leased, generally under leases
providing for an initial term of three years and renewal terms of from three to
six years. The Company acquired, as part of the Check Express acquisition in
February 1996, and still owns the land and building at which one of the
Company's stores is located in Indianapolis, Indiana. Management believes that
the land and building are suitable for the successful operation of a
Company-owned store. The Company's headquarters offices in Irving, Texas, a
suburb of Dallas, occupy approximately 40,000 square feet under a 62-month
lease, the term of which expires in April 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company has entered into an agreement to settle the lawsuit against the
Company in Arkansas, Angie Gwatney v. Ace Cash Express, Inc. Under the
settlement, qualified customers will receive certificates that may be redeemed
for prepaid telephone cards from the Company. The face amount of the telephone
cards will equal 75% of the total amount of fees ($2.2 million) that the
customers paid the Company in deferred-presentment transactions from February 9,
1996 through June 15, 1999. It is impossible to predict the number and face
amount of the telephone cards that the Company will have to provide to
customers. But, based on its estimate of the distribution of those cards, the
Company has provided in its fiscal 2000 financial statements a total of $640,000
to satisfy its settlement obligations. The settlement agreement has been
approved by the court, and the Company believes that the approval will be final
and effective on October 5, 2000.
On December 17, 1999, a lawsuit regarding the Company's "payday loan" service,
Eva J. Rowings v. Ace Cash Express, Inc., was filed against the Company in the
United States District Court for the Southern District of Indiana. The
plaintiff, for herself and others similarly situated since December 17, 1998,
alleges that the Company's disclosures to recipients of payday loans in Indiana
do not comply with the requirements of the Truth in Lending Act and Regulation Z
<PAGE>
under federal law and of the Uniform Consumer Credit Code in Indiana. On January
27, 2000, the plaintiff filed an amended complaint alleging that the Company
violated Indiana Code 35-45-7-2 (Indiana's "loansharking" statute) and that the
loans are therefore void. The plaintiff seeks monetary damages as specified by
statute as well as attorneys' fees and court costs from the Company. Because
this lawsuit purports to be a class action, the amount of damages for which the
Company may be responsible is necessarily uncertain. That amount would depend on
proof of the allegations, on the number of recipients of payday loans who
constitute the class of plaintiffs (if permitted by the court), and on proof of
actual damages sustained by the plaintiffs. Under each of the federal Truth in
Lending Act and the Indiana Uniform Consumer Credit Code, if the court were to
certify this lawsuit as a class action and if the Company were found to have
violated that statute, the Company's maximum liability would be the sum of (1)
any actual damages sustained by the plaintiffs as a result of the violation, (2)
the lesser of $500,000 or 1% of the Company's net worth, and (3) reasonable
attorneys' fees and court costs. Also, if the Company were found to have
violated Indiana Code 35-45-7-2 in connection with the payday loans to the class
of plaintiffs, those loans could be declared void. The Company has filed a
motion to dismiss all federal law claims asserted in the complaint and has asked
the court to decline to exercise jurisdiction over the remaining state law
claims if the federal law claims are dismissed. The court also is considering
whether to certify to the Indiana Supreme Court certain state law issues that
are common to this case and other "payday loan" cases that are pending in the
court against other payday lenders.
On January 20, 2000, the plaintiffs in the lawsuit filed against the Company
in the United States District Court for the Middle District of Florida, Gary M.
Kane and Wendy Betts v. Ace Cash Express, Inc., et al., voluntarily dismissed
their remaining federal Truth in Lending Act claims, and therefore that lawsuit,
without prejudice. On March 22, 2000, however, those plaintiffs and an
additional plaintiff filed a lawsuit, Wendy Betts, John Cardegna and Gary M.
Kane v. Ace Cash Express, Inc., et al., in a Florida state Circuit Court in
Orange County, Florida. This lawsuit was filed against the Company, its wholly
owned subsidiary Check Express, Inc., and persons who "own, organized,
developed, control, expanded, promoted, and profited from" alleged illegal
activities of the Company and Check Express, Inc. described in the complaint. In
this lawsuit the plaintiffs, for themselves and others similarly situated since
March 22, 1996, alleged that the Company's deferred-deposit activities in
Florida violated certain Florida lending practices and usury statutes, the
Florida Consumer Finance Act, the Florida Deceptive and Unfair Trade Practices
Act, and the Florida Civil Remedies for Criminal Practices Act and constituted
fraud. The plaintiffs sought an injunction against any such further alleged
illegal activities as well as actual and punitive damages of various kinds,
including forfeiture of the total amount of the deferred-deposit transactions
with the purported class of customers in Florida, an amount equal to twice the
fees and charges received by the Company from those transactions, an amount
equal to three times the damages suffered by the purported class, the
plaintiffs' attorneys' fees, and court costs. On September 1, 2000, however, the
state court dismissed the complaint, because of defects in the plaintiffs'
pleadings, without prejudice. The Company does not know whether the plaintiffs
will attempt to cure the defects in order to maintain this lawsuit.
On March 30, 2000, the Company was served with a lawsuit regarding the
Company's "payday loan" service in Louisiana, Shirley Porter and Joyce Davis v.
Ace Cash Express, Inc., filed in the United States District Court for the
Eastern District of Louisiana. This lawsuit was filed against the Company and
persons who "have owned, organized, developed, controlled and promoted and
profited from" alleged illegal activities of the Company described in the
complaint. The plaintiffs, for themselves and others similarly situated, allege
that the Company's lending and collection activities regarding payday loans in
Louisiana violated the Louisiana Small Loan Act, resulted in unconscionable (and
therefore unenforceable) contracts, involved the charging and collection of fees
that were excessive under the Louisiana Consumer Credit Law, involved charging
and collecting usurious interest under Louisiana law, and violated the federal
Racketeer Influenced and Corrupt Organizations (RICO) Act. The class that the
plaintiffs seek to represent would consist of customers of the Company's payday
loan service in Louisiana since February 25, 1999, regarding the Louisiana
state-law claims, and since February 25, 1996, regarding the RICO Act claim. The
plaintiffs seek an injunction against any such further alleged illegal
activities as well as damages of various kinds, including an amount equal to all
fees and charges received by the Company from the payday loans made to the
purported class of customers in Louisiana, an amount equal to three times the
damages suffered by the purported class, the plaintiffs' attorneys' fees, and
court costs. Based on an interpretive letter from the Louisiana Office of
Financial Institutions, on June 22, 2000, the Company filed a motion for
judgement on the pleadings, which remains pending before the court.
On December 6, 1999, a complaint was filed in a lawsuit against the Company,
Eugene R. Clement v. Ace Cash Express, Inc., in a Florida state Circuit Court in
Hillsborough County, Florida. The plaintiff, for himself and others similarly
situated, alleged that the Company's collection activities regarding unpaid
amounts under deferred-deposit transactions in Florida violated the Florida
Deceptive and Unfair Trade Practices Act. In that complaint, the plaintiff did
not seek damages, but sought only an injunction against the alleged illegal
activities, attorneys' fees, and court costs. On March 15, 2000, however, the
<PAGE>
plaintiff amended his complaint in this lawsuit to allege that the Company's
deferred-deposit activities violated the federal Truth in Lending Act and to
seek damages as provided by that Act. On March 27, 2000, this lawsuit was
removed by the Company to the United States District Court for the Middle
District of Florida.
On April 14, 2000, another complaint was filed in a lawsuit against the
Company, Neil Gillespie v. Ace Cash Express, Inc., in the United States District
Court for the Middle District of Florida. The plaintiff, for himself and others
similarly situated, alleges that the Company's deferred-deposit activities in
Florida violated the federal Truth in Lending Act, the Florida usury laws, and
the Florida Deceptive and Unfair Trade Practices Act. The plaintiff seeks an
injunction against any such further alleged illegal activities as well as actual
and punitive damages of various kinds, including damages under the federal Truth
in Lending Act, an amount equal to twice the fees and charges received by the
Company from its deferred-deposit transactions with the purported class of
customers in Florida, the plaintiffs' attorneys' fees, and court costs. By order
dated August 8, 2000, this lawsuit and the Clement lawsuit were consolidated by
the United States District Court for the Middle District of Florida. On August
15, 2000, the plaintiffs filed an amended consolidated complaint that restated
in a single complaint the previous claims asserted against the Company under the
federal Truth in Lending Act, the Florida usury laws, and the Florida Deceptive
and Unfair Trade Practices Act. On August 25, 2000, the Company filed a motion
to dismiss that complaint, which remains pending before the court.
On May 11, 2000, a complaint was filed in a lawsuit against the Company, Edna
Jordan v. Ace Cash Express, Inc., in an Alabama state Circuit Court in Morgan
County, Alabama. The plaintiff, for herself and others similarly situated,
alleges that the Company's activities violate the Alabama Small Loan Act and
other Alabama lending and usury laws. The plaintiff seeks an injunction against
any such further alleged illegal activities as well as unspecified compensatory
and punitive damages. Nevertheless, the plaintiff was not a customer of the
Company, but was a customer of one of the Company's franchisees (not named in
the lawsuit). Because the Company does not offer "payday loans" at its owned
locations in Alabama, the plaintiff is apparently alleging that the Company is
responsible for the franchisee's payday-lending activities in Alabama. The
Company has filed a motion for summary judgment denying any such responsibility,
and that motion remains pending before the court.
Because each of these pending lawsuits purports to be a class action, the
amount of damages for which the Company might be responsible is necessarily
uncertain. Regarding each lawsuit, that amount would depend upon proof of the
allegations, on the number of customers of the payday loan service who
constitute the class of plaintiffs (if permitted by the court), and on proof of
actual damages sustained by the plaintiffs. The Company believes that each of
these lawsuits is without merit. The Company denies all of the plaintiffs'
material allegations in these lawsuits and intends to vigorously defend these
lawsuits.
On May 19, 2000, the Company was served with an Economic Crimes Subpoena Duces
Tecum by the office of the Attorney General of the State of Florida. The
subpoena requested the Company to produce, for review by the Attorney General's
office, various documents and records relating primarily to the Company's payday
lending activities in Florida. On or about the same date, the Attorney General's
office also served substantially similar subpoenas on the three other largest
payday lenders in Florida. The Company has produced the documents and records
that the Attorney General's office has required to date. The Attorney General's
office has not notified the Company of or (to the Company's knowledge) publicly
announced the purpose or the scope of the investigation. The Attorney General's
office has not notified the Company of any allegation that the Company has
violated any Florida law, and the Company does not expect any such allegation to
result from the investigation.
The Company is also involved from time to time in various legal proceedings
incidental to the conduct of its business. Management believes that none of
these legal proceedings will result in any material impact on the Company's
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company during
the fourth quarter of fiscal 2000.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is quoted on The Nasdaq Stock Market ("NASDAQ")
under the symbol "AACE". At September 14, 2000, there were approximately 107
holders of record of the Common Stock and there were approximately 1,500
beneficial holders of the Common Stock held in nominee or street name.
The following table sets forth the high and low sale prices of the Common
Stock as reported by NASDAQ for the past two fiscal years:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
Fiscal 1999
-----------
<S> <C> <C>
Quarter ended September 30, 1998 20-1/2 11-3/4
Quarter ended December 31, 1998 16-1/2 11-1/4
Quarter ended March 31, 1999 15 12-1/8
Quarter ended June 30, 1999 15-1/16 12-3/4
Fiscal 2000
-----------
Quarter ended September 30, 1999 14-7/8 14-1/2
Quarter ended December 31, 1999 19 18-1/4
Quarter ended March 31, 2000 17-3/4 17-1/8
Quarter ended June 30, 2000 12-5/32 11-7/8
</TABLE>
On September 14, 2000, the last reported sale price of the Common Stock on
NASDAQ was $11.125 per share.
The Company has never paid dividends on the Common Stock and has no plans to
pay dividends in the foreseeable future. In addition, the Company's ability to
pay cash dividends is currently limited under the Credit Agreement (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Credit Facilities").
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands, except per share and store data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues $140,636 $122,314 $100,194 $87,392 $68,959
Store expenses 94,668 80,943 67,103 59,376 48,552
Region expenses 11,119 9,369 8,353 7,477 5,647
Headquarters expenses 8,247 7,673 7,198 6,106 4,744
Franchise expenses 1,063 1,288 965 1,046 458
Other depreciation and amortization 3,798 4,236 3,502 3,024 2,152
Interest expense, net 6,123 4,476 2,437 2,271 1,714
Other expenses 955 689 49 213 236
---------- ----------- ----------- ----------- -----------
Income before income taxes 14,663 13,640 10,587 7,879 5,456
Income taxes 5,797 5,390 4,185 3,113 2,130
---------- ----------- ----------- ----------- -----------
Net income before cumulative effect of
accounting change (1) $ 8,866 $ 8,250 $ 6,402 $ 4,766 $ 3,326
========== =========== =========== =========== ===========
Diluted earnings per share before cumulative effect
of accounting change (1) $ .86 $ .80 $ .63 $ .48 $ .35
========== =========== =========== =========== ===========
Weighted average number of shares (2) 10,361 10,283 10,215 9,845 9,570
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $105,577 $59,414 $60,168 $55,494 $56,603
Total assets 221,423 145,233 134,635 124,350 114,684
Term advances 18,500 10,500 7,073 8,209 16,969
Money order principal payable 10,487 5,340 47,486 41,281 35,487
Revolving advances 95,000 40,100 1,932 7,166 21,157
Senior secured notes payable 16,180 20,226 20,226 20,231 -
Shareholders' equity 55,159 48,274 38,951 31,056 25,236
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL STATISTICAL DATA:
Company-owned stores in operation:
Beginning of year 798 683 617 544 452
Acquired 36 35 15 46 69
Opened 99 99 62 45 33
Closed (18) (19) (11) (18) (10)
---------- ----------- ----------- ----------- -----------
End of year 915 798 683 617 544
========== =========== =========== =========== ===========
Percentage increase in comparable store revenues
from prior year:
Exclusive of tax-related revenues (3) 7.1% 10.6% 8.0% 5.5% 4.1%
Total revenues (4) 6.9% 10.8% 6.9% 6.3% 4.7%
Capital expenditures (in thousands) $12,255 $10,089 $5,742 $4,868 $3,435
Cost of net assets acquired (in thousands) $11,359 $8,378 $4,708 $10,766 $14,432
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before a cumulative effect of accounting change recorded in the three
months ended September 30, 1999, of $0.6 million, net of a $0.4 million tax
benefit, relating to the adoption of Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities."
(2) Includes common shares and dilutive shares.
(3) Change in revenues computed excluding electronic tax filing and tax refund
check cashing for the years compared.
(4) Calculated based on the changes in revenues of all stores open for the full
years compared.
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (CONTINUED)
YEAR ENDED JUNE 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- ------- -------
OPERATING DATA (CHECK CASHING AND
MONEY ORDERS):
<S> <C> <C> <C> <C> <C>
Face amount of checks cashed
(in millions) $ 3,839 $ 3,373 $ 2,898 $ 2,621 $ 2,144
Face amount of money orders sold
(in millions) $ 1,585 $ 1,905 $ 1,858 $ 1,812 $ 1,531
Face amount of money orders sold as a
percentage of the face amount of checks
cashed 41.3% 56.5% 64.1% 69.1% 71.4%
Face amount of average check $ 339 $ 320 $ 305 $ 291 $ 285
Average fee per check $ 7.92 $ 7.47 $ 7.26 $ 6.97 $ 6.81
Fees as a percentage of average check 2.33% 2.33% 2.38% 2.40% 2.39%
Number of checks cashed (in thousands) 11,317 10,556 9,496 9,020 7,535
Number of money orders sold
(in thousands) 12,339 14,495 14,146 13,608 11,835
COLLECTIONS DATA:
Face amount of returned checks (in
thousands) $ 16,548 $ 12,442 $ 10,193 $ 10,399 $ 8,661
Collections (in thousands) 10,788 7,423 6,301 6,554 5,004
-------- ------- --------- -------- --------
Net write-offs (in thousands) $ 5,760 $ 5,019 $ 3,892 $ 3,845 $ 3,657
======== ======= ========= ======== ========
Collections as a percentage of
returned checks 65.2% 59.7% 61.8% 63.0% 57.8%
Net write-offs as a percentage of
revenues 4.1% 4.1% 3.9% 4.4% 5.3%
Net write-offs as a percentage of
the face amount of checks cashed .15% .15% .13% .15% .17%
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA (SMALL CONSUMER LOANS):
Volume (in thousands) $137,015 $105,765 $ 69,182 $ 39,336 -
Average advance $ 240 $ 200 $ 177 $ 147 -
Average finance charge $ 34.51 $ 30.30 $ 27.51 $ 25.03 -
Number of loans made (in thousands) 557 460 338 229 -
COLLECTIONS DATA:
Net charge-offs (in thousands) $ 4,177 $ 2,786 $ 1,807 $ 1,183 -
Net charge-offs as a percentage of
small consumer loan revenue 23.4% 20.0% 19.5% 20.7% -
Net charge-offs as a percentage of
small consumer loan volume 3.1% 2.6% 2.6% 3.0% -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE ANALYSIS
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------
(in thousands) (percentage of revenue)
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Check cashing fees $ 77,574 $ 68,249 $ 60,416 55.2% 55.8% 60.3%
Loan fees and interest 17,872 14,257 10,137 12.7 11.7 10.1
Tax check fees 12,067 10,590 8,571 8.6 8.7 8.5
Bill-payment services 9,447 8,394 4,146 6.7 6.8 4.1
Money transfer services 8,944 7,951 6,082 6.4 6.5 6.1
Money order fees 7,032 5,332 2,879 5.0 4.4 2.9
New customer fees 2,164 2,296 2,207 1.5 1.9 2.2
Franchise revenues 2,537 2,117 1,665 1.8 1.7 1.7
Other fees 2,999 3,128 4,091 2.1 2.5 4.1
------------ ------------ ------------ ------------ ------------ ------------
Total revenue $140,636 $122,314 $100,194 100.0% 100.0% 100.0%
============ ============ ============ ============ ============ ============
Average revenue per store
(excluding franchise revenues) $ 161.1 $ 162.3 $ 151.6
</TABLE>
FISCAL 2000 COMPARED TO FISCAL 1999. Revenues increased $18.3 million, or 15%,
from $122.3 million in the year ended June 30, 1999, to $140.6 million in the
year ended June 30, 2000. This revenue growth resulted from a $7.5 million, or
6.9%, increase in comparable Company-owned store revenues (651 stores) and a
$10.8 million increase from stores which were opened or acquired after June 30,
1998, and were therefore not open for both of the full periods compared. Average
revenue per store declined by $1,200 because of the significant number of stores
open for two years or less; revenues from new stores must typically be built up
over the first few years of operation. The number of Company-owned stores
increased by 117, or 15%, from 798 stores open at June 30, 1999, to 915 stores
open at June 30, 2000. The increase in total check cashing fees accounted for
59% of the total revenue increase; the increase in loan fees and interest
accounted for 20% of the total revenue increase; and the increase in money order
fees accounted for 9% of the total revenue increase.
Check cashing fees, including tax check fees, increased $10.8 million, or 14%,
from $78.8 million in fiscal 1999 to $89.6 million in fiscal 2000. This increase
resulted from a 7% increase in the total number of checks cashed and a 6%
increase in the average fee per check due to the increase in the average size
check. Loan fees and interest increased $3.6 million, or 25%, to $17.9 million
in fiscal 2000 as compared to $14.3 million in fiscal 1999. This increase
resulted from the introduction of the Goleta National Bank loan product in the
last few months of fiscal 2000 and the expansion of the loan business to 19 more
states than in fiscal 1999. Money order fees increased $1.7 million, or 32%, as
a result of increased money order pricing, enabled by the Company's Credit
Agreement and the money order agreement with Travelers Express (which were
effective for only approximately half of fiscal 1999). Bill-payment services
increased $1.0 million, or 13%, principally as a result of new bill-payment
contracts and growth in payment revenue from existing bill-payment contracts.
Money transfer services revenues increased $1.0 million, or 13%, principally as
a result of acquired stores and related revenue guarantees and bonuses.
During fiscal 2000, the Company sold six franchised stores, opened 56 franchised
stores, acquired seven former franchised stores and closed six franchise stores.
Franchise revenues consist of royalties, initial franchise fees, and buyback
fees. Franchise revenues increased $0.4 million, or 20%, from fiscal 1999 to
fiscal 2000, due to the increase in the number of franchised stores.
<PAGE>
FISCAL 1999 COMPARED TO FISCAL 1998. Revenues increased $22.1 million, or 22%,
from $100.2 million in the year ended June 30, 1998, to $122.3 million in the
year ended June 30, 1999. This revenue growth resulted from a $9.8 million, or
10.8%, increase in comparable Company-owned store revenues (589 stores) and a
$12.3 million increase from stores which were opened or acquired after June 30,
1997, and were therefore not open for both of the full periods compared. The
number of Company-owned stores increased by 115, or 17%, from 683 stores open at
June 30, 1998, to 798 stores open at June 30, 1999. The increase in total check
cashing fees accounted for 45% of the total revenue increase; the increase in
loan fees and interest accounted for 19% of the total revenue increase; and the
increase in bill-payment services accounted for 19% of the total revenue
increase.
Check cashing fees, including tax check fees, increased $9.9 million, or 14%,
from $69.0 million in fiscal 1998 to $78.8 million in fiscal 1999. This increase
resulted from an 11% increase in the total number of checks cashed and a 3%
increase in the average fee per check due to the increase in the average size
check. Loan fees and interest increased $4.1 million, or 41%, to $14.3 million
in fiscal 1999 as compared to $10.1 million in fiscal 1998. This increase
resulted from an increase in the number of stores offering the Company's loan
products and an increase in the loan volume at stores previously offering those
products. Bill-payment services increased $4.2 million, or 102%, principally as
a result of new bill-payment contracts and growth in payment revenue from
existing bill-payment contracts. Money transfer services revenues increased $1.9
million, or 31%, principally as a result of acquired stores and related revenue
guarantees and bonuses. Money order fees increased $2.5 million, or 85%, as a
result of increased money order pricing, enabled by the Company's new Credit
Agreement and the new money order agreement with Travelers Express (which were
effective for approximately half of fiscal 1999).
During fiscal 1999, the Company sold 10 franchised stores, opened 42 franchised
stores, and acquired four former franchised stores. Franchise revenues consist
of royalties, initial franchise fees, and buyback fees. Franchise revenues
increased $0.5 million, or 27%, from fiscal 1998 to fiscal 1999, due to the
increase in the number of franchised stores.
Other fees decreased $1.0 million, or 24%, as a result of decreases in food
stamp distribution revenue and other miscellaneous product revenue.
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS YEAR ENDED JUNE 30,
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) (percentage of revenue)
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $38,639 $32,435 $27,975 27.4 % 26.5 % 27.9 %
Occupancy 21,507 18,381 15,204 15.3 15.0 15.2
Armored and security 5,608 5,144 4,200 4.0 4.2 4.2
Returns and cash shorts 9,037 8,870 6,057 6.4 7.3 6.0
Loan losses 4,177 2,786 1,807 3.0 2.3 1.8
Depreciation 5,429 4,728 4,083 3.9 3.9 4.1
Other 10,271 8,599 7,777 7.3 7.0 7.8
------------ ------------ ------------ ----------- ----------- -----------
Total store expense $94,668 $80,943 $67,103 67.3 % 66.2 % 67.0 %
============ ============ ============ =========== =========== ===========
Average per store expense $ 110.5 $ 109.3 $ 103.2
</TABLE>
FISCAL 2000 COMPARED TO FISCAL 1999. Store expenses increased $13.7 million, or
17%, in fiscal 2000 over fiscal 1999, primarily as a result of the increased
number of stores open during the period. Average store expense increased by
approximately $1,200 per store in fiscal 2000 as compared to fiscal 1999. Store
expenses increased as a percentage of revenues from 66.2% in fiscal 1999 to
67.3% in fiscal 2000, principally as a result of a slight decrease in average
revenue per store. Salaries and benefits expenses, occupancy costs, and armored
and security expenses combined increased $9.8 million, or 18%, primarily as a
result of the increased number of stores in operation. Returned checks, net of
collections, and cash shortages increased $0.2 million, or 2%, in fiscal 2000 as
compared to fiscal 1999, due also to the increased number of stores in
operation. Returned checks, net of collections, and cash shortages decreased as
a percentage of revenues from 7.3% in fiscal 1999 to 6.4% in fiscal 2000. Loan
losses increased $1.4 million in fiscal 2000 over fiscal 1999, due primarily to
the increased loan volume resulting from the broader availability of the Goleta
National Bank loan product. Loan losses increased as a percentage of loan fees
and interest revenue from 20% in fiscal 1999 to 23% in fiscal 2000. Depreciation
expense increased $0.7 million, or 15%, due to the increased number of stores in
operation during fiscal 2000 as compared to fiscal 1999. Other store expenses
increased $1.7 million, or 19%, as a result of the increased number of stores in
operation and the expensing of new store start-up costs which were previously
capitalized.
<PAGE>
FISCAL 1999 COMPARED TO FISCAL 1998. Store expenses increased $13.8 million, or
21%, in fiscal 1999 over fiscal 1998, primarily as a result of the increased
number of stores open during the period. Average store expense increased by
approximately $6,000 per store in fiscal 1999 as compared to fiscal 1998. Store
expenses decreased as a percentage of revenues from 67.0% in fiscal 1998 to
66.2% in fiscal 1999, principally as a result of the increase in average
revenues per store. Salaries and benefits expenses, occupancy costs, and armored
and security expenses combined increased $8.6 million, or 18%, primarily as a
result of the increased number of stores in operation. Returned checks, net of
collections, and cash shortages increased $2.8 million, or 46%, in fiscal 1999
as compared to fiscal 1998, due to the increased number of stores in operation
during fiscal 1999 as compared to fiscal 1998. Returned checks, net of
collections, and cash shortages increased as a percentage of revenues from 6.0%
in fiscal 1998 to 7.3% in fiscal 1999. Loan losses increased $1.0 million in
fiscal 1999 over fiscal 1998, due primarily to the increased loan volume. Loan
losses increased as a percentage of loan fees and interest revenue from 18% in
fiscal 1998 to 20% in fiscal 1999. Depreciation expense increased $0.6 million,
or 16%, due to the increased number of stores in operation during fiscal 1999 as
compared to fiscal 1998. Other store expenses increased $0.8 million, or 11%,
but decreased as a percentage of revenue from 7.8% for fiscal 1998 compared to
7.0% of fiscal 1999.
<TABLE>
<CAPTION>
OTHER EXPENSE ANALYSIS YEAR ENDED JUNE 30,
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) (percentage of revenue)
2000 1999 1998 2000 1999 1998
----------- ------------ ------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Region expenses $ 11,119 $ 9,369 $ 8,353 7.9% 7.7% 8.3%
Headquarters expenses 8,247 7,673 7,198 5.9 6.3 7.2
Franchise expenses 1,063 1,288 965 0.8 1.1 1.0
Other depreciation and amortization 3,798 4,236 3,502 2.7 3.5 3.5
Interest expense, net 6,123 4,476 2,437 4.4 3.7 2.4
Other expenses 955 689 49 0.7 0.1 0.0
</TABLE>
REGION EXPENSES
FISCAL 2000 COMPARED TO FISCAL 1999. Region expenses increased $1.8 million, or
19%, in fiscal 2000 over fiscal 1999. The increase is primarily due to increased
field salaries and benefits, advertising and marketing materials for the new
loan product, and additional personnel for collections related to the new loan
product. Region expenses as a percentage of revenues increased slightly from
7.7% for fiscal 1999 to 7.9% for fiscal 2000.
FISCAL 1999 COMPARED TO FISCAL 1998. Region expenses increased $1.0 million, or
12%, in fiscal 1999 over fiscal 1998. The increase is primarily due to increased
salaries and benefits and travel expenses and the opening of a new region office
during the third quarter of fiscal 1999. Region expenses as a percentage of
revenues decreased from 8.3% for fiscal 1998 to 7.7% for fiscal 1999.
HEADQUARTERS EXPENSES
FISCAL 2000 COMPARED TO FISCAL 1999. Headquarters expenses increased $0.6
million, or 8%, in fiscal 2000 over fiscal 1999. The increase is the result of
additional salaries and benefits expenses, primarily related to merit increases
and additional personnel. Headquarters expenses as a percentage of revenue
decreased from 6.3% in fiscal 1999 to 5.9% in fiscal 2000.
FISCAL 1999 COMPARED TO FISCAL 1998. Headquarters expenses increased $0.5
million, or 7%, in fiscal 1999 over fiscal 1998. The increase is the result of
additional salaries and benefits expenses, primarily related to merit increases.
Headquarters expenses as a percentage of revenue decreased from 7.2% in fiscal
1998 to 6.3% in fiscal 1999.
<PAGE>
FRANCHISE EXPENSES
FISCAL 2000 COMPARED TO FISCAL 1999. Franchise expenses relate to the salaries,
benefits, and other franchisee support costs for the sales and support personnel
in the ACE Franchise Group. Franchise expenses decreased $0.2 million from
fiscal 1999 to fiscal 2000, primarily due to a reduction in legal expenses
during fiscal 2000 related to the Company's franchise program. Franchise expense
as a percentage of revenue decreased to 0.8% for fiscal 2000 from 1.1% for
fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998. Franchise expenses relate to the salaries,
benefits, and other franchisee support costs for the sales and support personnel
in the ACE Franchise Group. Franchise expenses increased $0.3 million from
fiscal 1998 to fiscal 1999, primarily due to increased legal expenses during
fiscal 1999 related to the Company's franchise program. Franchise expense as a
percentage of revenue increased to 1.1% for fiscal 1999 from 1.0% for fiscal
1998.
OTHER DEPRECIATION AND AMORTIZATION
FISCAL 2000 COMPARED TO FISCAL 1999. Other depreciation and amortization
decreased $0.4 million, or 10%, for fiscal 2000 as compared to fiscal 1999. This
decrease was attributable to the change in accounting principle adopted in the
first quarter of fiscal 2000 requiring start-up costs to be fully expensed
instead of capitalized, partially offset by amortization of intangibles
(goodwill and non-competition agreements) resulting from the 36 stores acquired
during fiscal 2000 and the 16 stores acquired during the last half of fiscal
1999, along with the depreciation expense resulting from the 99 stores opened in
fiscal 2000 and the 52 stores opened in the last half of fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998. Other depreciation and amortization
increased $0.7 million, or 21%, for fiscal 1999 as compared to fiscal 1998. This
increase was attributable to amortization of intangibles (goodwill and
non-competition agreements) resulting from the 35 stores acquired during fiscal
1999 and the eight stores acquired during the last half of fiscal 1998. The
increase was also attributable to depreciation expense resulting from the 99
stores opened in fiscal 1999 and the 35 stores opened in the last half of fiscal
1998.
INTEREST EXPENSE
FISCAL 2000 COMPARED TO FISCAL 1999. Interest expense, net of interest income,
increased $1.6 million, or 37%, in fiscal 2000 as compared to fiscal 1999. This
increase was principally the result of increased borrowings to finance store
openings and acquisitions.
FISCAL 1999 COMPARED TO FISCAL 1998. Interest expense, net of interest income,
increased $2.0 million, or 84%, in fiscal 1999 as compared to fiscal 1998. This
increase was principally the result of an increase in borrowings used to finance
store acquisitions and borrowings required to replace the deferred money order
remittances used by the Company under its previous money order agreement, which
was replaced in mid-December 1998.
INCOME TAXES
FISCAL 2000 COMPARED TO FISCAL 1999. A total of $5.8 million was provided for
income taxes for fiscal 2000 as compared to $5.4 million in fiscal 1999. The
provisions for income taxes were calculated based on the statutory federal
income tax rate of 34%, plus a provision for state income taxes and
non-deductible goodwill resulting from acquisitions. The effective income tax
rate was 39.5% for fiscal years 2000 and 1999.
FISCAL 1999 COMPARED TO FISCAL 1998. A total of $5.4 million was provided for
income taxes for fiscal 1999 as compared to $4.2 million in fiscal 1998. The
provisions for income taxes were calculated based on the statutory federal
income tax rate of 34%, plus a provision for state income taxes and
non-deductible goodwill resulting from acquisitions. The effective income tax
rate was 39.5% for fiscal years 1999 and 1998.
<PAGE>
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Effective July 1, 1999, the Company adopted the new accounting standard, AICPA
Statement of Position 98-5, Reporting on the Costs of Start-up Activities,"
resulting in a cumulative effect on net income of $0.6 million net of an income
tax benefit of $0.4 million.
BALANCE SHEET VARIATIONS
Cash and cash equivalents, the money order principal payable, and the revolving
advances vary because of seasonal and day-to-day requirements resulting
primarily from maintaining cash for cashing checks and making small consumer
loans, receipts of cash from the sale of money orders, loan volume, and
remittances on money orders sold. For the fiscal year ended June 30, 2000, cash
and cash equivalents increased $46.2 million, compared to a decrease of $0.8
million for the year ended June 30, 1999 primarily due to higher borrowings from
the revolving line of credit. This was a result of the higher cash requirements
due to the year-end business day being Friday in fiscal year 2000 compared to
Wednesday for fiscal year 1999.
Accounts receivable increased $1.8 million primarily due to higher receivables
from MoneyGram for commissions and bonuses related to the increased number of
Company-owned stores.
Loans receivable increased $13.2 million as a result of the offering of the
Goleta National Bank loan product at many more Company-owned stores, as compared
to the Company "payday loan" product or service.
Other current assets remained relatively unchanged from June 30, 1999 to June
30, 2000.
Property and equipment, net increased $6.5 million, and the excess of purchase
price over the fair value of net assets acquired, net increased $9.3 million,
during the fiscal year ended June 30, 2000, as a result of the 99 stores opened
and the 36 stores acquired during fiscal 2000, offset by related depreciation
and amortization.
The Company paid the first annual $4.0 million installment of principal of its
senior secured notes in November 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During fiscal 2000, 1999, and 1998, the Company had net cash provided by
operating activities of $6.7 million, $17.1 million, and $14.2 million,
respectively. The decrease from fiscal 1999 of $10.4 million is due primarily to
the cash required to support the Goleta Loan product.
During fiscal 2000, 1999, and 1998, the Company recognized $3.5 million, $2.2
million, and $1.5 million in deferred revenue, respectively. The Existing
MoneyGram Agreement provides incentive bonuses for opening new locations at
which MoneyGram services are offered as well as certain other performance
incentives. The bonus of $2 million received in June 1996 and additional
incentive bonuses are recognized as revenue over the term of the Existing
MoneyGram Agreement. Additionally, in fiscal 1999 the Company began recognizing
deferred revenue related to incentives received from Travelers Express. (See
"Business - Relationships with the Money Order and MoneyGram Suppliers.")
Cash Flows from Investing Activities
During fiscal 2000, 1999, and 1998, the Company used $12.3 million, $10.1
million, and $5.7 million, respectively, for purchases of property and equipment
related principally to new store openings and remodeling existing stores.
Capital expenditures related to acquisitions, including related liabilities
incurred, amounted to $11.4 million, $8.4 million, and $4.7 million for the
fiscal years ended June 30, 2000, 1999, and 1998, respectively.
<PAGE>
The Company's total budgeted capital expenditures, excluding acquisitions, are
currently anticipated to be approximately $8.6 million during its fiscal year
ending June 30, 2001, in connection with the opening of 50 new stores, the
relocation or remodeling of certain existing stores, and computer system
upgrades. The actual amount of capital expenditures will depend in part on the
number of new stores opened, the number of stores acquired, and the number of
existing stores that are relocated or remodeled. The Company believes that its
existing resources, anticipated cash flows from operations, and credit
facilities will be sufficient to finance its planned expansion and operations
during fiscal 2001. Although management anticipates that the Company will
continue to expand, there can be no assurance that the Company's expansion plans
will not be adversely affected by competition, market conditions, or changes in
laws or government regulations affecting check cashing and related businesses of
the types conducted by the Company.
During fiscal 2000, the Company invested $1.0 million in ePacific Incorporated,
a private company in the business of providing customized debit-card payment
systems and electronic funds transfer processing services. See "Business -
Investment in ePacific."
Cash Flows from Financing Activities
During fiscal 2000, 1999, and 1998, the Company had net cash provided by
financing activities of $64.1 million, $0.6 million, and $0.9 million,
respectively. During the year ended June 30, 2000, the Company borrowed, net
$54.9 million of revolving line-of credit, borrowed $8.0 million of term
advances, borrowed, net $5.1 million from the money order supplier, repaid $4.0
million of long-term notes payable, purchased $2.4 million of treasury stock,
and received $1.0 million from the exercise of stock options.
Money Order Agreement
In April 1998, the Company signed a money order agreement with Travelers
Express, which became effective December 17, 1998. In conjunction with this
agreement and the MoneyLine Agreement, the Company received $3 million from
Travelers Express in April 1998, received $400,000 in each of April 1999 and
April 2000, and is entitled to receive an additional $400,000 per year for the
next three years. The $3 million payment was deferred and included in other
liabilities in the consolidated balance sheets. The total $5 million from
Travelers Express is being amortized on a straight-line basis over the five-year
term of the agreements beginning January 1999.
Credit Facilities
In July 1998, the Company entered into the Credit Agreement with the Lenders (a
syndicate of banks) represented by Wells Fargo Bank and that Credit Agreement
was renewed in December 1999. The credit facilities available to the Company
under the Credit Agreement are the Revolving Facility of $130 million and the
Term-Loan Facility of $35 million. Also, upon certain conditions, in addition to
the Revolving Facility, the Company has available from Wells Fargo Bank (a) an
additional 25-day revolving advance facility of up to $25 million and (b) a
stand-by letter-of-credit facility of up to $1.5 million. The Revolving Facility
replaced the deferred money order remittances and revolving-advance facility
formerly used by the Company under the previous money order agreement, and the
Term-Loan Facility replaced the term advance facility under the previous money
order agreement. Borrowings under the Revolving Facility may be used for working
capital and general corporate purposes, and borrowings under the Term-Loan
Facility may be used for store construction and relocation and other capital
expenditures, including acquisitions, and refinancing other debt. The Company
first borrowed under the Credit Agreement on December 16, 1998, and discharged
all of the Company's obligations to the previous money order supplier under the
previous money order agreement. The Company has borrowed $95.0 million under the
Revolving Facility and $18.5 million under the Term-Loan Facility as of June 30,
2000.
The Revolving Facility is available to the Company until December 13, 2000, and
unless renewed, all unpaid principal and accrued interest under the Revolving
Facility will then be due. The Term-Loan Facility will be available to the
Company until December 13, 2000, unless renewed, and all amounts outstanding
under the Term-Loan Facility at that date will be payable over the succeeding
four years; principal will be payable quarterly based on a four-year
straight-line amortization. The Company's borrowings under the Revolving
Facility bear interest at a variable annual rate equal to, at the Company's
discretion, either the prime rate publicly announced by Wells Fargo Bank or the
London InterBank Offered Rate (LIBOR) plus 0.75%. The Company's borrowings under
<PAGE>
the Term-Loan Facility bear interest at a variable annual rate equal to, at the
Company's discretion, either the prime rate publicly announced by Wells Fargo
Bank plus 0.25% or LIBOR plus 1.75%. Interest is generally payable monthly,
except on LIBOR-rate borrowings; interest on LIBOR-rate borrowings will be
payable every 30, 60, or 90 days, depending on the period selected by the
Company. Under the Credit Agreement, the Company must also pay a commitment fee
equal to 0.2% of the unused portion of the Revolving Facility and 0.45% of the
unused portion of the Term-Loan Facility. The Credit Agreement also provides for
the Company's prepayment to the Lenders of certain amounts due under the
Term-Loan Facility upon certain events, including (i) the sale of assets from
which the Company has received net proceeds of at least $5 million during a
fiscal year, (ii) the Company's issuance of equity securities, and (iii) the
Company's having excess cash flow, as defined in the Credit Agreement, for a
fiscal year.
The short-term availability of the credit facilities under the Credit Agreement
permitted the Company to obtain a lower interest rate and other terms more
favorable than longer-term facilities, and the Company expects those facilities
to be renewed at the expiration of their currently effective period. There can
be no assurance, however, that the anticipated renewal will be effected. If such
renewal is not effected, the Company will have to obtain financing from other
sources, and that financing might be on terms less favorable to the Company than
those set forth in the Credit Agreement. The Company believes that other sources
of financing would be available to it if necessary; however, if the Company were
unable to obtain financing from one or more other sources, the Company's
liquidity and operations would be materially and adversely affected.
The Credit Agreement may be terminated before the stated expiration or maturity
dates of the Revolving Facility and the Term-Loan Facility - requiring all
unpaid principal and accrued interest to be paid to the Lenders - upon any Event
of Default as defined in the Credit Agreement. The Events of Default include:
(a) nonpayment of amounts due to the Lenders under the Credit Agreement, (b)
failure to observe or perform covenants set forth in the Credit Agreement that
are not cured, (c) a change in control of the Company, and (d) an event or
circumstance that has a material adverse effect on the Company's business,
operations, financial condition, or prospects.
The Company is subject to various restrictive covenants stated in the Credit
Agreement. These covenants, which are typical of those found in loan agreements
of that kind, include restrictions on the incurrence of indebtedness from other
sources, restrictions on advances to or investments in other persons or
entities, restrictions on significant acquisitions, restrictions on the payment
of dividends to shareholders or the repurchase of shares, and the requirement
that various financial ratios be maintained. The Company has received the
consent of the Lenders to implement the stock repurchase program described below
under "- Stock Repurchase Program."
The Company's payment and performance of its obligations under the Credit
Agreement and ancillary documents are secured by liens on all its assets. The
collateral arrangements are subject to the Amended and Restated Collateral Trust
Agreement dated as of July 31, 1998 (the "Amended Collateral Trust Agreement")
that was signed with the Credit Agreement. The Amended Collateral Trust
Agreement amended and superseded the Original Collateral Trust Agreement. See
"Business - Arrangement Regarding Secured Notes." The Amended Collateral Trust
Agreement created a collateral trust, with Wilmington Trust Company as trustee,
to secure the Company's obligations under the Credit Agreement and to the
Company's two other secured lenders, Principal and Travelers Express. The
Amended Collateral Trust Agreement includes agreements regarding the priority of
distributions to the secured lenders upon foreclosure and liquidation of the
collateral subject thereto and certain other intercreditor arrangements.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into three interest-rate swap agreements with
Bank of America. Those agreements effectively converted a portion of the
Company's floating-rate interest obligations to fixed-rate interest obligations.
With respect to the revolving line-of-credit facility, the first notional amount
is $33 million for a two-year period that began January 4, 1999, and the second
notional amount is $10 million for a sixteen-month period that began September
3, 1999. The third notional amount under the term-loan facility is currently
$9.0 million, with decreases in calendar year 2000. The notional amounts were
determined based on the Company's minimum projected borrowings during calendar
years 1999 and 2000. The fixed rate applicable to the notional amount of $33
million under the revolving line-of-credit facility was 5.14% for calendar year
1999 and is 5.23% for calendar year 2000. The fixed rate applicable to the
notional amount of $10 million under the revolving line-of-credit facility is
6.00% for calendar year 1999 and for calendar year 2000. The fixed rate
applicable to the notional amount of $9.0 million under the term-loan facility
was 6.23% for calendar year 1999 and is 6.38% for calendar year 2000.
<PAGE>
Stock Repurchase Program
In August 1999, the Company's Board of Directors authorized the repurchase from
time to time of up to approximately $4 million of the Company's Common Stock in
the open market or in negotiated transactions. In August 2000, the Company's
Board of Directors authorized the repurchase of an additional $1 million of the
Company's Common Stock. This stock repurchase program will remain in effect
unless discontinued by the Board of Directors. As of June 30, 2000, the Company
had repurchased 181,400 shares at an average price of $13.25 per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," for its
fiscal year ending June 30, 1999. This standard requires the Company to report
financial and descriptive information about its reportable operating segments.
The Company considers its franchise operations to be a reportable operating
segment and has included appropriate disclosures in its notes to the financial
statements for the years ended June 30, 2000 and 1999.
As required, effective July 1, 1999, the Company adopted the new accounting
standard, AICPA Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that the previously capitalized start-up costs to be
recognized as a cumulative effect of change in accounting principle and expensed
fully in the quarter. This resulted in a cumulative effect on net income of $0.6
million net of an income tax benefit of $0.4 million.
The Company is also required to adopt Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," by its first quarter ending September 30, 2000. This standard
requires the Company to record the fair value of its interest-rate swap as an
asset or liability in the consolidated balance sheet. Changes in the fair value
of the interest-rate swap will be reported as a component of shareholders'
equity in the consolidated balance sheet. The fair value of the Company's
existing interest-rate swap is $0.6 million as of June 30, 2000.
OPERATING TRENDS
SEASONALITY
The Company's business is seasonal to the extent of the impact of cashing tax
refund checks. The impact of these services is in the third and fourth quarters
of the Company's fiscal year.
IMPACT OF INFLATION
Management believes that the Company's results of operations are not dependent
upon the levels of inflation.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Report contains, and from time to time the Company or certain of its
representatives may make, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
identified by the use of words such as "anticipate," "expect," "estimate,"
"believe," "intend," and terms with similar meanings. Although the Company
believes that the current views and expectations reflected in these
forward-looking statements are reasonable, those views and expectations, and the
related statements, are inherently subject to risks, uncertainties, and other
factors, many of which are not under the Company's control and may not even be
predictable. Those risks, uncertainties, and other factors could cause the
actual results to differ materially from these in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not limited
to, many of the matters described in this Report: the Company's relationships
with Travelers Express and its affiliates, with Goleta National Bank, and with
the Lenders; governmental regulation of check-cashing, short-term consumer
lending, and related financial services businesses; theft and employee errors;
the availability of suitable locations, acquisition opportunities, adequate
financing, and experienced management employees to implement the Company's
growth strategy; the fragmentation of the check-cashing industry and competition
from various other sources, such as banks, savings and loans, short-term
consumer lenders, and other similar financial services entities, as well as
retail businesses that offer products and services offered by the Company; and
customer demand and response to products and services offered by the Company.
The Company expressly disclaims any obligations to release publicly any updates
or revisions to these forward-looking statements to reflect any change in its
views or expectations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, particularly including changes
in interest rates that might affect the costs of its financing under the Credit
Agreement. To mitigate the risks of changes in interest rates, the Company
utilizes derivative financial instruments. The Company does not use derivative
financial instruments for speculative or trading purposes.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into three interest-rate swap agreements with
Bank of America. Those agreements effectively converted a portion of the
Company's floating-rate interest obligations to fixed-rate interest obligations.
With respect to the revolving line-of-credit facility, the first notional amount
is $33 million for a two-year period that began January 4, 1999, and the second
notional amount is $10 million for a sixteen-month period that began September
3, 1999. The third notional amount under the term-loan facility is currently
$9.0 million, with decreases in calendar year 2000. The notional amounts were
determined based on the Company's minimum projected borrowings during calendar
years 1999 and 2000. The fixed rate applicable to the notional amount of $33
million under the revolving line-of-credit facility was 5.14% for calendar year
1999 and is 5.23% for calendar year 2000. The fixed rate applicable to the
notional amount of $10 million under the revolving line-of-credit facility was
6.00% for calendar year 1999 and is 6% for calendar year 2000. The fixed rate
applicable to the notional amount of $9.0 million under the term-loan facility
was 6.23% for calendar year 1999 and is 6.38% for calendar year 2000.
The fair value of the Company's existing interest-rate swaps is $0.6 million as
of June 30, 2000. Based on the average outstanding indebtedness in the previous
quarter, a 10% change in interest rates would have changed the Company's
interest expense by approximately $490,000 (pre-tax) for the year ended June 30,
2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) 1 for information required for this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
The information called for in Part III of this Form 10-K is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than
October 28, 2000 (120 days after the Company's fiscal year).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
1. Financial Statements.
- ------------------------
<S> <C>
Report of independent public accountants ............................................................ 38
Consolidated balance sheets as of June 30, 2000 and 1999............................................. 39
Consolidated statements of earnings for the years ended June 30, 2000, 1999, and 1998 ............... 40
Consolidated statements of shareholders' equity for the years ended June 30, 2000, 1999, and 1998.... 41
Consolidated statements of cash flows for the years ended June 30, 2000, 1999, and 1998 ............. 42
Notes to consolidated financial statements .......................................................... 43
</TABLE>
2. Financial Statement Schedules.
- ---------------------------------
All schedules have been omitted as inapplicable or because the
information required to be included therein is shown in the Financial Statements
or Notes to Consolidated Financial Statements.
3. Exhibits.
- ------------
Exhibit Number Exhibits
- -------------- --------
3.1 Restated Articles of Incorporation of the Company, as amended through
January 31, 1998. (Included as Exhibit 3.6 to the Company's Form 10-Q
as of December 31, 1997 (Commission File Number 0-20774) and
incorporated herein by reference.)
3.2 Amended and Restated Bylaws of the Company, as amended through January
31, 1998. (Included as Exhibit 3.7 to the Company's Form 10-Q as of
December 31, 1997 (Commission File Number 0-20774) and incorporated
herein by reference.)
3.3 Certificate of Amendment to the Company's Bylaws dated January 3, 2000.
(Included as Exhibit 3.3 to the Company's Form 10-Q as of December 31,
1999 (Commission File Number 0-20774) and incorporated herein by
reference.)
4.1 Form of Certificate representing shares of Registrant's Common Stock.
(Included as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-53286) (the "Registration Statement") and
incorporated herein by reference.)
10.1 Ace Cash Express, Inc. 1987 Stock Option Plan, as amended (including
form of Incentive Stock Option Agreement). (Included as Exhibit 10.1 to
the Registration Statement and incorporated herein by reference.)#
10.2 1992 Master Agreement dated October 14, 1992 (the "Money Order
Agreement") between the Company and American Express Travel Related
Services Company, Inc. (the "Money Order Supplier"). (Confidential
treatment for a portion of this document has been granted by the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934) (Included as Exhibit 10.4 to the
Registration Statement and incorporated herein by reference.)
<PAGE>
10.3 Agreement Regarding Stock Pledges dated as of November 20, 1992,
between the Company and the shareholders pledging shares of Common
Stock to secure the performance of the Company's obligations under the
Money Order Agreement. (Included as Exhibit 10.7 to the Registration
Statement and incorporated herein by reference.)
10.4 Lease Agreement dated October 1, 1987, between the Company and Greenway
Tower Joint Venture, as amended by First Amendment to Lease Agreement
dated April 29, 1988, Second Amendment to Lease Agreement dated August
24, 1988, Third Amendment to Lease Agreement dated December 29, 1988
and Fourth Amendment to Lease Agreement dated January 29, 1991.
(Included as Exhibit 10.8 to the Registration Statement and
incorporated herein by reference.)
10.5 First Amendment to the Money Order Agreement dated December 1,1992,
between the Company and the Money Order Supplier. (Included as Exhibit
10.9 to the Registration Statement and incorporated herein by
reference.)
10.6 Agreement for Purchase and Sale of Stock Assets dated January 2, 1992,
between T.J. Martin ("Martin") and R.C. Hemmig ("Hemmig"). (Included as
Exhibit 10.10 to the Registration Statement and incorporated herein by
reference.)
10.7 Option to Repurchase, dated January 2, 1992, in favor of Hemmig.
(Included as Exhibit 10.12 to the Registration Statement and
incorporated herein by reference.)
10.8 Irrevocable Proxy of Martin dated January 2, 1992 in favor of Hemmig.
(Included as Exhibit 10.13 to the Registration Statement and
incorporated by reference herein.)
10.9 Letter Agreement between First Data Corporation and the Company dated
December 6, 1993, amending the First Amendment to the Money Order
Agreement. (Included as Exhibit 10.9 to the Company's Form 10-K as of
June 30, 1994 (Commission File Number 0-20774) and incorporated herein
by reference.)
10.10 Fifth Amendment to Lease Agreement dated June 13, 1994, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.10 to
the Company's Form 10-K as of June 30, 1994 (Commission File Number
0-20774) and incorporated herein by reference.)
10.11 Asset Purchase Agreement dated November 22, 1993, among the Company,
sole proprietor, limited partnership, and general partnerships that
conduct business under the name "Mr. Money Check Cashers" (the
"Sellers"), general partners of the partnership sellers (the "General
Partners"), and an individual agent for the Sellers and the General
Partners (the "Agent"). (Included as Exhibit 2.1 in the Company's Form
8-K filed on December 7, 1993 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.12 Food Stamp Sub-Contract Agreement dated November 22, 1993, between the
Company and the Agent. (Included as Exhibit 2.2 to the Company's Form
8-K filed on December 7,1993 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.13 Ace Cash Express, Inc. 401(k) Profit Sharing Plan, adopted July 1,
1994. (Included as Exhibit 10.13 to the Company's Form 10-K as of June
30, 1994 (Commission File Number 0-20774) and incorporated herein by
reference.)#
10.14 Ace Cash Express, Inc. Deferred Compensation Plan, adopted July 1,
1994. (Included as Exhibit 10.14 to the Company's Form 10-K as of June
30, 1994 (Commission File Number 0-20774) and incorporated herein by
reference.)#
10.15 Asset Purchase Agreement dated June 27, 1995, among the Company and
Quick Cash, Inc., Q.C. & G. Financial, Inc., David Christenholz and
Gloria Guerra-Leyva. (Included as Exhibit 2.1 to the Company's Form 8-K
filed on July 11, 1995 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.16 Escrow Agreement dated June 27, 1995, among the Company, Quick Cash,
Inc., Q.C. & G. Financial, Inc., David Christenholz, Gloria
Guerra-Leyva, and Bank One, Arizona, NA, as escrow agent. (Included as
Exhibit 2.2 to the Company's Form 8-K filed July 11, 1995 (Commission
File Number 0-20774) and incorporated herein by reference.)
<PAGE>
10.17 Promissory Note dated June 27, 1995, of the Registrant in favor of the
Money Order Supplier. (Included as Exhibit 2.3 to Form 8-K filed July
11, 1995 and incorporated herein by reference.)
10.18 Second Amendment to the Money Order Agreement dated September 8, 1995,
between the Company and the Money Order Supplier. (Included as Exhibit
10.18 to the Company's Form 10-K as of June 30, 1995 (Commission File
Number 0-20774) and incorporated herein by reference.)
10.19 Ace Cash Express, Inc. Non-Employee Directors Stock Option Plan dated
March 27, 1995. (Included as Exhibit 10.19 to the Company's Form 10-K
as June 30, 1995 (Commission File Number 0-20774) and incorporated
herein by reference.)
10.20 Letter Agreement dated July 13, 1995, between First Data Corporation
and the Company amending the Money Order Agreement. (Included as
Exhibit 10.20 to the Company's Form 10-K as of June 30, 1995
(Commission File Number 0-20774) and incorporated herein by reference.)
10.21 Letter Agreement dated February 1, 1996, between the Company and the
Money Order Supplier amending the Money Order Agreement. (Included as
Exhibit 10.21 to the Company's Form 10-Q as of December 31, 1995
(Commission File Number 0-20774) and incorporated herein by reference.)
10.22 1996 MoneyGram Master Agreement dated February 1, 1996, between the
Company and the Money Order Supplier (the "MoneyGram Agreement").
(Included as Exhibit 10.22 to the Company's Form 10-Q as of December
31, 1995 (Commission File Number 0-20774) and incorporated herein by
reference.)
10.23 Agreement and Plan of Merger dated October 13, 1995, among the Company,
Check Express, Inc., and Ace Acquisition Corporation. (Included as
Exhibit 2.1 to the Company's Form 8-K filed on February 16,1996
(Commission File Number 0-20774) and incorporated herein by reference.)
10.24 Amendment (to Agreement and Plan of Merger) dated December 20, 1995,
among the Company, Check Express, Inc., and Ace Acquisition
Corporation. (Included as Exhibit 2.2 to the Company's Form 8-K filed
on February 16, 1996 (Commission File Number 0-20774) and incorporated
herein by reference.)
10.25 Sixth Amendment to Lease Agreement dated February 1, 1996, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.25 to
the Company's Form 10-Q as of March 31, 1996 (Commission File Number
0-20774) and incorporated herein by reference.)
10.26 1996-A Amendment to the MoneyGram Agreement dated March 21, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.26 to the Company's Form 10-K as of June 30, 1996 (Commission File
Number 0-20774) and incorporated herein by reference.)
10.27 1996-B Amendment to the MoneyGram Agreement dated June 27, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.27 to the Company's Form 10-K as of June 30, 1996 (Commission file
Number 0-20774) and incorporated herein by reference.)
10.28 Note Purchase Agreement dated November 15, 1996, between the Company
and Principal Life Insurance Company. (Included as Exhibit 10.28 to the
Company's Form 10-Q as of December 31, 1996 (Commission File Number
0-20774) and incorporated herein by reference.)
10.29 Form of 9.03% Senior Secured Notes due November 15, 2003. (Included as
Exhibit 10.29 to the Company's Form 10-Q as of December 31, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)
10.30 Collateral Trust Agreement dated November 15, 1996, among the Company
and the Money Order Supplier, Principal Life Insurance Company, and
Wilmington Trust Company. (Included as Exhibit 10.30 to the Company's
Form 10-Q as of December 31, 1996 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.31 Assignment of Deposit Accounts and Security Agreement dated November
15, 1996, between the Company and Wilmington Trust Company. (Included
as Exhibit 10.31 to the Company's Form 10-Q as of December 31, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)
10.32 Third Amendment to the Money Order Agreement dated November 15, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.32 to the Company's Form 10-Q as of December 31, 1996 (Commission
File Number 0-20774) and incorporated herein by reference.)
<PAGE>
10.33 Amendment No.1 to the Ace Cash Express 401K Profit Sharing Plan
effective January 1, 1998. (Included as Exhibit 10.33 to the Company's
Form 10-Q as of March 31, 1998 (Commission File Number 0-20774) and
incorporated herein by reference.)#
10.34 Amendment No. 1 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.34 to the Company's Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein
by reference.) #
10.35 Amendment No. 2 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.35 to the Company's Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein
by reference.) #
10.36 Ace Cash Express, Inc. 1997 Stock Option Plan. (Included as Exhibit A
to the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders (Commission File No. 0-20774) and incorporated herein by
reference.)#
10.37 Amendment No. 1 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.37 to the Company's Form 10-K as of June 30,
1998 (Commission File No. 0-20774) and incorporated herein by
reference.) #
10.38 Form of Change-in-Control Executive Severance Agreement between the
Company and each of its three executive officers. (Included as Exhibit
10.38 to the Company's Form 10-K as of June 30, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.) #
10.39 Money Order Agreement dated as of April 16, 1998, but effective as of
December 16, 1998, between the Company and Travelers Express Company,
Inc. (Confidential treatment for a portion of this document has been
granted by the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934). (Included as Exhibit
10.39 to the Company's Form 10-K as of June 30, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.)
10.40 Credit Agreement dated as of July 31, 1998, but effective as of
December 16, 1998, among the Company, Wells Fargo Bank (Texas),
National Association, as agent (the "Credit Agent"), and the lenders
named therein, with Exhibits A and B thereto and Schedules 2.01(a) and
2.01(b) thereto. (Included as Exhibit 10.40 to the Company's Form 10-K
as of June 30, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)
10.41 Amended and Restated Collateral Trust Agreement dated as of July 31,
1998, but effective as of December 16, 1998, among the Company, the
Credit Agent, Travelers Express Company, Inc., Principal Life Insurance
Company (formerly known as Principal Mutual Life Insurance Company),
and Wilmington Trust Company. (Included as Exhibit 10.41 to the
Company's Form 10-K as of June 30, 1998 (Commission File No. 0-20774)
and incorporated herein by reference.)
10.42 Amended and Restated Assignment of Deposit Accounts and Security
Agreement dated as of July 31, 1998, but effective as of December 16,
1998, between the Company and Wilmington Trust Company. (Included as
Exhibit 10.42 to the Company's Form 10-K as of June 30, 1998
(Commission File No. 0-20774) and incorporated herein by reference.)
10.43 First Amendment to Credit Agreement dated as of December 16, 1998,
among the Company, the Credit Agent, and the lenders named therein,
with Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.43
to the Company's Form 8-K filed on December 23, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.)
10.44 Amendment No. 3 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.44 to the Company's Form 10-Q as
of December 31, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)#
10.45 Amendment No. 2 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.45 to the Company's Form 10-Q as of December
31, 1999 (Commission File Number 0-20774) and incorporated herein by
reference.)#
10.46 Second Amendment to Credit Agreement dated as of December 15, 1999,
among the Company, the Credit Agent , and the lenders named therein,
with Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.46
to the Company's Form 10-Q as of December 31, 1999 (Commission File
Number 0-20774) and incorporated herein by reference.)
<PAGE>
10.47 Master Loan Agency Agreement dated as of August 11, 1999, between the
Company and Goleta National Bank. (Confidential treatment for a portion
of this document has been granted by the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.)*
10.48 Money Transfer Agreement dated as of June 30, 2000, among the Company,
Travelers Express Company, Inc., and MoneyGram Payment Systems, Inc.
(Confidential treatment for a portion of this document has been granted
by the Securities and Exchange Commission pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934.)*
10.49 Change-in-Control Executive Severance Agreement dated as of August 17,
2000, between the Company and Debra A. Bradford.*#
27 Financial Data Schedule (EDGAR version only)*
- ------
* Filed herewith
# Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
None.
<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 its
behalf by the undersigned, thereunto duly authorized.
ACE CASH EXPRESS, INC.
By: /s/ DEBRA A. BRADFORD
-----------------------------
Debra A. Bradford
Senior Vice President
and Chief Financial Officer
Date: September 27, 2000
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 on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ RAYMOND C. HEMMIG Chairman of the Board, Director
- ---------------------
Raymond C. Hemmig
/s/ DONALD H. NEUSTADT Chief Executive Officer,
- ---------------------- Director (Principal Executive Officer)
Donald H. Neustadt
/s/ JAY B. SHIPOWITZ President and Chief Operating Officer
- --------------------
Jay B. Shipowitz Director
/s/ DEBRA A. BRADFORD Senior Vice President and Chief Financial Officer
- --------------------- Treasurer and Secretary (Principal Financial and
Debra A. Bradford Accounting Officer)
/s/ HOWARD W. DAVIS Director
- -------------------
Howard W. Davis
/s/ MARSHALL B. PAYNE Director
- ---------------------
Marshall B. Payne
/s/ EDWARD W. ROSE III Director
- ----------------------
Edward W. Rose III
/s/ CHARLES DANIEL YOST Director
- -----------------------
Charles Daniel Yost
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Ace Cash Express, Inc.:
We have audited the accompanying consolidated balance sheets of Ace Cash
Express, Inc. (a Texas corporation) and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ace Cash Express,
Inc. and subsidiaries as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States.
As explained in Note 1 to the consolidated financial statements, effective
July 1, 1999, the Company changed its method of accounting for costs of start-up
activities.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 9, 2000
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
JUNE 30, JUNE 30,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 105,577 $ 59,414
Accounts receivable, net 5,985 4,224
Loans receivable 18,695 5,543
Prepaid expenses and other current assets 2,069 1,701
Inventories 1,418 1,511
------------ ------------
Total Current Assets 133,744 72,393
------------ ------------
Noncurrent Assets
Property and equipment, net 36,915 30,372
Covenants not to compete, net 1,429 1,656
Excess of purchase price over fair value of assets acquired, net 45,929 36,690
Other assets 3,406 4,122
------------ ------------
Total Assets $ 221,423 $ 145,233
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Revolving advances $ 95,000 $ 40,100
Accounts payable, accrued liabilities, and other current 21,242 15,903
liabilities
Money order principal payable 10,487 5,340
Current portion of senior secured notes payable 4,180 4,226
Term advances 3,469 1,969
Notes payable 898 330
------------ ------------
Total Current Liabilities 135,276 67,868
------------ ------------
Noncurrent Liabilities
Long-term portion of senior secured notes payable 12,000 16,000
Long-term term advances 15,031 8,531
Long-term notes payable 438 -
Other liabilities 3,519 4,560
------------ ------------
Total Liabilities 166,264 96,959
------------ ------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1 par value, 1,000,000 shares authorized, none
issued and outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized,
9,984,563 and 10,055,528 shares issued and outstanding,
respectively 100 101
Additional paid-in capital 22,715 21,691
Retained earnings 34,745 26,482
Treasury stock, at cost, 181,400 and 0 shares, respectively (2,401) -
------------ ------------
Total Shareholders' Equity 55,159 48,274
------------ ------------
Total Liabilities and Shareholders' Equity $ 221,423 $ 145,233
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share and per share amounts)
YEAR ENDED JUNE 30,
----------------------------------------------
2000 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Revenues $140,636 $122,314 $100,194
Store expenses:
Salaries and benefits 38,639 32,435 27,975
Occupancy 21,507 18,381 15,204
Depreciation 5,429 4,728 4,083
Other 29,093 25,399 19,841
------------- ------------ ------------
Total store expenses 94,668 80,943 67,103
------------- ------------ ------------
Store gross margin 45,968 41,371 33,091
Region expenses 11,119 9,369 8,353
Headquarters expenses 8,247 7,673 7,198
Franchise expenses 1,063 1,288 965
Other depreciation and amortization 3,798 4,236 3,502
Interest expense, net 6,123 4,476 2,437
Other expenses 955 689 49
------------- ------------ ------------
Income before income taxes and cumulative
effect of accounting change 14,663 13,640 10,587
Income taxes 5,797 5,390 4,185
------------- ------------ ------------
Income before cumulative effect of
accounting change 8,866 8,250 6,402
Cumulative effect of accounting change, net
of income tax benefit of $402 (603) - -
------------- ------------ ------------
Net income $ 8,263 $ 8,250 $ 6,402
============= ============ ============
BASIC EARNINGS PER SHARE
Before cumulative effect of accounting change $ .88 $ .83 $ .66
Cumulative effect of accounting change (.06) - -
------------- ------------ ------------
Basic earnings per share $ .82 $ .83 $ .66
============= ============ ============
Weighted average number of common
shares outstanding - basic EPS 10,067 9,989 9,759
============= ============ ============
DILUTED EARNINGS PER SHARE
Before cumulative effect of accounting change $ .86 $ .80 $ .63
Cumulative effect of accounting change (.06) - -
------------- ------------ ------------
Diluted earnings per share $ .80 $ .80 $ .63
============= ============ ============
Weighted average number of common
and dilutive shares outstanding - diluted EPS 10,361 10,283 10,215
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except shares)
COMMON STOCK TREASURY STOCK
-------------------------- -----------------------
ADDITIONAL TOTAL
PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------------ ---------- ----------- ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997 9,668,612 $ 96 $19,130 $11,830 - $ - $31,056
Stock options exercised 213,549 3 1,490 - - - 1,493
Net income - - - 6,402 - - 6,402
------------ ---------- ----------- ---------- -------- ---------- ---------------
BALANCE, JUNE 30, 1998 9,882,161 99 20,620 18,232 - - 38,951
Stock options exercised 173,367 2 1,071 - - - 1,073
Net income - - - 8,250 - - 8,250
------------ ---------- ----------- ---------- -------- ---------- ---------------
BALANCE, JUNE 30, 1999 10,055,528 21,691 26,482 - -
101 48,274
Stock options exercised 110,435 1 1,024 - - - 1,025
Shares repurchased, at
cost (181,400) (2) - - 181,400 (2,401) (2,403)
Net income - - - 8,263 - - 8,263
------------ ---------- ----------- ---------- -------- ---------- ---------------
BALANCE, JUNE 30, 2000 9,984,563 $100 $22,715 $34,745 181,400 ($2,401) $55,159
============ ========== =========== ========== ======== ========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED JUNE 30,
------------- ------------- ------------
2000 1999 1998
------------- ------------- ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 8,263 $ 8,250 $ 6,402
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,227 8,970 7,592
Cumulative effect of accounting change 1,005 - -
Deferred tax benefit 322 218 (749)
Deferred revenue (3,485) (2,202) (1,534)
Changes in assets and liabilities:
Accounts receivable, net (1,761) (105) (846)
Loans receivable (13,152) (805) (552)
Prepaid expenses (824) (804) 8
Inventories 93 938 (397)
Other assets (321) (1,297) 1,317
Accounts payable and other liabilities 7,361 3,926 2,969
------------- ------------- ------------
Net cash provided by operating activities 6,728 17,089 14,210
Cash flows from investing activities:
Purchases of property and equipment, net (12,255) (10,089) (5,742)
Cost of net assets acquired (11,359) (8,378) (4,708)
Investment in ePacific (1,000) - -
------------- ------------- ------------
Net cash used by investing activities (24,614) (18,467) (10,450)
Cash flows from financing activities:
Net borrowings from (repayments to) money order supplier 5,147 (3,978) 971
Net borrowings from revolving line-of-credit 54,900 - -
Term advances from syndicate of banks 8,000 10,500 708
Payment of term advances from previous money order supplier - (7,073) (1,844)
Net borrowings (repayments) of acquisition-related notes 1,006 102 (414)
payable
Repayments under senior secured notes payable (4,046) - -
Proceeds from stock options exercised 1,025 1,073 1,493
Purchase of treasury stock (1,983) - -
------------- ------------- ------------
Net cash provided by financing activities 64,049 624 914
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 46,163 (754) 4,674
Cash and cash equivalents, beginning of year 59,414 60,168 55,494
------------- ------------- ------------
Cash and cash equivalents, end of year $105,577 $59,414 $60,168
============= ============= ============
Supplemental disclosures of cash flows information:
Interest paid $ 7,373 $ 5,202 $ 2,663
Income taxes paid 5,420 4,395 3,508
Supplemental schedule of non-cash investing activities:
Liabilities incurred in connection with acquired stores $ 2,097 $ 433 $ 439
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
Ace Cash Express, Inc. (the "Company") was incorporated under the laws of the
state of Texas in March 1982. The Company operates in one line of business with
two segments (Company-owned and franchised operations) and provides retail
financial services, such as check cashing, small consumer loans, bill-payments,
money orders, wire transfers, and other transactional services to customers for
a fee. On June 30, 2000, the Company owned and operated 915 stores in 26 states
and the District of Columbia, and had 157 franchised stores.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Operating Segments
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
issued effective for fiscal years ending after December 15, 1998. The Company's
reportable segments are strategic business units that differentiate between
company-owned and franchised stores. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.
Segment information for the years ended June 30, 2000, 1999, and 1998 was as
follows:
<TABLE>
<CAPTION>
COMPANY-OWNED FRANCHISED TOTAL
------------- ---------- -----
(in thousands, except store amounts)
<S> <C> <C> <C>
YEAR ENDED JUNE 30, 2000:
-------------------------
Revenue $138,099 $2,537 $140,636
Operating income 24,065 1,474 25,539
Total assets 217,456 3,967 221,423
Number of stores 915 157 1,072
YEAR ENDED JUNE 30, 1999:
-------------------------
Revenue $120,197 $2,117 $122,314
Operating income 22,212 829 23,041
Total assets 142,451 2,782 145,233
Number of stores 798 120 918
YEAR ENDED JUNE 30, 1998:
-------------------------
Revenue $98,529 $1,665 $100,194
Operating income 15,875 700 16,575
Total assets 132,799 1,836 134,635
Number of stores 683 89 772
</TABLE>
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investment securities purchased with an original maturity of three months
or less to be cash equivalents.
Accounts Receivable, Net
Accounts receivable on the consolidated balance sheets as of June 30, 2000 and
1999 were $6.0 million and $4.2 million, respectively, and include the MoneyGram
receivable and other notes receivable, net of an allowance for doubtful
accounts.
Loans Receivable
Loans receivable on the consolidated balance sheets as of June 30, 2000 and 1999
were $18.7 million and $5.5 million, respectively. Loans receivable includes
receivables for the Company's payday loan product and the Company's interest in
the Bank Loans made by Goleta National Bank. Loan losses for the fiscal years
ended June 30, 2000 and 1999 were $4.2 million and $2.8 million, respectively.
The Company accounts for the full amount of loans not paid on the due date as a
loan loss in that period.
Through the "payday loan" product, the Company provides the customer cash in
exchange for that customer's check (in the amount of that cash plus a service
fee) with an agreement to defer the presentment or deposit of that check until
the customer's next payday, usually a period of two to four weeks. As of June
30, 2000 and 1999, the receivable for payday loans was approximately $0.8
million and $5.5 million, respectively.
In August 1999, the Company entered into a Master Loan Agency Agreement (the
"Goleta Agreement") with Goleta National Bank, a national bank located in
Goleta, California ("Goleta"). Under the Goleta Agreement, the parties agreed to
develop and implement an arrangement under which short-term loans made by Goleta
would be offered at the Company's owned locations. Currently, a Bank Loan may be
up to $500 and must be repaid or renewed in 14 days. Under the Goleta Agreement,
the Company purchases from Goleta a participation representing a material and
significant portion of each Bank Loan made on a previous day. An interest rate
of 15% per $100 of Bank Loan is charged for each 14 day loan. As of June 30,
2000, the receivable for Bank Loans was $17.9 million.
Inventories
Inventories consist of unsold lottery tickets and other inventory. Lottery
tickets are stated at purchase price and accounted for using the specific
identification method. Other inventories are stated at cost and utilize the
first-in, first-out method. No provision for obsolescence is considered
necessary.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
2000 1999
--------------- --------------
(in thousands)
<S> <C> <C>
Lottery tickets inventory $1,061 $1,211
Other inventory 357 300
--------------- --------------
$1,418 $1,511
=============== ==============
</TABLE>
<PAGE>
Property and Equipment
Depreciation and amortization of property and equipment is based on the lesser
of the estimated useful lives of the respective assets or lease terms. The
useful lives of property and equipment by class are as follows: store equipment,
furniture and fixtures, four to ten years; leasehold improvements, the lesser of
ten years or the term of the lease; signs, eight years; and other property and
equipment, five to ten years. Depreciation is calculated on a straight-line
basis.
Intangible Assets
The excess of the purchase price over fair value of net assets acquired is being
amortized on the straight-line method over 30 years. Covenants not to compete
are amortized over the applicable period of the contract, generally ranging from
two to five years. Company management annually evaluates the useful lives of
intangible assets, their carrying values, and their expected benefits in
relation to the results of operations. The unamortized cost of impaired
intangible assets is charged to expense when impairment occurs.
As required, the Company adopted a new accounting standard, AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities," effective
July 1, 1999. This standard requires that previously capitalized start-up costs
be recognized as a cumulative effect of change in accounting principle and
expensed fully in the quarter. Start-up costs, net of tax, of $0.6 million were
expensed in the first quarter ended September 30, 1999. On a pro forma basis,
the Company's net income would have been $8.9 million ($0.88 per share), $8.0
million ($0.80 per share) and $6.2 million ($0.64 per share) for the years ended
June 30, 2000, 1999 and 1998, respectively, if this accounting change had been
retroactively applied.
Store Expenses
The direct costs incurred in operating the stores have been classified as store
expenses and are deducted from total revenues to determine contribution
attributable to the stores. Store expenses include salary and benefit expense of
store employees, rent and other occupancy costs, depreciation of store property,
bank charges, armored and security costs, loan losses, net returned checks, cash
shortages, and other costs incurred by the stores.
Franchise Accounting
The Company includes franchise fees in revenues. Franchise fees include initial,
territory, and future optional store fees as well as continuing franchise fees
("royalty fees") and research and development fees. The Company offers both
nonexclusive and exclusive franchise arrangements.
Initial fees are recognized when the Company has provided substantially all of
its initial services in accordance with the franchise agreements. Generally,
this occurs when the related sites have been approved or identified and the
franchisee has completed the training required by the Company. Related direct
costs, such as sales commissions, are deferred until revenue is recognized.
Royalty fees are recognized as revenues as they are earned under the franchise
agreements. For the years ended June 30, 2000 and 1999, approximately $2.5
million and $2.1 million, respectively, of franchise revenue was recognized.
Cash payments received under franchise agreements prior to the completion of the
earnings process are deferred until the initial fees are recognized in
accordance with the preceding paragraph.
Income Taxes
The Company has implemented the provisions of SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 utilizes an asset and liability approach, and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
<PAGE>
In accordance with the provisions of SFAS No. 109, a valuation allowance should
be recognized, if it is more likely than not that some portion or all of a
deferred tax asset will not be realized. The Company recorded no valuation
allowance as of June 30, 2000 or 1999.
Returned Checks
The Company charges operations for potential losses on returned checks in the
period such checks are returned, since ultimate collection of these items is
uncertain. Recoveries on returned checks are credited in the period when the
recovery is received.
Software Development Costs
The Company capitalizes the external direct costs of materials and services
consumed in developing or obtaining internal-use computer software and payroll
and payroll-related costs for employees who are directly associated with and who
devote time to the internal-use computer software project, to the extent of the
time spent directly on the project. For the years ended June 30, 2000 and 1999,
the Company capitalized $1.4 million and $0.5 million, respectively.
Earnings Per Share
Earnings per share have been computed based on the weighted average number of
common and dilutive shares outstanding for the respective periods. Dilutive
shares include employee and director stock options.
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share are
computed by dividing net income by the weighted average number of common shares
outstanding, after adjusting for the dilutive effect of stock options. The
following table presents the reconciliation of the numerator and denominator
used in the calculation of basic and diluted earnings per share, as required by
SFAS No. 128, "Earnings Per Share."
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
2000 1999 1998
---------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Income before cumulative effect of accounting
change (numerator) $8,866 $8,250 $6,402
========== ========== ==========
Reconciliation of denominator:
Weighted average number of common shares
outstanding - basic EPS 10,067 9,989 9,759
Effect of dilutive stock options 294 294 456
---------- ---------- ----------
Weighted average number of common and
dilutive shares outstanding - diluted EPS 10,361 10,283 10,215
========== ========== ==========
</TABLE>
Fair Value of Financial Instruments
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced sale or liquidation. The amounts reported in the
consolidated balance sheets for trade receivables, trade payables, notes
receivable, revolving advances, money order payable, and notes payable all
approximate fair value. The fair value of the interest-rate swap is $0.6
million.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
<PAGE>
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
2000 1999
--------------- --------------
(in thousands)
<S> <C> <C>
Property and equipment, at cost:
Store equipment, furniture and fixtures $32,046 $25,626
Leasehold improvements 22,795 17,548
Signs 5,606 5,121
Other 445 829
--------------- --------------
60,892 49,124
Less - accumulated depreciation and amortization (23,977) (18,752)
--------------- --------------
$36,915 $30,372
=============== ==============
</TABLE>
Depreciation expense was $6.4 million and $5.6 million in fiscal 2000 and 1999,
respectively.
3. ACQUISITIONS AND DISPOSITIONS
During the year ended June 30, 2000, the Company acquired the assets of 36
stores in eight separate purchases from third parties for approximately $11.4
million. During the year ended June 30, 1999, the Company acquired the assets of
35 stores in ten separate purchases from third parties for approximately $8.4
million. During the year ended June 30, 1998, the Company acquired the assets of
15 stores in six separate purchases from third parties for approximately $4.7
million.
As a condition of each purchase, the sellers agreed not to compete with the
Company for specified periods ranging from two to five years. All acquisitions
have been accounted for using the purchase method of accounting. Covenants not
to compete were valued at contractually agreed upon amounts which management
believes correspond to fair value. In connection with the above acquisitions, in
fiscal 2000, acquisition costs of $10.8 million were allocated to goodwill and
the remainder to other assets.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
2000 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Covenants not to compete, at cost $6,549 $5,864
Less - accumulated amortization (5,120) (4,208)
----------- -----------
$1,429 $1,656
=========== ===========
</TABLE>
The excess purchase price over fair value of net assets acquired is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
2000 1999
----------- -----------
(in thousands)
<S> <C> <C>
Excess of purchase price over fair value
of net assets $51,745 $40,995
Less - accumulated amortization (5,816) (4,305)
----------- -----------
$45,929 $36,690
=========== ===========
</TABLE>
4. FINANCING ARRANGEMENTS AND GUARANTEES
Senior Secured Notes Payable
The Company has outstanding $16 million of 9.03% Senior Secured Notes ("Notes")
issued to Principal Life Insurance Company (formerly known as Principal Mutual
Life Insurance Company) ("Principal") under a Note Purchase Agreement. The
original $20 million principal amount of the Notes is due in five equal annual
installments of $4 million each, which began November 15, 1999. Interest
payments are due semiannually, beginning May 15, 1997. The Notes include various
restrictive covenants. The Company is in compliance with these restrictive
covenants. There is $180,000 and $226,000 of accrued interest on these notes as
of June 30, 2000 and 1999, respectively.
The Notes are secured by a security interest in substantially all the assets of
the Company. The collateral arrangements are subject to the Amended and Restated
Collateral Trust Agreement dated as of July 31, 1998 (the "Amended Collateral
Trust Agreement") that was signed with the Credit Agreement. The Amended
Collateral Trust Agreement created a collateral trust, with Wilmington Trust
Company as trustee, to secure the Company's obligations under the Credit
Agreement and to the Company's two other secured lenders, Principal and
Travelers Express Company, Inc. The Amended Collateral Trust Agreement includes
agreements regarding the priority of distributions to the secured lenders upon
foreclosure and liquidation of the collateral subject thereto and certain other
intercreditor arrangements. The Company also executed an Amended and Restated
Assignment of Deposit Accounts and Security Agreement with Wilmington Trust
Company to grant the trustee a security interest in the same collateral that
secures the Company's obligations under the Credit Agreement.
Money Order Agreement
In April 1998, the Company signed a money order agreement with Travelers Express
Company, Inc. ("Travelers Express"), effective December 17, 1998. This agreement
replaced the previous money order agreement with the previous money order
supplier that was terminated as of December 16, 1998. Under this new five-year
agreement, the Company exclusively sells Travelers Express money orders, which
bear the Company's logo. The Company also signed a five-year agreement with
Travelers Express, effective in April 1998, to offer an electronic bill-payment
service to the Company's customers. In conjunction with these two agreements,
the Company received $3 million from Travelers Express in April 1998, $0.4
million per year for the fiscal years ended June 30, 2000 and 1999, and is
entitled to receive an additional $0.4 million per year for the next three
years. The $3 million payment was deferred and included in other liabilities in
the consolidated balance sheets. If the money order agreement is terminated
under certain circumstances before the expiration of its five-year term, the
Company will be obligated to repay a portion of the $3 million and the annual
amounts received from Travelers Express. The money order agreement with
Travelers Express (unlike the previous money order agreement) does not allow an
extended deferral of remittances of money order proceeds. The Company's payment
and other obligations to Travelers Express under the money order agreement are
secured by a subordinated lien on the Company's assets. The total $5 million
from Travelers Express is being amortized on a straight-line basis over the
five-year term of the agreements beginning January 1999.
Notes Payable
Notes payable, related to acquired stores, bear interest at 5%, and are due six
months after acquisition, with the exception of one non-interest-bearing note
with a balance of $700,000 which is payable in monthly installments of $20,000
until maturity on May 1, 2003. Interest was imputed on this note at an interest
rate of 5%. Notes payable were approximately $1.3 million and $0.3 million,
respectively, as of June 30, 2000 and 1999.
<PAGE>
Credit Facilities
In July 1998, the Company signed an agreement ("Credit Agreement") with a
syndicate of banks, led by Wells Fargo Bank (Texas), National Association, and
the credit facilities under the Credit Agreement were renewed in December 1999.
This Credit Agreement provides a senior secured credit facility of $165 million
of financing to the Company. The Credit Agreement contains a committed Revolving
Facility of $130 million, to be used for working capital and general corporate
purposes and a committed Term-Loan Facility of $35 million, to be used to fund
acquisitions and provide capital for internal expansion. Additionally, the
Company has obtained a $25 million uncommitted working capital line-of-credit,
for a total available working capital facility of $155 million. The Company is
subject to various restrictive covenants stated in the Credit Agreement. These
covenants, which are typical of those found in loan agreements of that kind,
include restrictions on the incurrence of indebtedness from other sources,
restrictions on advances to or investments in other persons or entities,
restrictions on significant acquisitions, restrictions on the payment of
dividends to shareholders or the repurchase of shares, and the requirement that
various financial ratios be maintained. The Revolving Facility has a one-year
term and is renewable annually.
The Term-Loan Facility has a one-year term with a four-year amortization
beginning after the expiration of the one-year term. Interest on the Revolving
Facility will bear interest at a rate per annum of either (at the Company's
discretion) the prime rate or LIBOR plus 0.75%. The Term-Loan Facility will bear
interest at a rate per annum either (at the Company's discretion) of the prime
rate plus 0.25% or LIBOR plus 1.75%. The LIBOR rate effective at June 30, 2000
was 6.69%. The Company will pay an unused commitment fee on the Revolving
Facility of 0.20% and the Term-Loan Facility of 0.45%. It is the Company's
expectation that the Credit Agreement will continue to be renewed annually.
Debt Maturity Schedule
Scheduled maturities of debt for the years following June 30, 2000, including
the senior secured notes payable, term advances, and notes payable are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
<S> <C>
2001........................................ $ 8,395
2002........................................ 8,865
2003........................................ 8,845
2004........................................ 8,625
2005 and thereafter ........................ 1,156
----------
$35,886
==========
</TABLE>
MoneyGram Guarantees and Incentive Bonuses
Existing MoneyGram Services. The Company is an agent for the receipt and
transmission of wire transfers of money through the MoneyGram network. The
Company's agency relationship is currently governed by the 1996 MoneyGram Master
Agreement, as amended (the "Existing MoneyGram Agreement"), with MoneyGram
Payment Systems, Inc. ("MPS"), an affiliate of Travelers Express. The Existing
MoneyGram Agreement expires by its terms on December 31, 2000. The Existing
MoneyGram Agreement provides for a revenue guarantee on acquired stores for the
conversion of wire transfer services to MoneyGram from another supplier. The
amount of the guarantee is equivalent to the annual aggregate wire transfer
revenue for the acquired stores derived from another supplier. The amount of
guarantee revenue, which represents the difference between the guarantee and the
Company's actual wire transfer service revenue from the acquired stores, for the
fiscal years ended June 30, 2000 and 1999, was approximately $2.0 million and
$1.0 million, respectively.
In June 1996, upon the extension of the Existing MoneyGram Agreement to its
current expiration date, the Company received a bonus of $2.0 million. The
Company also receives incentive bonuses under the Existing MoneyGram Agreement
for opening or acquiring new MoneyGram service locations. All of the bonuses
received by the Company under the Existing MoneyGram Agreement have been
<PAGE>
deferred and included in "Other liabilities" in the Company's consolidated
balance sheets and are amortized to revenues over the term of the Existing
MoneyGram Agreement. During the fiscal years ended June 30, 2000 and 1999, $2.6
million and $2.2 million, respectively, of this amortization was recorded and
included in money transfer services revenues. The deferred revenue balance as of
June 30, 2000 and 1999, was $3.7 million and $3.6 million, respectively.
New Money Transfer Agreement. In June 2000, the Company signed a Money Transfer
Agreement with Travelers Express and MPS to become effective upon the expiration
of the Existing MoneyGram Agreement (the "New MoneyGram Agreement"). During the
seven-year term of the New MoneyGram Agreement, the Company will exclusively
offer and sell MoneyGram wire transfer services. Under the New MoneyGram
Agreement (as under the Existing MoneyGram Agreement) the Company will earn
commissions for each transmission and receipt of money through the MoneyGram
network effected at a Company location; those commissions will equal varying
percentages of the fees charged by MPS to consumers for the MoneyGram services.
Under the New MoneyGram Agreement, the Company will also be entitled to receive
a total of approximately $12.5 million in incentive bonuses, payable in equal
monthly installments (without interest) over the seven-year term. The amount of
those monthly installments will be subject to reduction if the Company closes or
sells a significant number of those locations at which MoneyGram services are
offered at the beginning of the New MoneyGram Agreement. In addition, the
Company will be entitled to receive certain incentive payments regarding new
MoneyGram service locations that it opens or acquires during the term of the New
MoneyGram Agreement.
Derivative Instruments and Hedging Activities
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into three interest-rate swap agreements with
Bank of America. Those agreements effectively converted a portion of the
Company's floating-rate interest obligations to fixed-rate interest obligations.
With respect to the revolving line-of-credit facility, the first notional amount
is $33 million for a two-year period that began January 4, 1999, and the second
notional amount is $10 million for a sixteen-month period that began September
3, 1999. The third notional amount under the term-loan facility is currently
$9.0 million, with decreases in calendar year 2000. The notional amounts were
determined based on the Company's minimum projected borrowings during calendar
years 1999 and 2000. The fixed rate applicable to the notional amount of $33
million under the revolving line-of-credit facility was 5.14% for calendar year
1999 and is 5.23% for calendar year 2000. The fixed rate applicable to the
notional amount of $10 million under the revolving line-of-credit facility is
6.00% for calendar years 1999 and 2000. The fixed rate applicable to the
notional amount of $9.0 million under the term-loan facility was 6.23% for
calendar year 1999 and is 6.38% for calendar year 2000.
The Company is required to adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," by its first quarter ending September 30,
2000. This standard requires the Company to record the fair value of its
interest-rate swaps as an asset or liability in the consolidated balance sheet.
Changes in the fair value of the interest-rate swaps will be reported as a
component of shareholders' equity in the consolidated balance sheet. The fair
value of the Company's existing interest-rate swaps is $0.6 million as of
June 30, 2000.
5. ACCOUNTS PAYABLE, ACCRUED LIABILITIES, AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
2000 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Accounts payable - trade $ 8,761 $ 4,165
Accrued salaries 2,813 4,268
Deferred revenue - current 3,347 2,881
Money transfer payable 1,454 709
Other 4,867 3,880
-------------- --------------
$21,242 $15,903
============== ==============
</TABLE>
<PAGE>
6. OTHER LIABILITIES - NONCURRENT
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
2000 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Deferred revenue - noncurrent $ 3,459 $ 4,152
Unearned franchise fees and other 60 408
-------------- --------------
$ 3,519 $ 4,560
============== ==============
</TABLE>
7. SHAREHOLDERS' EQUITY
Stock Option Plans
Employee Stock Option Plans. The Company sponsors the 1997 Stock Option Plan (as
amended, the "Plan") for eligible employees. The original employee plan, the
1987 Stock Option Plan, expired during fiscal 1998 (though options granted
thereunder continue to be effective in accordance with their terms), and the
Company adopted the 1997 Stock Option Plan for eligible employees. There are
1,404,079 shares of Common Stock reserved for grants of options under these two
plans. Options are granted at the sole discretion of the Board of Directors,
upon the recommendation of its Compensation Committee, to selected employees of
the Company. Outstanding options are generally exercisable annually in
installments over a three-to-four year period from the date of grant at an
exercise price of not less than the fair market value at the grant date. The
options expire either at five or ten years after date of grant.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for stock-based compensation programs using the intrinsic value
method, and accordingly, stock options do not represent compensation expense in
the determination of net income in the consolidated statements of earnings.
Under the intrinsic value method, compensation expense is equal to the excess,
if any, of the quoted market price of the stock at the grant date over the
amount the employee must pay to acquire the stock. Had stock option compensation
expense been determined consistent with the fair value method of measuring
compensation expense under SFAS No. 123, the pro forma effect for fiscal 2000
and 1999 would have been a reduction in the Company's net income of
approximately $0.5 million and $0.3 million, respectively, and a reduction in
diluted earnings per share of approximately $.05 and $.03, respectively.
In determining the pro forma stock compensation expense, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
fiscal 2000 and 1999, respectively: expected volatility of 46% for both years;
expected lives of 4.3 and 4.6 years; risk-free interest rates of 6.1% and 4.7%;
and no expected dividends.
Exercise prices for employee options outstanding as of June 30, 2000, ranged
from $4.11 to 18.00 (fair market value on dates of grant). The following table
provides certain information with respect to stock options outstanding at June
30, 2000:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
REMAINING
RANGE OF EXERCISE PRICES STOCK OPTIONS WEIGHTED-AVERAGE CONTRACTUAL
OUTSTANDING EXERCISE PRICE LIFE
--------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Under $5.40 35,127 $ 4.19 0.4
$5.41 - $7.20 118,020 6.91 1.3
$7.21 - $9.00 48,100 7.37 1.8
$9.01 - $10.80 0 0.0 0.0
$10.81 - $12.60 180,307 12.02 6.9
$12.61 - $14.40 430,006 13.57 8.5
$14.41 - $16.20 74,250 14.92 9.1
$16.21 - $18.00 167,500 17.02 9.5
-------------
1,053,310 $12.58 7.0
=============
</TABLE>
<PAGE>
The following table provides certain information with respect to employee stock
options exercisable at June 30, 2000:
<TABLE>
<CAPTION>
STOCK WEIGHTED-
OPTIONS AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
--------------------------------- -------------- -----------------
<S> <C> <C>
Under $5.40 35,127 $4.19
$5.41 - $7.20 118,020 6.91
$7.21 - $9.00 48,100 7.37
$9.01 - $10.80 0 0.0
$10.81 - $12.60 87,478 11.98
$12.61 - $14.40 50,738 13.33
$14.41 - $16.20 10,311 14.59
$16.21 - $18.00 0 0.0
--------------
349,774 $9.08
==============
</TABLE>
The fair value of options granted during the years ended June 30, 2000 and 1999,
calculated using the Black-Scholes option pricing model, was approximately $6.87
per share and $6.06 per share, respectively.
The following table summarizes stock option activity under the two employees'
stock option plans:
<TABLE>
<CAPTION>
AVAILABLE FOR WEIGHTED
RESERVED OUTSTANDING GRANT AVERAGE PRICE
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares at June 30, 1997 1,194,501 749,936 444,565 $ 5.40
Expiration of 1987 stock option plan (504,090) - (504,090) -
1997 stock option plan 900,000 - 900,000 -
Exercised (195,549) (195,549) - 4.88
Canceled - (85,425) 85,425 7.14
Granted - 248,707 (248,707) 12.29
-------------- -------------- ---------------
Shares at June 30, 1998 1,394,862 717,669 677,193 7.73
Exercised (173,367) (173,367) - 4.54
Canceled (17,206) (78,419) 61,213 11.68
Granted - 331,105 (331,105) 13.49
-------------- -------------- ---------------
Shares at June 30, 1999 1,204,289 796,988 407,301 10.42
Increase in shares reserved for options 315,000 - 315,000 -
Exercised (110,435) (110,435) - 6.65
Canceled (4,775) (102,729) 97,954 13.46
Granted - 469,486 (469,486) 15.07
-------------- -------------- ---------------
Shares at June 30, 2000 1,404,079 1,053,310 350,769 $12.58
============== ============== ===============
</TABLE>
Non-employee Director Stock Option Plan. In 1995, the Board of Directors and the
shareholders of the Company approved the adoption of a nonqualified non-employee
director stock option plan. The purpose of this plan is to permit the Company to
grant options to the Company's outside directors as part of their compensation.
The plan originally had 135,000 shares reserved for issuance and in November
1998, an amendment was approved to increase the number of shares to 260,000.
Options as to 136,750 shares have been granted under the plan at a weighted
average exercise price of $9.53 per share. During the fiscal year ended June 30,
2000, no shares were exercised and none were canceled. Had stock option
compensation expense been determined consistent with the fair value method of
measuring compensation expense under SFAS No. 123, the pro forma effect for
fiscal 2000 and 1999 would have been a reduction in the Company's net income of
approximately $32,000 and $25,000, respectively, and with no impact on diluted
earnings per share for either year.
<PAGE>
In determining the pro forma stock compensation expense, the fair value of each
non-employee director option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 2000 and 1999, respectively: expected
volatility of 46% for both years; expected lives of 4.9 and 4.8 years; risk-free
interest rates of 6.1% and 4.7%; and no expected dividends.
Exercise prices for non-employee director options outstanding as of June 30,
2000, ranged from $4.11 to $16.38 (fair market value on dates of grant). The
following table provides certain information with respect to stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
REMAINING
RANGE OF EXERCISE PRICES STOCK OPTIONS WEIGHTED-AVERAGE CONTRACTUAL
OUTSTANDING EXERCISE PRICE LIFE
----------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Under $5.40 15,750 $ 4.11 0.4
$5.41 - $7.20 36,000 6.55 1.3
$7.21 - $9.00 0 0.0 0.0
$9.01 - $10.80 0 0.0 0.0
$10.81 - $12.60 27,000 12.42 2.4
$12.61 - $14.40 20,000 13.25 3.4
$14.41 - $16.20 0 0.0 0.0
$16.21 - $18.00 20,000 16.38 4.4
--------------
118,750 $10.35 2.3
==============
</TABLE>
The following table provides certain information with respect to non-employee
director stock options exercisable at June 30, 2000:
<TABLE>
<CAPTION>
STOCK OPTIONS WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
-------------------------------- -------------- -----------------
<S> <C> <C>
Under $5.40 15,750 $4.11
$5.41 - $7.20 36,000 6.55
$7.21 - $9.00 0 0.0
$9.01 - $10.80 0 0.0
$10.81 - $12.60 18,000 12.42
$12.61 - $14.40 6,664 13.25
$14.41 - $16.20 0 0.0
$16.21 - $18.00 0 0.0
--------------
76,414 $8.01
==============
</TABLE>
The fair value of options granted during the years ended June 30, 2000 and 1999,
calculated using the Black-Scholes option pricing model, was approximately $7.90
per share and $6.09 per share, respectively.
Stock Repurchase Program
In August 1999, the Company's Board of Directors authorized the repurchase from
time to time of up to approximately $4 million of the Company's Common Stock in
the open market or in negotiated transactions. In August 2000, the Company's
Board of Directors authorized the repurchase of an additional $1 million of the
Company's Common Stock. This stock repurchase program will remain in effect
unless discontinued by the Board of Directors. As of June 30, 2000, the Company
had repurchased 181,400 shares at an average price of $13.25 per share.
<PAGE>
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
2000 1999 1998
-------------- -------------- -----------
(in thousands)
<S> <C> <C> <C>
Federal income tax $4,212 $4,274 $4,083
State income tax 861 898 851
-------------- -------------- -----------
5,073 5,172 4,934
Deferred 322 218 (749)
-------------- -------------- -----------
$5,395 $5,390 $4,185
============== ============== ===========
</TABLE>
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------
2000 1999
------------------ ------------------
(in thousands)
<S> <C> <C>
Gross assets $3,547 $3,913
Gross liabilities (2,461) (1,745)
------------------ ------------------
Net deferred tax asset $1,086 $2,168
================== ==================
</TABLE>
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------
2000 1999
------------------ ------------------
(in thousands)
<S> <C> <C>
Accrued liabilities and other $976 $488
Deferred revenue 2,571 2,588
Depreciation and amortization (2,461) (908)
------------------ ------------------
$1,086 $2,168
================== ==================
</TABLE>
The provisions for taxes on income as reported differ from the tax provision
computed by applying the statutory federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
2000 1999 1998
----------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Federal income tax provision on income at
statutory rate of 34% $4,644 $4,638 $3,600
State taxes, net of federal benefit 611 702 562
Amortization of excess purchase price over
fair value of assets acquired 109 84 84
Other-net 31 (34) (61)
----------- ---------- -----------
Income tax provision $5,395 $5,390 $4,185
=========== ========== ===========
</TABLE>
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under non-cancelable
operating leases. Most of the Company's facility leases contain options that
allow the Company to renew leases for periods that generally range from three to
nine years. At June 30, 2000, future minimum rental payments under existing
leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
<S> <C>
2001................................................... $14,274
2002................................................... 10,167
2003................................................... 6,641
2004................................................... 3,262
2005 and thereafter ................................... 1,355
----------
$35,699
==========
</TABLE>
Rent expense was approximately $14.9 million, $12.9 million, and $10.7 million
for the years ended June 30, 2000, 1999, and 1998, respectively.
The Company has entered into an agreement to settle the lawsuit against the
Company in Arkansas, Angie Gwatney v. Ace Cash Express, Inc. Under the
settlement, qualified customers will receive certificates that may be redeemed
for prepaid telephone cards from the Company. The face amount of the telephone
cards will equal 75% of the total amount of fees ($2.2 million) that the
customers paid the Company in deferred-presentment transactions from February 9,
1996 through June 15, 1999. It is impossible to predict the number and face
amount of the telephone cards that the Company will have to provide to
customers. But, based on its estimate of the distribution of those cards, the
Company has provided in its financial statements a total of $640,000 to satisfy
its settlement obligations. The settlement agreement has been approved by the
court, and the Company believes that the approval will be final and effective on
October 5, 2000. The Company is involved in various other legal proceedings
incidental to the conduct of its business. Management believes that these legal
proceedings will not result in any material impact on the Company's financial
condition and results of operations.
10. EMPLOYEE BENEFITS PLANS
The Company has established a 401(k) savings plan on behalf of its employees.
Employees may contribute up to 20% of their annual compensation to the plan,
subject to statutory maximums. The Board of Directors has authorized a 25%
matching of employee contributions made to the plan beginning January 1999. The
Company's matching contributions were approximately $217,000 and $79,000 for the
years ended June 30, 2000 and 1999, respectively.
11. RELATED PARTY TRANSACTIONS
In March and April 2000, the Company invested a total of $1 million in ePacific
Incorporated ("ePacific"), a private company in the business of providing
customized debit-card payment systems and electronic funds transfer processing
services, which has been recorded under the cost method and is included in other
assets on the consolidated balance sheet. ePacific, formerly a controlled
subsidiary of Goleta, provides the debit-card system and processing services to
Goleta to enable it to make the Bank Loans described above in Summary of
Significant Accounting Policies - Loans Receivable.
The Company's investment in ePacific was made at the same times, and on the same
terms, as the investment by two venture capital investors. The Company purchased
approximately 14% of the shares of ePacific's Series A Convertible Preferred
Stock purchased by the group of investors. The terms of those shares are typical
of preferred stock issued and purchased in venture capital investments, and
include the right to periodic dividends from ePacific, the right to a
preferential distribution upon liquidation of ePacific, voting rights with
ePacific common stock, and the right to convert the preferred stock into
ePacific common stock. Under a stockholders' agreement with ePacific and its
other stockholders, the Company agreed to certain restrictions on transfer of
its ePacific stock, received certain securities registration rights regarding
resale of its ePacific stock, and received the right to designate one person to
serve as a director of ePacific. The Company designated Jay Shipowitz, its
President and Chief Operating Officer, to serve as a director of ePacific.
Management believes the transactions with ePacific are at arms length and are
under terms no more or less favorable to the Company than those with other
vendors.
<PAGE>
12. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the fiscal years ended June 30, 2000,
1999, and 1998, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------- YEAR ENDED
SEPT 30 DEC 31 MAR 31 JUNE 30 JUNE 30
----------- ------------ ------------- --------------- ----------------
(in thousands, except per share amounts)
2000:
<S> <C> <C> <C> <C> <C>
Revenues $30,588 $32,284 $41,337 $36,427 $140,636
Income before cumulative effect
of accounting change 1,022 1,403 5,177 1,264 8,866
Diluted earnings per share before
cumulative effect of accounting
change .10 .14 .51 .11 .86
Net income 419 1,403 5,177 1,264 8,263
Diluted earnings per share .04 .14 .51 .11 .80
1999:
Revenues $26,023 $28,656 $36,009 $31,626 $122,314
Net income 796 1,116 4,095 2,243 8,250
Diluted earnings per share .08 .11 .40 .22 .80
1998:
Revenues $21,694 $23,125 $29,340 $26,035 $100,194
Net income 610 824 3,148 1,820 6,402
Diluted earnings per share .06 .08 .31 .18 .63
</TABLE>
The Company's business is seasonal because of the impact of cashing tax refund
checks and two other tax-related services -- electronic tax filings and
processing applications for refund anticipation loans. The impact of these
services is in the third and fourth quarter of the Company's fiscal year.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.47
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>MASTER LOAN AGENCY AGREEMENT
<TEXT>
MASTER LOAN AGENCY AGREEMENT
This Master Loan Agency Agreement ("Agreement") is made on August 11, 1999 (the
"Effective Date"), by Goleta National Bank, a national banking association
("GNB"), and Ace Cash Express, Inc., a Texas corporation ("Ace"). GNB and Ace
are collectively referred to in this Agreement as the "Parties."
A. GNB's business, as a national bank, includes making loans.
B. GNB's business includes issuing cards that permit electronic access to
bank accounts at GNB.
C. Ace's business includes the operation of locations at which various
retail financial services are offered and sold by Ace ("Locations").
D. The Parties believe that it is beneficial for them to enter into
arrangements under which GNB will make loans to Ace's customers at
various Locations, GNB will issue cards to borrowers to access the loan
proceeds in those borrowers' accounts at GNB, Ace will serve as
administrative agent for GNB at various Locations in processing those
loans, and Ace will purchase participations in those loans made by GNB.
In consideration of the foregoing and the mutual covenants set forth in this
Agreement, the Parties hereby agree as follows:
ARTICLE I-- LOANS AND AGENCY
1.1 Bank Loans. This Agreement describes and governs the Parties'
relationship regarding Bank Loans. A "Bank Loan" is a loan or extension
of credit by GNB:
(a) to a potential borrower who submits a loan application to GNB
for a short-term loan and who, in GNB's judgment, meets the
Credit Criteria (as defined below in this Section 1.1),
(b) with a stated term of no more than 33 calendar days (but with
up to three Renewals, as described and defined in Section
1.2), and
(c) that is funded by GNB's credit to the borrower's deposit
account at GNB that may be accessed electronically only by the
borrower's use of a Card (as defined below in this Section
1.1).
The "Credit Criteria" are the credit criteria that must be satisfied by
a potential borrower to be eligible for a Bank Loan (including a
Renewal), which have been established by GNB and are set forth on
Exhibit A to this Agreement, as such credit criteria may be amended by
GNB from time to time in its sole discretion by at least 90 days' prior
Notice (as defined below in this Section 1.1) to Ace (with each such
<PAGE>
amendment to be evidenced by a superseding Exhibit A); except that if
the Office of the Comptroller of the Currency or the Board of Governors
of the Federal Reserve System (the "Bank Regulatory Authority")
requires or recommends that GNB change the Credit Criteria within 90
days, GNB shall give that Notice to Ace as far in advance of the change
as is reasonably practicable. A "Card" is a plastic card issued to a
borrower by GNB that, with the corresponding personal identification
number ("PIN"), permits electronic access to the borrower's deposit
account at GNB into which the Bank Loan is funded. A "Notice" is a
written communication that complies with Section 11.3.
1.2 Terms of Bank Loans. The Bank Loans shall be made on the following
terms:
(a) Each initially funded Bank Loan must be in the amount
(exclusive of interest or fees) of $100, or in any $50
increment above $100, up to a maximum of $500.
(b) No more than one Bank Loan may be outstanding to any borrower
at one time.
(c) An initially funded Bank Loan may be renewed by GNB up to
three consecutive times, for up to 33 calendar days each, only
if, at the time each such renewal of a Bank Loan (a "Renewal")
is requested, the borrower (i) satisfies the Credit Criteria
applicable to that Renewal, (ii) pays all interest accrued
(but not yet paid) to date on the principal amount of the Bank
Loan, and (iii) repays at least five percent of the principal
amount of the then outstanding Bank Loan.
(d) The interest charged to the borrower for a Bank Loan may be up
to the maximum rate of interest that GNB may charge from time
to time under applicable law.
GNB may (in its sole discretion) modify the terms of the Bank Loans set
forth in this Section 1.2 upon Notice to Ace at least 90 days before
the modification or, if the Bank Regulatory Authority requires or
recommends that GNB modify the terms within 90 days, then as soon as
reasonably practicable after that requirement or recommendation by the
Bank Regulatory Authority. Except as otherwise provided in this
Agreement, neither Party may charge a prospective borrower or a
borrower any fee or other amount in connection with a Bank Loan
(including a Renewal) or any other aspect or transaction described in
this Agreement relating to a Bank Loan (including the issuance of a
Card and the establishment or maintenance of a borrower's deposit
account). Nothing in this Agreement, however, affects a Party's right
to charge for any service or services rendered to its customers (who
may also be prospective borrowers or borrowers) not in connection with
any other transactions described in this Agreement relating to Bank
Loans.
1.3 Agency Appointment. GNB hereby appoints Ace as GNB's agent, at the
Locations at which Ace may legally so serve, to facilitate and provide
administrative services regarding the Bank Loans in accordance with the
terms of this Agreement. Ace hereby accepts that appointment and agrees
<PAGE>
to so serve as agent in accordance with the terms of this Agreement. In
addition, Ace may invite franchisees of Ace or Ace's affiliates to
enter into arrangements substantially similar to those in this
Agreement, including serving as GNB's agents at their respective retail
financial services locations to facilitate, and provide administrative
services regarding, the Bank Loans ("Participating Franchisees") if all
Participating Franchisees enter into an agreement with GNB similar to
this Agreement; Ace agrees that it shall be and remain liable for all
acts or omissions to act of all Participating Franchisees as GNB's
agent under that agreement.
1.4 GNB Lending Activities. For or in connection with the Bank Loans, GNB
shall:
(a) Establish, maintain, and monitor the Credit Criteria.
(b) Provide to Ace appropriate application forms for Bank Loans,
in electronic or paper format as agreed by the Parties.
(c) Review and evaluate each completed application for a Bank Loan
transmitted by Ace for a prospective borrower, and approve or
deny that request within * after transmission of the
application.
(d) Create and maintain such forms of disclosure to prospective
borrowers and borrowers as may be required by applicable law.
(e) Create and maintain appropriate documentation as may be
required by applicable law in the event that a loan
application is denied.
(f) Create and maintain appropriate documentation for Bank Loans
and provide it (through Ace) to each prospective borrower
whose loan application has been approved by GNB, including an
authorization from each borrower to allow GNB to grant Ace
access to that borrower's information as contemplated by
Section 5.1.
(g) Establish a deposit account at GNB for each borrower under a
Bank Loan, and create appropriate account documentation and
provide it (through Ace) to the borrower.
(h) Fund the amount of the Bank Loan into the borrower's deposit
account at GNB.
(i) Issue a Card (including the corresponding PIN) to the borrower
under Bank Loans thereby enabling the borrower to access the
borrower's GNB Bank account.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(j) Develop (to the extent not yet developed) and maintain
credit-evaluation and decision-making software at GNB's loan
approval center ("Credit Software") that communicates with
Ace's POS Software (as defined in Section 1.5) at each
Location at which Bank Loans are offered, and maintain a
national toll-free telephone access number for the purpose of
that electronic communication.
(k) Take all such other actions, other than those to be performed
by Ace under this Agreement, as may be required or reasonably
appropriate to make Bank Loans.
(l) Reimburse Ace for all legal fees and expenses reasonably
incurred by Ace in excess of $ * per year during the
effectiveness of this Agreement for review of the
documentation used in connection with Bank Loans for
compliance with applicable bank and lending laws, rules and
regulations.
1.5 Agent Services. Ace shall, at GNB's reasonable direction in accordance
with the terms of this Agreement, as GNB's agent at each Location at
which Bank Loans are offered:
(a) Obtain (if necessary) and maintain a PIN keypad, a magnetic
card reader that can read the Cards, POS Software (as defined
below in this Section 1.5), and the ability to connect to
GNB's loan approval center through GNB's national toll-free
telephone access number, all in such form as is reasonably
acceptable to GNB.
(b) Maintain signage reasonably acceptable to GNB indicating the
availability of Bank Loans and, if the application forms are
in paper format, copies of application forms for Bank Loans.
(c) Provide GNB's application forms for Bank Loans to prospective
borrowers who so request.
(d) Upon request, assist each prospective borrower in completing
an application form and transmit that completed application
form for a Bank Loan to GNB for evaluation.
(e) Deliver to each prospective borrower the appropriate form(s)
of legally required disclosure (prepared by GNB).
(f) Submit to each prospective borrower whose loan application has
been approved by GNB the documentation required by GNB for a
Bank Loan, or deliver to each prospective borrower whose loan
application has been denied the loan denial documentation
prepared by GNB.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(g) To the extent required by GNB, deliver to GNB the borrower's
signed loan documentation (including the Bank Loan application
and the promissory note) for a Bank Loan * after approval of
the Bank Loan, with the delivery cost from Ace's regional
office to (or as directed by) GNB to be paid by GNB.
(h) Provide to each borrower GNB's forms to establish an account
at GNB, assist (as requested) each borrower in completing the
forms, deliver a Card (including the corresponding PIN) to
each borrower under a Bank Loan as directed by GNB, and (to
the extent required by GNB) deliver to GNB the borrower's
signed Card and account authorization documents ( * after the
execution of these documents, with the delivery cost from
Ace's regional office to GNB to be paid by GNB).
(i) Establish a bank account with Wells Fargo Bank (or another
bank that is a part of the syndicate of banks lending to Ace)
into which Ace will deposit payments regarding Bank Loans,
including principal and interest and fees (other than the Ace
Administrative Fee, as defined below in this Section 1.5)
received from borrowers (the "Bank Loan Repayment Account").
(j) Accept payments of Bank Loans as reasonably directed by GNB,
and corresponding interest and fees (other than the Ace
Administrative Fee), by or on behalf of borrowers and make the
amounts so received available to GNB, no later than the next
business day, for GNB to initiate a debit entry through the
Automated Clearinghouse system against the Bank Loan Repayment
Account; and transmit to GNB the paying borrower's name, GNB
Bank account number, and amount paid immediately upon Ace's
receipt (at a Location or otherwise) or any form of payment
(whether paid by cash, check, or Automatic Clearinghouse
transmission).
(k) To the extent GNB does not require delivery by Ace of the loan
documentation or Card and account authorization documentation,
GNB hereby appoints Ace as custodian of all such
documentation, and Ace shall maintain that documentation in
safekeeping for the benefit of GNB.
Ace shall develop or cause to be developed software, integrated with
Ace's point-of-sale system at each such Location (the "POS System"), by
which data and documents regarding Bank Loans or applications for Bank
Loans may be transmitted to and received from GNB's loan approval
center; that software actually developed by Ace is "POS Software." The
only fee that Ace (for itself) may charge a prospective borrower or a
borrower in connection with any Bank Loan or related transactions
described in this Agreement is a one-time fee per person of up to $ *
to establish an administrative relationship with Ace regarding any Bank
Loans (the "Ace Administrative Fee"). GNB shall have no right to any
Ace Administrative Fee.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
1.6 Exclusivity. Subject to Section 8.4(d), the Parties' relationship shall
be exclusive during the effectiveness of this Agreement in accordance
with the following:
(a) After the Testing Period (as defined in Section 1.7(f)), Ace
shall not, directly or indirectly, offer in any of the
Locations, anywhere in the United States of America, any
short-term loan that is the same as or substantially similar
to the Bank Loans (including any deferred check deposit
service or product or similar "payday advance" permitted under
applicable check-cashing statutes); except that (i) when Ace
is unable, in light of applicable operational (including
contractual) and regulatory requirements, to offer Bank Loans
at a Location, Ace may offer short-term loans substantially
similar to the Bank Loans, including payday advances, at that
Location, and (ii) if any regulatory authority having
jurisdiction over the check-cashing and related businesses of
Ace requires or recommends that Ace cease to offer Bank Loans
at any Location or Locations, Ace may cease to offer Bank
Loans at that Location or those Locations and may offer
short-term loans substantially similar to the Bank Loans,
including payday advances, at that Location or those
Locations. The Parties acknowledge that Ace's and its
affiliates' franchisees are not bound by this Agreement, and
may continue to offer such short-term loans without regard to
this Agreement, unless they become Participating Franchisees
as provided in Section 1.3.
(b) GNB shall not, directly or indirectly, anywhere in the United
States of America, offer or provide any Bank Loan or any
short-term loan that is the same as or substantially similar
to the Bank Loans through or with any other person; except GNB
may make any short-term loan that is the same as or
substantially similar to the Bank Loans to borrowers who apply
in person at an office of GNB or to the limited extent
required by applicable banking regulations.
(c) Ace shall use commercially reasonable efforts to make Bank
Loans available in all of its Locations as soon as reasonably
practicable in light of operational and regulatory
considerations.
(d) The Parties anticipate that Ace will submit for GNB's approval
completed applications satisfying the Credit Criteria for at
least * Bank Loans (including Renewals) during each Year (as
defined below in this Section 1.6(d)) commencing with the
second Year after the Testing Period (the "Annual Application
Number").
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
If Ace submits for GNB's approval during a Year, commencing
with the second Year, a number of completed applications
satisfying the Credit Criteria for Bank Loans (including
Renewals) that is * % of the Annual Application Number, then
the Parties' exclusivity commitment, and (accordingly) the
stated term of this Agreement in Section 4.1, shall be
extended for an additional Year after the expiration date of
this Agreement theretofore in effect. A "Year" is a
consecutive 12-month period after the Testing Period that
begins on the day after the Testing Period expires and on each
anniversary of that day during the Term.
(e) If Ace does not, however, submit for GNB's approval completed
applications satisfying the Credit Criteria for at least *
Bank Loans (including Renewals) during any Year, commencing
with the second Year, then GNB may, within 30 days after the
end of such Year, give Ace Notice of intent to terminate the
Parties' continued exclusivity commitment under this Section
1.6. If, within 90 days after that Notice of intent to
terminate exclusivity, Ace does not submit to GNB completed
applications satisfying the Credit Criteria for at least *
Bank Loans (including Renewals), then the Parties shall have
no further exclusivity commitment under this Section 1.6. The
termination of the Parties' exclusivity commitment shall not,
however, affect the then effective stated term of this
Agreement in Section 4.1.
1.7 Software Development. To facilitate the process for Bank Loans
described in this Agreement, the Parties shall cooperate in developing
the Credit Software and the POS Software as follows:
(a) Ace will provide GNB information regarding the POS System for
review and evaluation by or on behalf of GNB.
(b) GNB will provide Ace information regarding the software that
will serve as the basis for the Credit Software for review and
evaluation by or on behalf of Ace.
(c) The Parties will establish and agree upon the functionality
requirements for the POS Software and the Credit Software.
Each Party shall cooperate, at its own expense, with any
reasonable request made by or on behalf of the other Party in
connection with that other Party's development of its software
(i.e., the POS Software or the Credit Software, as the case
may be).
(d) The POS Software developed by Ace shall be Ace's property, and
no ownership rights in or to that POS Software are granted or
transferred to GNB (or any subsidiary of GNB) in this
Agreement or by GNB's (or any GNB subsidiary's) access to or
use of the POS Software under this Agreement. The Credit
Software developed by GNB shall be GNB's property, and no
ownership rights in or to that Credit Software are granted or
transferred to Ace in this Agreement or by Ace's access to or
use of the Credit Software under this Agreement.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(e) Information provided by one Party to or for the benefit of the
other Party under this Article 1.7 shall be Confidential
Information in accordance with Article VII and may not be used
for any purpose other than as provided in this Article 1.7.
(f) Upon completion of the POS Software and the Credit Software,
the Parties will cooperate to (i) conduct initial tests of the
POS Software and the Credit Software at Ace's corporate
headquarters and GNB's loan approval center, (ii) conduct a
beta test of the POS Software and the Credit Software at a
Location, and (iii) test the POS Software and the Credit
Software in one or two Ace markets before offering Bank Loans
in other Locations. The time period in which all such testing
will occur is the "Testing Period," and the Testing Period
shall expire on the date on which Bank Loans are first offered
at 150 Locations or the first anniversary of the Effective
Date, whichever is earlier.
1.8 Training. The Parties shall conduct training sessions for Ace's
personnel regarding the proper use of equipment and the proper
procedures to be followed in connection with offering and processing
Bank Loans and applications for Bank Loans. That training will be
provided at Ace's regional locations and corporate office with such
frequency and on such schedule as the Parties shall determine.
1.9 Collection of Bank Loans. Contemporaneous with this Agreement, the
Parties are entering into a Collection Servicing Agreement, under which
is Exhibit B to this Agreement. To the extent that the terms of the
Collection Servicing Agreement conflict with the terms of this
Agreement, the terms of this Agreement shall control.
1.10 Advertising.
(a) Ace may, at its own expense, advertise and promote the
availability of Bank Loans. For this purpose, GNB hereby
grants Ace a nonexclusive and nontransferable license, during
the effectiveness of this Agreement, to use GNB's trade names,
trade marks, service marks, and logos (whether or not
registered or protected or protectible) ("GNB Marks"). All
uses of the GNB Marks must be approved in advance by GNB, such
approval not to be unreasonably withheld or delayed. A list of
current GNB Marks is set forth on Exhibit C to this Agreement.
GNB is not granting to Ace any, and shall retain ownership of
the GNB Marks. Ace shall discontinue all uses of the GNB Marks
upon the expiration or termination of this Agreement.
<PAGE>
(b) GNB may, at its own expense, advertise and promote the
availability of Bank Loans through the Locations at which Bank
Loans are offered. For this purpose, Ace hereby grants GNB a
nonexclusive and nontransferable license, during the
effectiveness of this Agreement, to use Ace's trade names,
trademarks, service marks, and logos (whether or not
registered or protected or protectible) ("Ace Marks"). All
uses of the Ace Marks must be approved in advance by Ace, such
approval not to be unreasonably withheld or delayed. A list of
current Ace Marks is set forth on Exhibit C to this Agreement.
Ace is not granting to GNB any, and shall retain ownership of
the Ace Marks. GNB shall discontinue all uses of the Ace Marks
upon the expiration or termination of this Agreement.
ARTICLE II-- LOAN PARTICIPATION
2.1 Participation Agreement. Contemporaneous with this Agreement, the
Parties are entering into a Master Loan Participation Agreement under
which GNB agrees to sell to Ace, and Ace agrees to purchase from GNB, a
* % participation in each of the Bank Loans made by GNB. That Master
Loan Participation Agreement is Exhibit D to this Agreement.
ARTICLE III-- REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Representations and Warranties by GNB. GNB represents and warrants to
Ace as follows:
(a) GNB has full legal right, power and authority to enter into
and perform this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by GNB and constitutes the legal, valid and binding
agreement of GNB.
(c) No consent, approval, authorization or order of any
governmental agency or authority, except those disclosed to
Ace in writing by GNB, is required to be obtained by GNB to
permit it to perform its obligations under this Agreement.
(d) There is no order, action, suit, proceeding, claim,
arbitration or investigation by any person, including any
governmental authority, pending, issued or outstanding against
GNB as a party or, to the knowledge of GNB, threatened against
GNB that challenges GNB's right to execute, deliver, perform
under or consummate the transactions described in this
Agreement.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(e) To the extent related to the services offered and provided by
GNB under this Agreement:
(i) all federal, state and local laws and regulations
have been complied with in all material respects
relating to this Agreement;
(ii) any and all licenses, permits and other
authorizations required of GNB by federal, state or
local laws (the "GNB Authorizations") have been
obtained, are in full force and effect and are valid
under applicable federal, state and local laws; and
(iii) the continuation, validity and effectiveness of all
of the GNB Authorizations shall not be impaired or
adversely affected by the terms hereof.
(f) The Confidential Information of Ace previously provided by GNB
has been kept secret and has not been disclosed by GNB to any
person who is not under a written agreement with GNB or other
legal obligation to hold such Confidential Information in
confidence.
3.2 Covenants by GNB. GNB covenants with ACE as follows:
(a) GNB will cooperate with Ace regarding any inspections or
investigations by any governmental agency or authority that
may occur during the Term (as defined in Article IV).
(b) GNB will promptly give Notice to Ace of any order, action,
suit, proceeding, claim, arbitration, or investigation by any
person, including any governmental authority, that is filed,
issued, or threatened against GNB that challenges GNB's legal
right to perform its obligations under this Agreement.
(c) GNB will maintain the effectiveness of all of the GNB
Authorizations, or will obtain new or additional GNB
Authorizations, as necessary to permit it to perform its
obligations under this Agreement.
(d) When developed, the Credit Software will not, to the best
knowledge of GNB, infringe upon the proprietary rights,
including patent, copyright or trade-secret rights, of any
other person.
(e) The Credit Software will accurately receive, provide and
process date/time data (including calculating, comparing and
sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year
calculations and will not malfunction, cease to function or
provide invalid or incorrect results as a result of date/time
data.
<PAGE>
(f) GNB will pay Ace the portion of the ATM charges received by
GNB described in, and in accordance with, Exhibit E to this
Agreement.
(g) GNB shall comply in all material respects with all legal and
regulatory requirements, including bank and lending laws,
rules, and regulations, imposed on or applicable to it in
connection with the performance of its obligations and its
other activities under this Agreement.
3.3 Representations and Warranties by Ace. Ace represents and warrants to
GNB as follows:
(a) Ace has full legal right, power and authority to enter into
and perform this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by Ace and constitutes the legal, valid and binding
agreement of Ace.
(c) No consent, approval, authorization or order of any
governmental agency or authority, except those disclosed to
GNB in writing by Ace, is required to be obtained by Ace to
permit it to perform its obligations under this Agreement.
(d) There is no order, action, suit, proceeding, claim,
arbitration or investigation by any person, including any
governmental authority, pending, issued or outstanding against
Ace as a party or, to the knowledge of Ace, threatened against
Ace that challenges Ace's right to execute, deliver, perform
under or consummate the transactions described in this
Agreement.
(e) To the extent related to the services offered and provided by
Ace under this Agreement:
(i) all federal, state and local laws and regulations
have been complied with in all material respects
relating to this Agreement;
(ii) any and all licenses, permits and other
authorizations required of Ace by federal, state or
local laws (the "Ace Authorizations") have been
obtained, are in full force and effect and are valid
under applicable federal, state and local laws; and
(iii) the continuation, validity and effectiveness of all
of the Ace Authorizations shall not be impaired or
adversely affected by the terms hereof.
(f) The Confidential Information of GNB previously provided to Ace
has been kept secret and has not been disclosed by Ace to any
person who is not under a written agreement with Ace or other
legal obligation to hold such Confidential Information in
confidence.
<PAGE>
3.4 Covenants by Ace. Ace covenants with GNB as follows:
(a) Ace will cooperate with GNB regarding any inspections or
investigations by any governmental agency or authority that
may occur during the Term.
(b) Ace will promptly give Notice to GNB of any order, action,
suit, proceeding, claim, arbitration, or investigation by any
person, including any governmental authority, that is filed,
issued, or threatened against Ace that challenges Ace's legal
right to perform its obligations under this Agreement.
(c) Ace will maintain the effectiveness of all of the Ace
Authorizations, or will obtain new or additional Ace
Authorizations, as necessary to permit it to perform its
obligations under this Agreement.
(d) When developed, the POS Software will not, to the best
knowledge of Ace, infringe upon the proprietary rights,
including patent, copyright or trade-secret rights, of any
other person.
(e) The POS Software will accurately receive, provide and process
date/time data (including calculating, comparing and
sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year
calculations and will not malfunction, cease to function or
provide invalid or incorrect results as a result of date/time
data.
(f) Ace will pay GNB the fees for the Cards and the Loan
Participation Pfocessing Fees described in, and in accordance
with, Exhibit E to this Agreement; Ace shall have no right to
any such fees.
(g) As GNB's agent with respect to Bank Loans, Ace will follow
GNB's reasonable instructions in accordance with the terms of
this Agreement.
(h) Ace shall comply in all material respects with all legal and
regulatory requirements, including check-cashing laws, rules,
and regulations, imposed on or applicable to it in connection
with the performance of its obligations and its other
activities under this Agreement.
<PAGE>
ARTICLE IV-- TERM AND TERMINATION
4.1 Term of Agreement. Unless earlier terminated as provided in Section
4.2, this Agreement shall expire at 11:59:59 p.m., Central Time, on the
later of (a) the fifth anniversary of the date on which the Testing
Period expires or (b) the date on which the exclusivity period provided
by Section 1.6 expires. As used herein, the "Term" of this Agreement
begins on the date hereof and shall continue until this Agreement
expires or is terminated earlier under Section 4.2.
4.2 Termination. A Party may terminate this Agreement as follows:
(a) Either Party may terminate this Agreement immediately upon
Notice if:
(i) the other Party makes a general assignment of all or
substantially all of its assets for the benefit of
creditors;
(ii) the other Party applies for, consents to or
acquiesces in the appointment of a receiver, trustee,
custodian or liquidator for its business or all or
substantially all of its assets, including a
receivership or custody relationship imposed by a
governmental or quasi-governmental regulatory
authority; or
(iii) the other Party files a voluntary petition for relief
under the United States Bankruptcy Code or other
bankruptcy or insolvency laws; or
(iv) an involuntary bankruptcy or insolvency petition
filed against the other Party is not dismissed within
90 days.
(b) Either Party may terminate this Agreement on ten business
days' Notice upon the other Party's refusal or failure to make
any payment due under this Agreement which is not cured within
such ten business-day period. Such termination shall be
effective immediately upon expiration of such cure period
unless the defaulting Party cures such default within the
applicable cure period.
(c) Either Party may terminate this Agreement upon 30 business
days' Notice upon the occurrence of any material breach or
default by the other Party under this Agreement (other than as
described in Section 4.2(b)) which is not cured within such 30
business-day period.
(d) Ace may terminate this Agreement upon 60 business days' Notice
if any change in the Credit Criteria or in the terms of the
Bank Loans (stated in Section 1.2) by GNB, in Ace's judgment,
has adversely affected or would adversely affect the market
for Bank Loans.
(e) Either party may terminate this Agreement upon 30 business
days' Notice if the Bank Regulatory Authority requires or
recommends that GNB cease making Bank Loans, in whole or in
part, as provided for under this Agreement, or imposes such
conditions on GNB's making of Bank Loans as would have a
material adverse effect on GNB's ability to make Bank Loans as
provided for under this Agreement, as confirmed to Ace by
GNB's bank regulatory counsel.
<PAGE>
4.3 Restrictions on Termination. A Party may not terminate this Agreement
if the event or circumstance described in Section 4.2 upon which that
Party would rely in so terminating, was caused by that Party's breach
of or default under this Agreement. Termination rights to the Party
under Section 4.2 are not exclusive of any other right or remedy
available to or granted to a nonbreaching or nondefaulting Party under
this Agreement.
4.4 Change of Control. Each Party agrees to Notify the other Party if the
first Party's board of directors votes or consents to change, or to
recommend to that Party's shareholders that they vote or consent to
change, the control of that Party or its business. Regardless of any
change and any Notice thereof in accordance with the preceding
sentence, the Parties will remain obligated under this Agreement until
this Agreement expires or is terminated according to its terms.
4.5 Post-Termination Obligations. Upon the expiration or termination of
this Agreement, each Party will remit to the other Party all amounts
owing to such Party at the time of such expiration or termination. Each
Party will also remain liable until it has fulfilled all of its
obligations to the other Party that arose or accrued before the
expiration or termination date.
ARTICLE V-- ACCESS; INSPECTION RIGHTS
5.1 Loan Databases.
(a) GNB shall maintain a database of information regarding all
Bank Loans, including information regarding the borrower's
name, the Card number associated with the borrower's deposit
account, the balance in such account, the Bank Loan funding
and payment history, and the Location (or, if applicable, the
Participating Franchisee location) through which the Bank Loan
was originated and facilitated. GNB shall allow Ace access to
that database at any time during the Term and shall coordinate
with Ace regarding any software and hardware necessary to
access such database.
(b) Ace shall maintain a database of information regarding the
payment history of all Bank Loans, including information
regarding the paying borrower's name, GNB Bank account number,
and amount paid. Ace shall allow GNB access to that database
at any time during the Term and shall coordinate with GNB
regarding any software and hardware necessary to access such
database.
5.2 Inspection Rights. During the Term, but no more often than once each
calendar year during the Term (or more often only as necessary to
comply with requirements of the Bank Regulatory Authority or of any
regulatory authority having jurisdiction over the check-cashing and
related businesses of Ace or if there is a material discrepancy
identified through the electronic monitoring of the databases described
in Section 5.1), either Party may request an inspection of the
<PAGE>
financial or other books and records of the other Party relating to
this Agreement by giving at least 30 days' prior Notice to the other
Party. Any such inspection shall be conducted only during the regular
business hours of the other Party, or at such other reasonable time to
which the other Party may consent, and without any unreasonable
disruption of the other Party's business operations. If, based upon the
results of any such inspection, a Party claims or intends to claim any
additional funds are owing from the other Party, then (a) such Party
shall, within ten business days after its receipt of the results of
that inspection, submit to the other Party a copy of the results of
that inspection, and (b) the other Party shall have ten business days
to review and, if it chooses, object to those results by giving notice
of its objection to the Party conducting the inspection. Any Dispute
regarding the results of that inspection that is not resolved by the
Parties' agreement within ten business days after the other Party's
notice of objection to the inspecting Party shall be settled in
accordance with Section 8.6. The disputed results of any inspection
shall not be binding on the other Party for purposes of this Section
5.2 until the Dispute has been resolved by the Parties' agreement or in
accordance with Section 8.6. The cost of such inspection shall be paid
by the inspecting Party.
ARTICLE VI-- NONSOLICITATION
6.1 Nonsolicitation. During the Term and the first year after the
expiration or termination of this Agreement, a Party may not directly
or indirectly solicit for employment or employ any employee of the
other Party or any of the other Party's affiliates or induce or attempt
to induce any employee of the other Party or any of the other Party's
affiliates to terminate that employee's employment relationship; except
that:
(a) general solicitations of employment published in journals,
newspapers, or other publications of general circulation and
not specifically directed toward any employee or group of
employees of the other Party or any of the other Party's
affiliates shall not be deemed a violation of this Section
6.1; and
(b) a Party shall not be prohibited from employing any person who
contacts that Party or any of that Party's affiliates on that
person's own initiative and without any solicitation, directly
or indirectly, by that Party or any of that Party's
affiliates.
ARTICLE VII-- CONFIDENTIAL INFORMATION
7.1 Confidential Information. Each Party shall keep confidential the
following information ("Confidential Information") acquired by it under
or in connection with this Agreement:
(a) Information relating to the other Party's business, financial
condition or performance, or operations that the other Party
treats as confidential or proprietary.
<PAGE>
(b) Copies of records and other information obtained from that
Party's examination of the other Party's records under Article
V.
(c) The terms and performance of, any breach under, or any Dispute
(as defined in Section 8.6) regarding this Agreement.
(d) The Parties' conduct, decisions, documents, and negotiations
as part of, and the status of, any proceedings to resolve any
Dispute.
(e) Any other information, including the POS Software and the
Credit Software and the information used in the development or
implementation of the POS Software and the Client Software,
whether in a tangible medium or oral and whether proprietary
to the other Party or not, that is marked or clearly
identified by the other Party as confidential or proprietary.
A Party may not use any of the other Party's Confidential Information
other than as required to perform its obligations or exercise its
rights and remedies, including as part of the resolution of any
Dispute, under this Agreement.
7.2 Excluded Information. A Party has no obligation under this Article
VII regarding any information, including information that would
otherwise be Confidential Information, to the extent that the
information:
(a) is or becomes publicly available or available in the industry
other than as a result of any breach of this Agreement or any
other duty of that Party; or
(b) is or becomes available to that Party from a source that, to
that Party's knowledge, is lawfully in possession of that
information and is not subject to a duty of confidentiality,
whether to the other Party or another person, violated by that
disclosure.
7.3 Standard of Care. Each Party shall use at least the same degree of
care in maintaining the confidentiality and restricting the use of the
other Party's Confidential Information as that Party uses with respect
to its own proprietary or confidential information, and in no event
less than reasonable care.
7.4 Permitted Disclosures. A Party may disclose Confidential
Information to its officers, directors, agents, or employees as
necessary to give effect to this Agreement. Each Party shall inform
each of those persons to whom any Confidential Information is
communicated of the obligations regarding that information under this
Article VII and impose on that person the obligation to comply with
this Article VII regarding the Confidential Information. Each Party
shall be responsible for any breach of that Party's obligations under
this Article VII by its officers, directors, agents, or employees.
<PAGE>
7.5 Required Disclosures. Each Party may disclose Confidential
Information in response to a request for disclosure by a court or other
governmental authority, including a subpoena, court order, or
audit-related request by a taxing authority, if that Party:
(a) promptly Notifies the other Party of the terms and the
circumstances of that request;
(b) cooperates with the other Party's reasonable instructions (if
any) to resist or narrow that request;
(c) furnishes only information that, according to advice of its
legal counsel, that Party is legally compelled to disclose;
and
(d) uses commercially reasonable efforts to obtain an order or
other reliable assurance that confidential treatment will be
accorded the information disclosed.
A Party need not comply with these conditions to disclosure, however,
to the extent that the request or order of the governmental authority
in effect prohibits that compliance. A Party may also disclose
Confidential Information without complying with these conditions to the
extent that the Party is otherwise legally obligated to do so (for
example, to comply with applicable securities and/or banking laws), as
confirmed by advice of counsel.
7.6 Title to Information. The Confidential Information of a Party
disclosed by it to the other Party under this Agreement shall remain
the property of the disclosing Party; nothing in this Agreement grants
or conveys to the other Party any ownership rights in, or (except as
expressly stated in this Agreement) rights to use or license, any of
that Confidential Information.
7.7 Survival; Return. The obligations under this Article VII shall
continue on and after the expiration or termination of this Agreement.
Upon request of the disclosing Party upon or after the expiration or
termination of this Agreement, the other Party shall return or, if
requested by the disclosing Party, destroy the Confidential Information
of the disclosing Party that it holds. The requested return or
destruction shall include removal or deletion of Confidential
Information from all data bases and magnetic media of the other Party.
<PAGE>
ARTICLE VIII-- INDEMNIFICATION AND REMEDIES
8.1 Indemnification by GNB. GNB shall indemnify Ace and its officers,
directors, agents, attorneys and affiliates (collectively, "Ace
Indemnified Persons") against, and hold Ace and the Ace Indemnified
Persons harmless from, the following:
(a) * of all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs (including reasonable attorneys'
fees and expenses) and damages asserted against Ace or any Ace
Indemnified Person or incurred by Ace or any Ace Indemnified
Person (collectively, "Ace Losses") by reason of, resulting
from, or relating to any Third-Party Claims (as defined below
in this Section 8.1) asserted against Ace or any Ace
Indemnified Person, except any Third-Party Claims described in
Section 8.1(b) or Section 8.1(c).
(b) All Ace Losses by reason of, resulting from, or relating to
any Third-Party Claims asserted against Ace or any Ace
Indemnified Person based on any Infringement (as defined below
in this Section 8.1) or alleged Infringement by any of the GNB
Marks or the Credit Software.
(c) All Ace Losses by reason of, resulting from, or relating to
any Third-Party Claims asserted against Ace or any Ace
Indemnified Person in which, or in connection with which, GNB
or any GNB Indemnified Person (as defined in Section 8.2)
admits or acknowledges, or any court or other governmental
authority or arbitrator finds or otherwise determines, that
GNB or any GNB Indemnified Person has committed (by act or
omission) any willful misconduct.
GNB shall not be obligated to indemnify Ace or any Ace Indemnified
Person, or hold Ace or any Ace Indemnified Person harmless from, any
Ace Losses by reason of, resulting from, or relating to any Third-Party
Claims (i) based on any Infringement or alleged Infringement by any of
the Ace Marks or the POS Software, or (ii) in which, or in connection
with which, Ace or any Ace Indemnified Person admits or acknowledges,
or any court or other governmental authority or arbitrator finds or
determines, that Ace or any Ace Indemnified Person has committed (by
act or omission) any willful misconduct. A "Third-Party Claim" is any
claim of liability asserted against a Party by any person other than
Ace or any Ace Indemnified Person or GNB or any GNB Indemnified Person
arising out of a Bank Loan or the services or products provided under
this Agreement by either Party. "Infringement" means any infringement
of any copyright established in, infringement of any patent duly issued
in, or misappropriation of any trade secret protected in the United
States of America.
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* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
8.2 Indemnification by Ace. Ace shall indemnify GNB and its officers,
directors, agents, attorneys and affiliates (collectively, "GNB
Indemnified Persons") against, and hold GNB and the GNB Indemnified
Persons harmless from, the following:
(a) * of all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs (including reasonable attorneys'
fees and expenses) and damages asserted against GNB or any GNB
Indemnified Person or incurred by GNB or any GNB Indemnified
Person (collectively, "GNB Losses") by reason of, resulting
from, or relating to any Third-Party Claims asserted against
GNB or any GNB Indemnified Person, except any Third-Party
Claims described in Section 8.2(b) or Section 8.2(c).
(b) All GNB Losses by reason of, resulting from, or relating to
any Third-Party Claims asserted against GNB or any GNB
Indemnified Person based on any Infringement or alleged
Infringement by any of the Ace Marks or the POS Software.
(c) All GNB Losses by reason of, resulting from, or relating to
any Third-Party Claims in which or in connection with which,
Ace or any Ace Indemnified Person admits or acknowledges, or
any court or governmental authority or arbitrator finds or
otherwise determines, that Ace or any Ace Indemnified Person
has committed (by act or omission) any willful misconduct.
Ace shall not be obligated to indemnify or hold harmless GNB or any GNB
Indemnified Person regarding any GNB Losses by reason of, resulting
from, or relating to any Third-Party Claims (i) based on any
Infringement or alleged Infringement by any of the GNB Marks or the
Credit Software, or (ii) in which, or connection with which, GNB or any
GNB Indemnified Person admits or acknowledges, or any court or other
governmental authority or arbitrator finds or otherwise determines,
that GNB or any GNB Indemnified Person has committed (by act or
omission) any willful misconduct.
8.3 Defense of Certain Third-Party Claims. Each Party shall promptly give
Notice to the other Party of any Third-Party Claim asserted against the
notifying Party (though the failure to give any such Notice shall not
affect any rights or remedies of the Parties or any GNB Indemnified
Person or any Ace Indemnified Person except to the extent that such
failure impairs or prejudices the defense of the Third-Party Claim). If
a Third-Party Claim is asserted against either Party, any GNB
Indemnified Person, or any Ace Indemnified Person and GNB does not
acknowledge or admit any indemnification obligation under Section
8.1(b) or Section 8.1(c), then:
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* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(a) Ace shall be entitled to assume and conduct the defense and
settlement of that Third-Party Claim, with counsel chosen by
Ace, though no such settlement shall be binding on GNB or any
GNB Indemnified Person without its written consent, which may
not be unreasonably withheld or delayed;
(b) subject to Section 8.3(c), Ace shall treat that Third-Party
Claim as subject to Sections 8.1(a) and 8.2(a); and
(c) if it is subsequently determined in accordance with Section
8.6 or by the Parties' agreement that the Third-Party Claim is
subject to Sections 8.1(b), Section 8.1(c), Section 8.2(b), or
Section 8.2(c) (rather than Sections 8.1(a) and 8.2(a)) then
the responsibility for Ace Losses or GNB Losses, or both,
shall be allocated in accordance with the applicable provision
or provisions of Sections 8.1 and 8.2.
Nevertheless, if Ace acknowledges or admits its indemnification
obligation under Section 8.2(b) or Section 8.2(c), Ace need not comply
with Section 8.3(b) and need not obtain the consent of GNB or any GNB
Indemnified Person to any settlement.
8.4 Force Majeure.
(a) Neither Party shall be in breach or default of its obligations
under this Agreement to the extent that delay or failure in
its performance is caused by an act of God, fire, flood,
severe weather conditions, utilities or telecommunications
failures, materials shortage, unavailability of
transportation, government ordinance, laws, regulations or
restrictions, events of war or civil disorder or any other
cause beyond the reasonable control of that Party. However,
nothing in this Section 8.4 shall relieve any Party from its
obligations to make payments to the other Party as provided in
this Agreement.
(b) If a Party anticipates any excusable delay or failure under
Section 8.4(a), it shall promptly Notify the other Party of
the anticipated delay or failure, the anticipated effect of
that delay or failure and any actions that are being or are to
be taken to alleviate or overcome the cause of the delay or
failure.
(c) If a Party is claiming an excusable delay or failure under
Section 8.4(a), it shall use commercially reasonable efforts
to alleviate or overcome the cause of the delay or failure as
soon as possible.
(d) If a Party is unable to perform due to an excusable delay or
failure under Section 8.4(a), and such delay or failure
continues for more than 72 hours, then the exclusivity
restrictions of Section 1.6 binding on the Party entitled to
performance shall be suspended until the Party whose
performance is impaired can again fully perform its
obligations.
<PAGE>
8.5 Insurance. The Parties shall make good faith efforts to obtain
insurance against loss for acts or omissions to act by the Parties as
provided for in this Agreement. To the extent the Parties mutually
determine that insurance covering Third-Party Claims is available on
commercially reasonable terms (including premium costs), the Parties
will obtain and maintain such insurance coverage during the Term. The
amount of the insurance coverage will be as mutually determined by the
Parties. The premium costs for that insurance policy shall be paid * by
Ace and * by GNB. The Parties shall be designated loss payees under
that insurance policy in accordance with their respective
responsibility regarding Third-Party Claims under this Article VIII.
8.6 Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement, or the breach or validity hereof
("Dispute"), shall be settled by final and binding arbitration in
accordance with the Rules for Commercial Arbitration (the "Rules") of
the American Arbitration Association ("AAA") in effect as of the date
of the Dispute and in accordance with the following subsections of this
Section 8.6. (In the event of any inconsistency between the Rules and
the arbitration provisions of this Section 8.6, the latter shall
control.)
(a) The arbitration shall be conducted by a sole arbitrator who
has experience in or is otherwise familiar with the kinds of
business to which this Agreement relates and is not, and has
not been, an affiliate or a family member of either Party. In
the event an arbitrator who has such experience or familiarity
cannot be found, then the Parties shall appoint an arbitrator
who is mutually satisfactory to them. Such arbitrator shall be
appointed by the Parties within 15 days from the filing of the
Demand and Submission in accordance with Section 7 of the
Rules. If the Parties fail to agree upon a sole arbitrator
within such 15-day period and fail to agree to an extension of
such period, the arbitration shall be conducted by a sole
arbitrator appointed by the AAA in accordance with Section 14
of the Rules. The arbitrator appointed shall be knowledgeable
in the subject matter of the Dispute.
(b) The place of arbitration shall be Phoenix, Arizona, and the
final decision or award of the arbitrator shall be issued at
the place of arbitration. The arbitrator may, however, call
and conduct hearings and meetings at such other places as (i)
the Parties hereby may agree or (ii) the arbitrator may, on
the motion of a Party, determine to be necessary to obtain
significant testimony or evidence.
(c) The arbitrator shall have the power to authorize all forms of
discovery (including depositions, interrogations and document
production) on a showing of particularized need that the
requested discovery (i) is likely to lead to material evidence
needed to resolve the controversy and (ii) is not excessive in
scope, timing, or cost.
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* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(d) The arbitrator shall not have the power to (i) rule upon or
grant any extension, renewal or continuance of this Agreement,
(ii) award damages or other remedies expressly prohibited by
this Agreement, or (iii) grant interim injunctive relief
before rendering the final decision or award. Nevertheless,
either of the Parties may apply for and obtain temporary or
provisional injunctive relief from any court having
jurisdiction over one or both of the Parties or their assets
regarding any violation or alleged violation by the other
Party of its obligations under this Agreement.
(e) The final decision or award of the arbitrator shall be made as
soon as reasonably practicable after the appointment of the
arbitrator under Section 8.6(a). Such a final decision or
award may include (i) recovery of actual damages for violation
of any obligations under this Agreement or of governing law or
(ii) injunctive relief against threatened or actual violations
of any obligations under this Agreement or of governing law.
(f) The final decision or award of the arbitrator shall be final
and binding on the Parties, and judgment upon such final
decision or award may be entered in any court having
jurisdiction over one or both of the Parties or their assets.
The Parties specifically waive any right they may have to
apply to any court for relief from the provisions of this
Agreement or from any decision of the arbitrator made before
the final decision or award of the arbitrator.
(g) Subject to the final decision or award of the arbitrator, each
of the Parties shall bear an equal portion of the arbitrator's
fees and expenses, and each shall bear all of its own
expenses. The arbitrator shall have the power, however, to
award recovery of all fees and expenses (including attorneys'
fees, administrative fees, arbitrator's fees and court costs)
to the prevailing Party in the arbitration.
8.7 Equitable Relief. To the extent that monetary relief is not a
sufficient remedy for any breach of this Agreement, or upon any breach
or impending breach of Articles VI or VII, the non-breaching Party
shall be entitled to injunctive relief as a remedy for that breach or
impending breach by the other Party, in addition to any other remedies
granted to the non-breaching Party in this Agreement. That injunctive
relief shall be sought through arbitration in accordance with Section
8.6, except as permitted by Section 8.6(d).
8.8 Waiver of Remedies. No forbearance, delay, or indulgence by either
Party in enforcing this Agreement shall prejudice the rights or
remedies of that Party. No waiver of a Party's rights or remedies
regarding a particular breach of this Agreement constitutes a waiver of
those rights or remedies, or any other rights or remedies, regarding
any other or any subsequent breach of this Agreement.
<PAGE>
8.9 Survival. The rights, remedies, and obligations under this Article VIII
shall continue on and after the expiration or termination of this
Agreement.
8.10 Certain Damages. Under no circumstance shall a Party be liable under
this Agreement for any punitive or exemplary damages (however
described) or for any consequential, indirect, special or incidental
damages (however described), even if a possibility those damages was
disclosed or otherwise known to that Party. A Party may not claim or
receive as damages in any claim or proceeding against the other Party
alleging that other Party's breach or default of this Agreement any
amounts paid or incurred by the claiming Party in fulfilling its
indemnification obligations in connection with Third-Party Claims in
accordance with Sections 8.1 through 8.3.
8.11 Interest on Past Due Amounts. All amounts due under this Agreement, but
remaining unpaid for 30 days after Notice of non-payment (if so elected
by the Party entitled to the payment), shall bear interest at a rate
per annum equal to the prime rate set forth in the Money Rates section
of The Wall Street Journal plus two percent (2%) until those amounts
are paid in full.
ARTICLE IX-- PREEMPTIVE AND REFUSAL RIGHTS
9.1 Preemptive and Refusal Rights Agreement. Contemporaneous with this
Agreement, the Parties and Electronic Paycheck, LLC, a California
limited liability that is a subsidiary of GNB, are entering into a
Preemptive and Refusal Rights Agreement, which is Exhibit F to this
Agreement.
ARTICLE X-- SERVICE LEVEL AGREEMENT
10.1 Service Level Agreement. Contemporaneous with this Agreement, the
Parties are entering into a Service Level Agreement, which is Exhibit G
to this Agreement.
ARTICLE XI-- MISCELLANEOUS
11.1 Parties' Relationship. The Parties are independent, and this Agreement
does not create or evidence a partnership or joint venture between the
Parties. Each Party is solely responsible for its own employees,
including the compensation and the actions or omissions of those
employees, and neither Party has any authority with respect to the
other Party's employees.
11.2 Governing Law. California law governs this Agreement and the rights and
obligations of the Parties under this Agreement, including the validity
or enforcement and the construction or interpretation of this
Agreement.
11.3 Notices. Each notice, request, demand, and other communication from one
Party to the other under this Agreement must be in writing and
delivered in person or by courier or sent by certified mail, overnight
mail, or facsimile, in any case prepaid by the notifying Party, and
must be addressed as follows:
<PAGE>
If to Ace:
Ace Cash Express, Inc.
1231 Greenway Drive
Suite 800
Irving, Texas 75038
Facsimile: (972) 582-1430
Attention: Jay B. Shipowitz,
Chief Financial Officer
If to GNB:
Goleta National Bank
5827 Hollister Avenue
Goleta, California 93117
Facsimile: (805) 683-2082
Attention: Llewellyn W. Stone,
President and Chief Executive Officer
A Party may change its address for this purpose by giving Notice of
that change to the other Party in accordance with this Section 11.3.
Each Notice delivered or sent as provided above in this Section 11.3
will be deemed given, received, and effective on the date of actual
receipt (or refusal) by the addressee.
11.4 Assignment. This Agreement shall be binding on each of the Parties and
their respective permitted successors and permitted assigns. Neither
Party may assign its rights or obligations under this Agreement without
the prior written consent of the other Party, except that:
(a) the consent of the other Party may not be unreasonably
withheld or delayed if the proposed assignment is to a person
that is capable of performing the assigning Party's
obligations under this Agreement, and
(b) this restriction on assignment will not apply to a merger,
consolidation, or share exchange by a Party or the transfer of
the capital stock of a Party unless that transaction will
render that Party incapable of performing its obligations
under this Agreement.
Nothing in this Section 11.4 or otherwise in this Agreement prohibits
the assignment of a Party's right to receive amounts due under this
Agreement or Ace's grant of a security interest or lien in its rights
under this Agreement to its secured creditors. Any purported assignment
in violation of this Section 11.4 is void and ineffective.
<PAGE>
11.5 Interpretation and Certain Definitions. This Agreement is the result of
the Parties' negotiations, and no provision of this Agreement is to be
construed for or against either Party because of the authorship of that
provision. In the interpretation of this Agreement, except as otherwise
stated or the context otherwise requires:
(a) "business day" means any Monday through Friday, excluding any
such day on which national banks are authorized to be closed;
(b) "person" means an individual or natural person; a corporation,
partnership, limited liability company, trust, association, or
other entity of any kind; or a government, court, or
governmental agency or authority;
(c) "including" or "include" does not denote or imply any
limitation;
(d) "Article" refers to an Article of this Agreement, and
"Section" refers to a Section of this Agreement;
(e) "affiliate" means a person that directly or indirectly through
one or more intermediaries controls, is controlled by, or is
under common control with another person (and for this purpose
"control" and correlative terms means the power to direct the
management and affairs of a person);
(f) the singular includes the plural, and visa versa, and each
gender includes each of the others;
(g) captions or headings in this Agreement are only for reference
and are not to be considered in interpreting this Agreement;
and
(h) each Exhibit is an integral part of this Agreement.
11.6 Severability. If any part of this Agreement is or becomes invalid, it
is or will be severed from the rest of this Agreement and the rest of
this Agreement remains or will remain in effect so long as (i) the
continued effectiveness of the rest of this Agreement will not impose
or result in any substantial economic detriment to either Party or (ii)
the Parties amend this Agreement as necessary to preserve their
underlying economic or financial arrangements.
11.7 Integration; Amendment. This Agreement, together with its Exhibits, is
the entire agreement between the Parties relating to the subject matter
of this Agreement and supersedes all prior agreements or understandings
regarding that subject matter. This Agreement may be amended or
modified only by a writing signed by the Parties.
<PAGE>
11.8 Counterpart Signatures. This Agreement may be signed in counterparts,
with the same effect as if both Parties had signed the same paper; all
counterparts are to be construed together to be one, and the same,
document.
SIGNATURES:
ACE CASH EXPRESS, INC.
By: /s/ Jay B. Shipowitz
-------------------------------------------
Name: Jay B. Shipowitz
Title: Senior Vice President and
Chief Financial Officer
GOLETA NATIONAL BANK
By: /s/ Llewellyn W. Stone
-------------------------------------------
Name: Llewellyn W. Stone
Title: President and Chief Executive Officer
EXHIBIT A -- Credit Criteria
EXHIBIT B -- Collection Servicing Agreement
EXHIBIT C -- GNB marks and Ace marks
EXHIBIT D -- Master Loan Participation Agreement
EXHIBIT E -- Schedule of Interest and Fees
EXHIBIT F -- Preemptive and Refusal Rights Agreement
EXHIBIT G -- Service Level Agreement
<PAGE>
EXHIBIT A
CREDIT CRITERIA
*
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* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT B
COLLECTION SERVICING AGREEMENT
This COLLECTION SERVICING AGREEMENT ("Agreement"), dated as of
August 11, 1999, is between Goleta National Bank, a national banking association
(the "Lender"), and Ace Cash Express, Inc., a Texas corporation (in its capacity
as Servicer, the "Servicer").
WHEREAS, pursuant to the Master Loan Agency Agreement dated as
of August11, 1999 (the "Master Agreement") the Lender has agreed to make certain
short-term loans ("Loans") to borrowers who satisfy the "Credit Criteria" as
that term is defined in the Master Agreement; and
WHEREAS, the Servicer is willing to service the Loans pursuant
to the terms hereof.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other gender; references to "writing" include
printing, typing, lithography and other means of reproducing words in a visible
form; references to agreements and other contractual instruments include all
amendments, modifications and supplements thereto or any changes therein entered
into in accordance with their respective terms and not prohibited by this
Agreement; references to Persons include their permitted successors and assigns;
and the term "including" means "including without limitation."
Section 1.2 References. All section references, unless otherwise
indicated, shall be to Sections in this Agreement.
Section 1.3 Terms. The defined terms used herein are defined on
Schedule B.
ARTICLE II
SERVICING OF LOANS
Section 2.1 Appointment and Acceptance; Responsibility for Loan
Servicing. Ace Cash Express, Inc. is hereby appointed as Servicer pursuant to
this Agreement. Ace Cash Express, Inc. accepts such appointment and agrees to
act as the Servicer pursuant to this Agreement. The Servicer shall be obligated
to perform such duties and only such duties as are specifically set out in this
<PAGE>
Agreement and in the Master Agreement, and no implied duties or obligations on
the part of the Servicer shall be read into this Agreement. This Agreement shall
expire or terminate on the 90th day following the expiration or termination of
the Master Agreement. Servicer hereby waives any fee or payment from Lender for
its services under this Agreement.
(a) The Servicer will have the obligation to service and make
collections on the Loans. The Lender, at the written request of the Servicer,
will provide the Servicer with any powers of attorney or other documents
necessary or appropriate, as mutually agreed to by the Servicer and the Lender,
to enable the Servicer to carry out its servicing duties hereunder.
Section 2.2 General Duties. The Servicer will service and enforce the
Loans subject to the provisions of this Agreement. The Servicer will perform the
specific duties set forth in Schedule A (as may be amended and in effect from
time to time) and such other duties described in this Agreement (collectively,
the "Loan Services"). The Servicer will service and collect amounts owing on the
Loans with reasonable care, using that degree of skill and attention that the
Servicer exercises with respect to comparable assets that it services for its
own account. The Servicer will, subject to the provisions of this Agreement,
follow its customary standards, policies, and procedures in connection with such
servicing and collection. The Servicer shall commence or participate in a legal
proceeding (including a bankruptcy proceeding) relating to or involving a Loan
(a "Loan Legal Proceeding") promptly following any default in payment on such
Loan, subject to the reasonable consent and approval of Lender. If the Servicer
commences or participates in a Loan Legal Proceeding in accordance with this
Section 2.2, the Servicer is authorized and empowered by the Lender, pursuant to
this Section 2.2, to execute and deliver, on behalf of itself and the Lender,
any and all instruments of satisfaction or cancellation, or partial or full
release or discharge, and all other notices, demands, claims, complaints,
responses, affidavit or other document or instruments in connection with any
such proceedings. If the Servicer is legally prohibited from commencing a legal
proceeding to enforce a defaulted Loan, then the Servicer will retain an
attorney qualified to take legal action in the appropriate court.
Section 2.3 Collection Efforts. The Servicer will use reasonable
efforts to collect all payments called for under the terms and provisions of the
Loans as and when the same become due, and will follow those collection
procedures which it follows with respect to all comparable assets that it
services for its own account, subject to any reasonable direction of the Lender.
The Servicer shall not, subject to Section 2.4, consent to amend, waive, modify
or otherwise vary any provision of a Loan.
Section 2.4 Modification of LoansSection Modification of Loans. The
Servicer shall notify the Lender upon receipt of any request to amend, waive,
modify, extend or otherwise vary the terms of a Loan, and follow the reasonable
instructions of the Lender with respect to any such request or with respect to
any other matter which requires the consent of the Lender.
<PAGE>
Section 2.5 Notice of DefaultSection Notice of Default. The Servicer
and the Lender shall follow such procedures as they may agree to implement
regarding any notice of the occurrence of any default under any Loan, provided
such procedures shall provide, at a minimum, for periodic reporting of Loans in
default. Each party shall maintain its own system for monitoring such defaults.
Each party shall, in addition to periodic reporting, on the reasonable request
of the other party, provide summary information regarding the Loans such party's
records indicate are in default. In the event that the Servicer becomes aware of
a failure by an Obligor to make a payment on a Loan when due, the Servicer shall
follow the agreed upon procedures and, if required thereby, promptly commence
activities as required pursuant to Section 2.2 and 2.3 hereof without the need
for any additional notice or instructions related thereto from Lender.
ARTICLE III
COOPERATION OF SERVICER
Section 3.1 Servicer to Cooperate with Lender. The Servicer shall, at
the request of the Lender, provide the Lender with such information and reports
relating to the Loans as the Lender may reasonably require for the proper and
efficient performance by the Lender of its obligations under this Agreement and
the Master Agreement; provided that the Servicer shall not be required to
provide such information if to do so would be contrary to any applicable law or
regulation.
ARTICLE IV
DELEGATION BY THE SERVICER
Section 4.1 General. The Servicer may not, other than as expressly
provided in Section 4.2, subcontract or delegate the provision or performance of
the Loan Services.
Section 4.2 Appointment of Delegates. The Servicer (the "Delegating
Party") may, with the consent of the Lender (not to be unreasonably withheld or
delayed), enter into agreements with one or more other agents or representatives
(including any Affiliate of the Delegating Party) to perform all or a portion of
the Loan Services, provided that the Servicer shall remain liable to the Lender
for acts or omissions to act of any subcontractor, delegatee, agent or
representative. All actions of such agent or representative taken pursuant to
such a delegation agreement will be taken as an agent of the Delegating Party
with the same force and effect as though performed by the Delegating Party.
Section 4.3 Notice of Appointment. The Delegating Party shall, prior to
the appointment of the agent or representative pursuant to Section 4.2, provide
written notice to the parties hereto of such appointment.
Section 4.4 Enforcement of Rights by Delegating Party . The Lender may
require the Delegating Party to enforce any right which such Delegating Party
may have against such agent or representative arising from the provision or
performance of such delegated duties by such agent or representative.
<PAGE>
Section 4.5 Further Assurancee. The Lender will furnish the Delegating
Party, and the Delegating Party will furnish any agents or representatives, with
any powers of attorney and other documents necessary or appropriate to enable
the Delegating Party or such agent or representative, as applicable, to carry
out the Loan Services under this Agreement, as mutually agreed to by the
Servicer and the Lender.
ARTICLE V
COLLECTIONS
Section 5.1 Collection of Money. Except as otherwise expressly provided
in the Master Agreement, (i) the Servicer, on behalf of the Lender, may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable on any Loan, and (ii) all moneys received by the
Servicer shall be held in trust for the benefit of the Lender. The Servicer,
acting on behalf of the Lender, shall apply all such money as provided in the
Master Agreement.
Section 5.2 Establishment of Accounts. The Servicer shall establish and
maintain such accounts and sub-accounts as described in, and in accordance with
the terms of, the Master Agreement on behalf of the parties specified therein.
ARTICLE VI
ARTICLE LIMITATION ON LIABILITY
Section 6.1 Consequential Damages. Notwithstanding anything to the
contrary set forth herein: (i) the Servicer shall not have any obligations under
this Agreement other than those specifically set forth herein, and no implied
obligations shall be read into this Agreement; and (ii) in no event shall the
Servicer be liable under or in connection with this Agreement for indirect,
special, or consequential losses or damages of any kind, including lost profits,
even if advised of the possibility thereof and regardless of the form of action
by which such losses or damages may be claimed.
Section 6.2 Limitation on Liabilities. Neither the Servicer nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken in good faith by it or them under or in connection
with this Agreement, except for its or their own negligence or willful
misconduct and except as provided in Section 4.2 hereof.
Notwithstanding anything to the contrary set forth herein,
in no event shall the Servicer be liable for payment from its own funds for (i)
any taxes on or by reference to any Loans or payments thereon or (ii) any
alleged duty to make advances or (iii) except as set forth in the Master
Agreement, any amount paid or to be paid by or for the account of the Lender.
<PAGE>
ARTICLE VII
ARTICLE REPRESENTATIONS AND WARRANTIES
(a) The Servicer represents and warrants to the Lender that:
(1) such party is a Texas corporation validly existing and in
good standing under the laws of the State of Texas;
(2) such party has the power and authority to make, execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary corporate action to authorize its execution, delivery and performance
of this Agreement;
(3) this Agreement constitutes the legal, valid and binding
obligation of such party, enforceable against such party in accordance with its
terms, except as may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles of general application; and
(4) the execution and delivery of this Agreement by such party
and its fulfillment of or compliance with the terms and conditions of this
Agreement does not and shall not, in any manner which would materially adversely
affect its ability to perform its obligations under this Agreement, result in a
breach of, or constitute a default under (i) any term, condition or provision of
such party's charter or by-laws; (ii) the terms or provisions of any material
indenture agreement, deed or trust, contract or other agreement or instrument to
which such party is a party or by which such party is bound; or (iii) any law,
rule, regulation, order, judgment or decree of any court or governmental
authority having jurisdiction over such party which materially and adversely
affects the ability of such party to perform its obligations.
(b) The Lender represents and warrants to the Servicer that:
(1) such party is a banking association duly established,
validly existing and in good standing under the laws of the United States;
(2) such party has the power and authority to make, execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary corporate action to authorize its execution, delivery and performance
of this Agreement;
(3) this Agreement constitutes the legal, valid and binding
obligation of such party, enforceable against such party in accordance with its
terms, except as may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles of general application; and
<PAGE>
(4) the execution and delivery of this Agreement by such party
and its fulfillment of or compliance with the terms and conditions of this
Agreement does not and shall not, in any manner which would materially adversely
affect its ability to perform its obligations under this Agreement, result in a
breach of, or constitute a default under (i) any term, condition or provision of
such party's charter or by-laws; (ii) the terms or provisions of any material
indenture, agreement, deed or trust, contract or other agreement or instrument
to which such party is a party or by which such party is bound; or (iii) any
law, rule, regulation, order, judgment or decree of any court or governmental
authority having jurisdiction over such party which materially and adversely
affects the ability of such party to perform its obligations.
ARTICLE VIII
COVENANTS
Section 8.1 Covenants of the ServicerSection Covenants of the Servicer.
The Servicer, in addition to its duties and obligations set forth elsewhere in
this Agreement or the Master Agreement, hereby covenants with the Lender that:
(a) Performance of Duties and Obligations. It will give such time and
attention and will exercise such skill, care and diligence and allocate
sufficient resources as is necessary for the proper performance of its
obligations under this Agreement in accordance with the standards imposed by and
the terms of this Agreement.
(b) Instructions from the Lender. It will, subject to the provisions of
the Master Agreement, comply with all reasonable directions, orders and
instructions which the Lender may from time to time give in accordance with the
terms of this Agreement and the Master Agreement, provided that it shall not be
obligated to act on any such instructions if it believes it has not received
sufficient information to enable it to act and it shall not be liable for any
failure to act on any such instructions in such circumstances.
(c) Applications and Filings. It will prepare and submit in a timely
manner all applications and filings as may be necessary to enable it to comply
with its duties and obligations under this Agreement and the Master Agreement.
(d) Maintenance of Records and Files. It will, at its own cost and
expense, maintain all records and files required to be maintained by it pursuant
to this Agreement and the Master Agreement in accordance with its customary
procedures.
(e) Compliance with Law. It will comply, in all material respects, with
all material laws and regulations of any Governmental Authority applicable to it
in connection with the performance of its obligations under this Agreement;
provided that the Servicer, as the case may be, may contest any such law or
regulation in any reasonable manner which will not materially and adversely
affect the value of the Loans.
<PAGE>
(f) Use of Endorsement. Servicer will not use the authority granted to
it to endorse items made payable to Lender for any purpose or in any manner
other than in connection with the collection of Loans hereunder.
ARTICLE IX
ARTICLE EXPENSES
Section 9.1 Payment of Certain Expenses of Servicer. The Servicer
shall be responsible for payment of all normal and customary expenses of
collection, but shall be reimbursed for any extraordinary expenses relating to a
Loan Legal Proceeding that Lender specifically requests be undertaken to collect
a Loan.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendment. This Agreement may be amended from time to time
by the Servicer and the Lender for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
provided such amendment must be in writing and signed by the Servicer and the
Lender to be effective.
Section 10.2 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of California and the obligations, rights,
and remedies of the parties under the Agreement shall be determined in
accordance with such laws.
Section 10.3 Notices. All notices, demands, certificates, requests and
communications hereunder ("notices") shall be in writing and in English and
shall be effective (a) upon receipt when sent through the registered or
certified mail, return receipt requested, postage prepaid, with such receipt to
be effective the date of delivery indicated on the return receipt, (b) on the
date personally delivered or delivered by courier to the party to which sent or
(c) on the date received by legible telecopier transmission with a confirmation
of receipt, in all cases addressed to the recipient as follows:
<PAGE>
(i) If to the Servicer:
Ace Cash Express, Inc.
1231 Greenway Drive
Suite 800
Irving, Texas 75038
Fax No.:(972) 582-1430
Attention: Chief Financial Officer
(ii) If to the Lender:
Goleta National Bank
5827 Hollister Avenue
Goleta California 93117
Fax No: (805) 683-2082
Attention: Chief Executive Officer
Each party hereto may, by notice given in accordance herewith to each the other
party hereto, designate any further or different address to which subsequent
notices shall be sent.
Section 10.4 Severability of Provisions. If one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Loans; except
that the continued effectiveness of the other provisions of this Agreement will
be conditioned on their not imposing or resulting in any substantial economic
detriment to either party or on the parties' amending this Agreement as
necessary to preserve their underlying economic or financial arrangements.
Section 10.5 Third Party Beneficiaries. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. The parties hereto hereby manifest their
intent that no third party shall be deemed a third-party beneficiary of this
Agreement, and specifically that the Obligors are not third-party beneficiaries
of this Agreement.
Section 10.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall together
constitute but one and the same instrument.
Section 10.7 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
<PAGE>
Section 10.8 Incorporation by Reference . The Lender and the Servicer
hereby agree that the provisions of Articles V through VIII of the Master
Agreement, are hereby incorporated by reference, including the indemnification
and arbitration provisions set forth therein. To the extent that the terms of
this Agreement conflict with the terms of the Master Agreement, the terms of the
Master Agreement shall control
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
GOLETA NATIONAL BANK, as Lender
By: /s/ Llewellyn W. Stone
-----------------------------------------------------
Name: Llewellyn W. Stone
Title: President and Chief Executive Officer
ACE CASH EXPRESS, INC.,
As Servicer
By: /s/ Jay B.Shipowitz
-----------------------------------------------------
Name: Jay B. Shipowitz
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
SCHEDULE A
LOAN SERVICES
I. LOAN SERVICES
The Servicer's duties with respect to the Loans will include:
(a) monitoring receipt and taking reasonable action consistent with
procedures developed by Servicer and Lender to facilitate payments on Loans;
(b) if requested by Lender, notifying the Lender as promptly as
practicable as to any payments due but not received or any defaults by the
Obligors;
(c) undertaking enforcement procedures with respect to payments in
arrears in accordance with Sections 2.2 and 2.3 of this Agreement;
(d) providing the information to the Lender required under this
Agreement; and
(e) performing all such other services as are incidental to the above
services and as are from time to time agreed upon with the Lender, including the
services described in Section 1.5(i) and Section 1.5(j) of the Master Agreement.
<PAGE>
SCHEDULE B
DEFINITIONS
"Affiliate" - a Person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with
another Person (and for this purpose "control"and correlative terms means the
power to direct the management and affairs of a Person)
"Agreement" - as defined in the Recitals
"Delegating Party" - as defined in Section 4.2
"Lender" - as defined in the Recitals
"Loan Services" - as defined in Section 2.2
"Loan Legal Proceeding" - as defined in Section 2.2
"Loans" - as defined in the Recitals
"Master Agreement" - as defined in the Recitals
"notices" - as defined in Section 10.3
"Obligor" shall mean the individual obligated to repay a Loan
"Person" shall mean any individual, corporation, business trust, association,
company, partnership, joint venture, governmental entity or any other legal
entity
"Servicer" - as defined in the Recitals
<PAGE>
EXHIBIT D
MASTER LOAN
PARTICIPATION AGREEMENT
This Master Loan Participation Agreement (the "Agreement") is made as
of the 11th day of August, 1999, between Goleta National Bank, a national
banking association (hereinafter called "GNB") and Ace Cash Express, Inc., a
Texas corporation (hereinafter called "Participant").
WHEREAS, GNB may hereafter extend credit to various individual
borrowers (hereinafter referred to as "Obligors") whose obligations to GNB are
evidenced by a Promissory Note and other loan documents ("Loan Documents"),
samples of which are attached hereto as Exhibit A (such extensions of credit are
hereinafter referred to collectively as "Bank Loans");
WHEREAS, as a result of its independent review, Participant has agreed
to purchase an undivided interest in the Bank Loans upon the terms and
conditions of this Agreement, which is intended to govern the purchase and sale
of an undivided interest in each Bank Loan, the administration of the Bank
Loans, the procedures upon default by any Obligor and other related matters; and
WHEREAS, Participant desires to purchase, and GNB desires to sell to
Participant, an * undivided percent (* %) interest in each of the Bank Loans.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, GNB and Participant hereby
mutually agree as follows:
1. GNB agrees to sell to Participant, from time to time, and
Participant agrees to purchase from GNB, from time to time, an
* undivided percent ( * %) interest in each and every Bank
Loan made by GNB.
2. The purchase price for each Bank Loan purchased by Participant
shall be * percent (* %) of the principal amount of such Bank
Loan ("Purchase Price"). In no event shall Participant acquire
any participation in a Bank Loan related to an overdraft or
funding by Lender in excess of the approved Bank Loan.
3. Within five (5) business days after the execution of this
Agreement, Participant will establish an account or accounts
(the "Account") at a bank chosen by Participant for the
exclusive purpose of the transactions contemplated by this
Agreement.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
4. The Purchase Price for each Bank Loan shall be transferred
from the Account to GNB * and * percent (* %) of any payment
of fees, interest or principal received by GNB on such Bank
Loan shall be transferred to the Account * by GNB; provided
however, that if any instrument representing payment of the
fee, principal or interest on a Bank Loan is later dishonored,
rescinded or revoked, or GNB, for any reason, fails to receive
good funds, then the credit to the Account of Participant
shall be transferred to GNB.
5. GNB shall be responsible for administering the Bank Loans,
collecting all payments (principal, interest, late fees, or
receipts resulting from the liquidation of any collateral) and
disbursing to Participant its share of all amounts received.
6. GNB hereby represents, warrants and covenants that it shall
exercise that degree of ordinary care that would be exercised
by bankers or financiers, in the industry, in administering a
Bank Loan in accordance with the usual practices and
procedures employed by GNB on similar loans for its own
account taking into consideration the size of the Bank Loan,
creditworthiness of the applicable Obligor, other credit
extended to the applicable Obligor and other matters
customarily taken into account in underwriting and
administering similar loans in the ordinary course of GNB's
business. GNB hereby represents, warrants and covenants that
it shall use reasonable efforts, consistent with the efforts
GNB utilizes in connection with loans for its own account, to
insure that the Loan Documents are enforceable in accordance
with their terms, comply with regulatory requirements related
thereto, and provide customary rights and remedies to the
holder thereof.
7. In the event of a default in the payment of principal,
interest or fees due on a Bank Loan by Obligor, GNB shall not
be required to remit Participant's share thereof until
collected. GNB shall, subject to the standard set forth in
Section 6, have discretion with respect to the collection of
any defaulted Bank Loan and may employ the services of agents,
including Participant, to assist it in these collection
efforts.
8. Participant shall pay the "Expenses," related to the
collection or enforcement of a defaulted Bank Loan unless
otherwise provided in this Agreement or other Agreements
between the parties. The term "Expenses" shall mean all
reasonable out of pocket expenses incurred by GNB or any agent
of GNB, which may be Participant, in connection with the
collection of a Bank Loan including, but not limited to,
outside attorneys' fees, and all other costs and expenses
typically incurred by a lender in connection with the
collection of a similar loan.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
9. GNB, or a custodian appointed by it, shall retain in trust
physical possession of the Loan Documents and any other
documents or instruments in its physical possession relating
to the Bank Loans in accordance with the terms of this
Agreement for the account of GNB and Participant as owners
thereof. Any person, firm or corporation may deal with GNB
concerning the Bank Loans in the same manner as if GNB were
the sole owner thereof and no participation therein were
outstanding.
10. GNB, or its agents, shall maintain customary books and records
relating to the Bank Loans, which shall be made available to
Participant or its duly authorized agents at all reasonable
times for the purposes of inspection, examination or audit
upon three business days' written notice from Participant to
GNB.
11. GNB and Participant shall share any losses (but not
unreimbursed Expenses) with respect to any defaulted Bank Loan
in accordance with their respective interests in such Bank
Loan (i.e. percent * (* %) of such loss shall be borne by
Participant and * percent (* %) shall be borne by GNB).
12. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally, but only by an
instrument in writing signed by both of the parties.
13. This Agreement may be executed in several counterparts, each
of which shall constitute an original, but all of which
together shall constitute but one instrument.
14. Each notice, request, demand, and other communication under
this Agreement must be in writing and delivered in person, or
by courier, or sent by certified mail, overnight mail, or
confirmed facsimile, in any case prepaid by notifying party,
and must be addressed as follows:
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
If to GNB:
Goleta National Bank
5827 Hollister Avenue
Goleta, California 93117
Facsimile: (805) 683-2082
Attn: Mr. Llewellyn W. Stone, President and
Chief Executive Officer
If to Participant:
Ace Cash Express, Inc.
1231 Greenway Drive, Suite 800
Irving, Texas 75308
Facsimile: (972) 582-1430
Attn: Mr. Jay B. Shipowitz, Chief Financial Officer
Notices shall be deemed to be delivered, given and effective
on the date of delivery. A party may change its address for
this purpose by giving notice of that change to the other
party in accordance with this Section 14. Each notice
delivered or sent as provided above will be deemed given,
received, and effective on the date of actual receipt (or
refusal) by the addressee.
15. This Agreement shall be construed fairly as to both parties
and not in favor of or against either party, regardless of
which party prepared this Agreement.
16. This Agreement shall be construed and interpreted in
accordance with the laws of the State of California. This
Agreement shall be governed by and construed in accordance
with the laws of the State of California. Any dispute,
controversy or claim arising out of or relating to this
Agreement, or the breach or validity hereof ("Dispute"), shall
be settled by final and binding arbitration in accordance with
the Rules for Commercial Arbitration (the "Rules") of the
American Arbitration Association ("AAA") in effect as of the
date of the Dispute and in accordance with the following
subsections of this Section 16. (In the event of any
inconsistency between the Rules and the arbitration provisions
of this Section 16, the latter shall control.)
(a) The arbitration shall be conducted by a sole
arbitrator who has experience in or is otherwise
familiar with the kinds of business to which this
Agreement relates and is not, and has not been, an
affiliate or a family member of either Party. In the
event an arbitrator who has such experience or
familiarity cannot be found, then the Parties shall
appoint an arbitrator who is mutually satisfactory to
them. Such arbitrator shall be appointed by the
Parties within fifteen (15) days from the filing of
the Demand and Submission in accordance with Section
<PAGE>
7 of the Rules. If the Parties fail to agree upon a
sole arbitrator within such 15-day period and fail to
agree to an extension of such period, the arbitration
shall be conducted by a sole arbitrator appointed by
the AAA in accordance with Section 14 of the Rules.
The arbitrator appointed shall be knowledgeable in
the subject matter of the Dispute.
(b) The place of arbitration shall be Phoenix, Arizona,
and the final decision or award of the arbitrator
shall be issued at the place of arbitration. The
arbitrator may, however, call and conduct hearings
and meetings at such other places as (i) the Parties
hereby may agree or (ii) the arbitrator may, on the
motion of a Party, determine to be necessary to
obtain significant testimony or evidence.
(c) The arbitrator shall have the power to authorize all
forms of discovery (including depositions,
interrogations and document production) on a showing
of particularized need that the requested discovery
(i) is likely to lead to material evidence needed to
resolve the controversy and (ii) is not excessive in
scope, timing, or cost.
(d) The arbitrator shall not have the power to (i) rule
upon or grant any extension, renewal or continuance
of this Agreement, (ii) award damages or other
remedies expressly prohibited by this Agreement, or
(iii) grant interim injunctive relief before
rendering the final decision or award. Nevertheless,
either of the Parties may apply for an obtain
temporary or provisional injunctive relief from any
court having jurisdiction over one or both of the
Parties or their assets regarding any violation or
alleged violation by the other Party of its
obligations under this Agreement.
(e) The final decision or award of the arbitrator shall
be made as soon as reasonably practicable after the
appointment of the arbitrator under Section 16(a).
Such a final decision or award may include (i)
recovery of actual damages for violation of any
obligations under this Agreement or of governing law
or (ii) injunctive relief against threatened or
actual violations of any obligations under this
Agreement or of governing law.
(f) The final decision or award of the arbitrator shall
be final and binding on the Parties, and judgment
upon such final decision or award may be entered in
any court having jurisdiction over one or both of the
Parties or their assets. The parties specifically
waive any right they may have to apply to any court
for relief from the provisions of this Agreement or
from any decision of the arbitrator made before the
final decision or award of the arbitrator.
<PAGE>
(g) Subject to the final decision or award of the
arbitrator, each of the Parties shall bear an equal
portion of the arbitrator's fees and expenses, and
each shall bear all of its own expenses. The
arbitrator shall have the power, however, to award
recovery of all fees and expenses (including
attorneys' fees, administrative fees, arbitrator's
fees and court costs) to the prevailing Party in the
arbitration.
17. If any provision of this Agreement shall be declared to be
unenforceable or invalid, the remainder of this Agreement
shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
18. Time is of the essence of this Agreement and every provision
hereof in which time of performance is a factor.
19. Neither the execution of this Agreement, the sharing of the
Loan Documents, nor any agreement to share in the Bank Loans
is intended to create a partnership or joint venture between
Participant and Lender.
20. Except as specifically provided in Section 21 of this
Agreement, none of the provisions of this Agreement shall
inure to the benefit of any Obligor or any person other than
Participant and Lender.
21. GNB acknowledges that Participant's interest in each and every
Bank Loan made by GNB (i.e., Participant's participation
interest) is subject to a first priority security interest in
favor of Wilmington Trust Company, a Delaware banking
corporation ("Trustee"), pursuant to the terms of (i) that
certain Amended and Restated Assignment of Deposit Accounts
and Security Agreement, dated as of July 31, 1998, by and
between Participant and Trustee, for the ratable benefit of
the beneficiaries from time to time a party to the Collateral
Trust Agreement (as hereinafter defined), as the same may be
amended, modified or extended from time to time, and (ii) that
contain Amended and Restated Collateral Trust Agreement, dated
as of July 31, 1998, by and among Participant, Wells Fargo
Bank (Texas), National Association, a national banking
association, as Agent, Principal Life Insurance Company, an
Iowa corporation, Travelers Express Company, Inc., a Minnesota
corporation, and Trustee, as the same may be amended, modified
or extended from time to time (the "Collateral Trust
Agreement"). Notwithstanding any provision of this Agreement
to the contrary, any payments to be made to Participant (in
that capacity and not as loan servicing agent) under this
Agreement shall, upon receipt of written notice by GNB from
Trustee, be paid directly to Trustee at its principal office
in Wilmington, Delaware, for application pursuant to the
Collateral Trust Agreement. GNB is entitled to rely upon and
<PAGE>
is authorized and directed to follow all written instructions
of Trustee contained in any notice described in the preceding
sentence, and GNB shall have no duty to inquire as to the
authorization or authenticity of any such instructions. GNB
further acknowledges that Participant's rights in this
Agreement may be assigned to Trustee as additional collateral
security for the beneficiaries from time to time a party to
the Collateral Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers as of the day and year first
above written.
GOLETA NATIONAL BANK
By: /s/ Llewellyn W. Stone
----------------------------------------------------
Name: Llewellyn W. Stone
Title President and Chief Executive Officer
ACE CASH EXPRESS, INC.
By: /s/ Jay B. Shipowitz
----------------------------------------------------
Name: Jay B. Shipowitz
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT E
SCHEDULE OF INTEREST AND FEES
1. Interest. GNB will charge the borrower interest on each Bank Loan including
each Renewal, which interest will be shared by GNB and Ace in accordance with
the participation percentage of the corresponding Bank Loan as set forth in that
certain Master Loan Participation Agreement by and between GNB and Ace.
2. Loan Participation Processing Fee. GNB will charge Ace (and not the
borrower), and Ace will pay to GNB, a Loan Participation Processing Fee for
processing the out participation of each Bank Loan (including each Renewal) to
Ace equal to the sum of (a) * (*) of all interest charged to the borrower on
each Bank Loan (including each Renewal) plus (b)*(*). The Loan Participation
Processing Fee will be charged by GNB and paid by Ace at the time interest is
actually paid by the borrower on each Bank Loan (including each Renewal).
3. Card Fee. GNB will charge Ace and Ace will pay to GNB, not later than 60 days
from the date of delivery of the Card to the Ace Location, * (*) for each Card
so delivered.
4. ATM Charges. Borrowers who access the Bank Loan proceeds with the Card
through an automated teller machine will pay all costs charged by the ATM in
addition to GNB's charge of * (*) per withdrawal (the "Withdrawal Fee"). There
will be no charge for disbursement of Bank Loan proceeds at a Location at which
Bank Loans are offered. GNB will pay Ace a commission equal to *(*) for each
Withdrawal Fee collected by GNB, which commission will be paid not later than
the fifteenth (15th) day of the month immediately following the month in which
the Withdrawal Fee is collected.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT F
PREEMPTIVE AND REFUSAL RIGHTS AGREEMENT
*
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT G
SERVICE LEVEL AGREEMENT
Servicing Agreement
Goleta National Bank will operate or cause to be operated a facility to
authorize loans described in this agreement. The facility will include computer
servers that electronically authorize and process transactions.
Operation of Computer System
The authorization computer system will be expected to operate 24 hrs/day 7
days/week with scheduled maintenance to take place during off peak hours. Any
scheduled down times will not be planned to exceed 2 hours and will be announced
at least 24 hours prior to such down time.
Unscheduled Down Time
Computer Systems Fail. As a result Bank will have in place prudent backup
systems that can be started within 15 minutes of failure when staffed and within
30 minutes of failure during un-staffed times. If the system failure is expected
to exceed 5 minutes, then Bank will allow the manual authorization of loans
through telephone calls and/or fax to the Bank's designated servicing office.
Staffing Hours (Pacific Time) Testing Period After Testing
----------------------------- -------------- -------------
Monday-Friday 7am - 6pm 6am - 9pm
Saturday 8am - 4pm 7am - 9pm
Sunday Closed 7am - 5pm
Non-Staffed Hours
Bank Representatives will be on call through an Answering Service 24 hours for
emergencies during non-staffed hours at a designated toll free telephone number
to be announced later.
AGREED to this 11th day of August, 1999, by the undersigned.
GOLETA NATIONAL BANK
By: /s/ Llewellyn W. Stone
---------------------------------------
Name: Llewellyn W. Stone
Title: President and Chief Executive Officer
ACE CASH EXPRESS, INC.
By: /s/ Jay B. Shipowitz
---------------------------------------
Name: Jay B. Shipowitz
Title: Senior Vice President and
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.48
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>MONEY TRANSFER AGREEMENT
<TEXT>
MONEY TRANSFER AGREEMENT
This Money Transfer Agreement ("Agreement") is between Travelers Express
Company, Inc. and MoneyGram Payment Systems, Inc. (collectively, "Company") and
Ace Cash Express, Inc. ("Ace").
1. PURPOSE AND EFFECTIVENESS.
a. The purpose of this Agreement is to authorize Ace (and to the
extent Ace so elects, Ace's subsidiaries) to sell and provide
Money Transfer Services at the Locations (as defined below).
"Money Transfer Services" are the electronic Transfer Send,
Transfer Receive and Express Payment transactional services
offered by Company under the trade or service mark
MoneyGram(R)or any other name, tradename or service mark
Company may designate. A "Location" is a location owned and
operated by Ace (and to the extent Ace so elects, Ace's
subsidiaries) at which it offers check-cashing and other
retail financial services (whether through Ace personnel or
unmanned machine or equipment); "Location" does not include
any location owned and operated by a franchisee of Ace or a
franchisee of any of Ace's subsidiaries.
b. This Agreement is signed by Company and Ace (collectively,
"Parties") on the Signature Date (as defined in Section 28).
Except for paragraph 1 of Exhibit A attached to this Agreement
("Exhibit A"), however, this Agreement is effective at 12:01
a.m. on January 1, 2001 (the "Effective Date"); paragraph 1 of
Exhibit A is effective on the Signature Date.
2. APPOINTMENT AND RELATIONSHIP.
a. Company appoints Ace to sell and provide Money Transfer
Services only as provided in this Agreement. Ace accepts the
appointment only under the terms of this Agreement and agrees
not to offer any other competitive money transfer services in
any of its Locations while this Agreement is in effect (except
that Ace may perform existing contracts at Locations acquired
by Ace, though Ace shall terminate any such contract, and
offer Money Transfer Services, as soon as is reasonably
practicable if there is no economic penalty in the contract
and such termination would not be a breach of the contract).
Ace also agrees, for itself and its subsidiaries, that it will
not permit any other Person (as defined in Section 25) to
offer any other competitive money transfer services in space
leased or provided by Ace in the Locations. Ace may not create
a subagency to offer Money Transfer Services. This Agreement
does not include or relate to any franchisee of Ace or any
franchisee of any of Ace's subsidiaries or any location of any
such franchisee.
b. "Sales Proceeds" are the amounts of money to be transferred in
all Transfer Send transactions (the "Transfer Amounts"), all
Consumer Fees (as defined in Section 3.b), and all other cash
<PAGE>
proceeds from Ace's sale of the Money Transfer Services in
Transfer Send transactions. To the extent required by
applicable law, (i) Ace shall hold all Sales Proceeds as
"trust funds" and blank Money Transfer Checks (as defined in
Section 3.c) in trust for Company and (ii) if Ace commingles
the Sales Proceeds with any funds of Ace, the commingled funds
are impressed with a trust in favor of Company to the extent
of the Sales Proceeds due Company. Except as provided in this
Agreement and except for liens and security interests granted
to Ace's secured creditors, (A) Ace does not acquire any
right, title, or interest in the Sales Proceeds or the blank
Money Transfer Checks, and (B) all such Sales Proceeds and
blank Money Transfer Checks remain the property of Company.
c. The Parties are independent. This Agreement does not create or
evidence a partnership or joint venture between the Parties.
Each Party is solely responsible for its own employees,
including the actions or omissions and the compensation of
those employees, and neither Party has any authority with
respect to the other Party's employees.
3. MONEY TRANSFER PROCEDURES.
a. Numbers.
(i) The Numbers (as defined below) must be provided by
Ace to Company each time a Transfer Send or Transfer
Receive request is made. The "Numbers" are the
Identification Number and the PIN assigned to Ace by
Company; "Identification Number" means the unique and
confidential identification number provided or
assigned by Company to each of its authorized agents
or trustees conducting Transfer Send and Transfer
Receive transactions; "PIN" means a second
confidential identification number provided by
Company to each of its authorized agents or trustees
conducting Transfer Send and Transfer Receive
transactions. The PIN can be changed if the security
of either Number has been compromised.
(ii) Ace agrees to take reasonable precautions to prevent
disclosure of the Numbers to, and corresponding
access to the Money Transfer Services by,
unauthorized Persons and will notify Company promptly
if Ace knows or reasonably suspects that the Numbers
have been disclosed to any unauthorized Persons.
Company will, as soon as practicable thereafter,
issue new Numbers to Ace. Ace shall be liable for all
use or misuse of the Numbers by any unauthorized
Person other than a Person who or which obtained
access through any act or omission of Company or
under its control. Ace shall assist Company, as
reasonably requested, in investigating the
circumstances of any use or misuse of the Numbers by
any unauthorized Person.
<PAGE>
(iii) Ace hereby acknowledges that Company will refuse to
authorize transactions if the correct Numbers are not
provided. Ace agrees that Company shall have the sole
and exclusive right, at any time, to refuse any
Transfer Send or Transfer Receive request.
b. Transfer Send Transactions.
(i) For each Transfer Send transaction (which in this
Agreement includes an Express Payment transaction),
Ace shall collect from the consumer the Transfer
Amount and the applicable Consumer Fee(s). "Consumer
Fee" means a variable fee, as designated from time to
time by Company, that Ace or any other of Company's
agents or trustees for Money Transfer Services shall
charge each consumer making a Transfer Send
transaction. Subject to subsection (ii) of this
Section 3.b, Company shall provide Ace a Consumer Fee
schedule, which Company may from time to time amend
by providing at least 30 days' prior written notice
of the amendment to Ace. Ace shall not charge
consumers additional fees of any kind or nature for
any Transfer Send transaction.
(ii) Except for temporary Consumer Fees established only
for promotional pricing purposes, each Consumer Fee
included in the Consumer Fee schedule provided to Ace
for each of the Locations in a Market (as defined
below) shall be within * of the corresponding
Consumer Fee that each other agent or trustee of
Company for Money Transfer Services with retail
locations in that Market (a "Same-Market Agent") is
permitted to charge. For the purpose of this Section
3.b(ii), "Market" means a Designated Market Area (as
defined by Nielsen Media Research). But if any
Same-Market Agent is ever permitted to charge any
Consumer Fee that would be at least * greater or at
least * less than the corresponding Consumer Fee that
Ace may charge at the Locations in that Market (a
"Triggering Consumer Fee"), then Company shall offer
to amend Ace's Consumer Fee schedule by amending or
adjusting Ace's Consumer Fee to be the same as the
Same-Market Agent's Consumer Fee. Company shall make
such offer by giving written notice thereof to Ace
either (A) at least 30 days before the Triggering
Consumer Fee is implemented at any of the Same-Market
Agent's locations in the Market, or (B) promptly upon
learning that Ace proposes to open or acquire a
Location at which Money Transfer Services will be
offered in a Market in which a Same Market Agent is
permitted to charge a Triggering Consumer Fee (in
which case Ace shall have 30 days from receipt of
that offer to accept or reject the offer). If Ace
elects to accept the proposed amendment to its
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
Consumer Fee (and Consumer Fee schedule), then (x)
Company must implement the adjusted or amended
Consumer Fee at each Location in the Market, in the
case of clause (A) above, no later than 14 days after
the Same-Market Agent first offers Money Transfer
Services for that Consumer Fee at its locations in
the Market or, in the case of clause (B) above, no
later than 14 days after Ace accepts the proposed
amendment to its Consumer Fee (and Consumer Fee
schedule), and (y) that adjusted or amended Consumer
Fee shall remain in effect (subject to the occurrence
of another Triggering Consumer Fee) for one year
after it is first implemented or for so long as the
same Consumer Fee is effective for the Same-Market
Agent, whichever is less; after that required period
of effectiveness, Company shall (if Ace so requests
in writing) restore the Consumer Fee to the level or
amount in effect before the adjustment or amendment.
Ace's election to accept a proposed amendment to its
Consumer Fee must be made by written notice to
Company within the applicable 30-day election period
described in clause (A) or clause (B) above; if Ace
does not give that notice within that 30-day period,
Ace shall be deemed to have refused the proposed
amendment. In the event of any Triggering Consumer
Fee, whether or not Ace elects to accept a proposed
amendment to its Consumer Fee, Company agrees that it
will not advertise or promote, or cause the
Same-Market Agent to advertise or promote, the
discrepancy between the Same-Market Agent's Consumer
Fee and Ace's corresponding Consumer Fee (though Ace
acknowledges that Company shall have no obligation to
prohibit or stop any such advertising or promotion
solely on the part of the Same-Market Agent). Ace
understands that any decrease in Consumer Fees that
it charges may result in reduced commissions (unless
the Parties otherwise agree).
(iii) Ace agrees to sell Money Transfer Services for cash,
though Ace may accept another form of payment;
however, if Ace sells a Money Transfer Service for
other than cash, Ace will nevertheless be liable to
Company for an amount of cash equal to the Sales
Proceeds.
(iv) Ace is fully responsible and unconditionally liable
to Company under this Agreement for all Transfer Send
transactions initiated by giving the Numbers to
Company's transaction center.
(v) Ace shall remit to Company, by deposit in the Trust
Account so that Company may initiate an ACH debit
against the Trust Account, all Sales Proceeds, or an
amount equal to all Sales Proceeds, associated with
all Transfer Send transactions and Consumer Fees no
later than the first business day after the Transfer
Send transaction is initiated.
<PAGE>
c. Transfer Receive Transactions.
(i) Ace shall follow the computerized or telephonic
authorization procedures specified by Company, which
are applicable generally to all of Company's
authorized agents or trustees for Money Transfer
Services, prior to disbursement of the Transfer
Amount.
(ii) Ace shall maintain the ability to disburse at least
$500 in cash for each Transfer Receive. If a Transfer
Receive involves a Transfer Amount which exceeds $500
or if the recipient requests disbursement in a form
other than cash, Ace will disburse the Transfer
Receive amount by issuing a Money Transfer Check to
the recipient, or in such other form as approved by
Company. A "Money Transfer Check" is a special draft,
in a form provided to Ace by Company, evidencing
Company's obligation to pay cash. Ace shall deposit
in the Trust Account Money Transfer Checks in the
amount of each Transfer Receive transaction paid out
in cash in order to itself receive reimbursement for
cash disbursed. Ace shall not charge a fee of any
kind for cashing a Money Transfer Check issued by Ace
in connection with a Transfer Receive transaction.
Money Transfer Checks are not to be used by Ace for
any purpose other than in connection with the Money
Transfer Services.
(iii) Ace is fully responsible and unconditionally liable
to Company under this Agreement for all amounts which
Ace, pursuant to a Transfer Receive transaction,
wrongfully disburses either to a Person other than
the intended recipient or as a result of paying out
an incorrect amount. Ace shall pay all such wrongful
disbursement amounts to Company within 30 days after
written demand therefor from the Company.
4. SUPPLIES AND SOFTWARE.
a. On or for the Effective Date and thereafter from time to time
as reasonably requested by Ace, Company shall (at no charge to
Ace) distribute Money Transfer Checks to the Locations in such
quantities as Ace may reasonably request.
b. On or for the Effective Date and thereafter from time to time
as reasonably requested by Ace, Company shall (at no charge to
Ace) distribute to the Locations such forms and supplies as
may be necessary for Ace to conduct the Money Transfer
Services at those Locations.
c. Company shall provide Ace various interior signs and display
materials prepared by Company at its expense to advertise and
promote the Money Transfer Services ("Promotional Materials").
Company shall provide to Ace for review, before shipment to
any Location, each type or form of the Promotional Materials
that Company proposes for use or display at any Location. Upon
Ace's approval thereof (which may not be unreasonably withheld
or delayed), Company shall (at its own expense) ship the
Promotional Materials directly to the Locations in such
<PAGE>
quantities as Ace may reasonably request; that shipment may be
by whatever means Company deems appropriate. Ace shall display
the approved Promotional Materials at the Locations at which
the Money Transfer Services are offered. Company shall afford
Ace an opportunity to receive, and if Ace so elects shall
provide Ace, each type of Promotional Material that Company
prepares for use by its agents or trustees for Money Transfer
Services. The Promotional Materials in Ace's possession or
control may be used by Ace only for the purposes of this
Agreement, and shall remain the property of Company. Ace's
right to use the Promotional Materials shall cease upon
expiration or termination of this Agreement. Ace shall destroy
any Promotional Materials in Ace's possession or control upon
expiration or termination of this Agreement.
d. Company hereby grants Ace a nonexclusive license to use, and
shall provide Ace the necessary copies (in object code) of,
Company's transaction software that permits its agents or
trustees to sell and provide Money Transfer Services
("Software"), for use with Ace's point-of-sale system. Company
shall also provide Ace the necessary copies of each update or
revision to the Software provided to any of Company's agents
or trustees for Money Transfer Services during the
effectiveness of this Agreement (and each such provided update
or revision shall be included in "Software"); before providing
any update or revision to the Software, however, Company shall
give Ace at least 90 days' prior written notice thereof and
shall afford Ace's chief information officer an opportunity to
review and test that update or revision. The Software may be
used by Ace only as permitted by this Agreement, and shall
remain the property of Company. Ace agrees to maintain a
telephone line to communicate transaction data to Company's
transaction center through Company's toll-free number; this
may be a shared line. The Software will be programmed to call
daily to Company's toll-free number. The Software contains
technology protected by patents and trade secrets. Ace may not
reverse engineer or decompile the Software. Ace's right and
license to use the Software under this Agreement shall cease
upon expiration or termination of this Agreement. Ace shall
destroy all copies of the Software in Ace's possession or
control upon expiration or termination of this Agreement.
5. PERSONNEL AND SPACE; LIMITATION OR SUSPENSION.
a. Ace agrees to furnish all personnel, space, and utilities
necessary and appropriate, in Ace's good-faith judgment, for
offering, selling, and providing Money Transfer Services at
the Locations at which Money Transfer Services are offered,
sold, and provided.
b. To the extent that Company may, upon advice of counsel,
reasonably deem it necessary in order to avoid any violation
of law or of any order, judgment, or decree of any court or
request of any other governmental authority or agency having
authority over Company, Company may, by prior oral notice
<PAGE>
(confirmed promptly by written notice) to Ace, (i) limit the
number of Money Transfer Services transactions or the dollar
amount of Money Transfer Services that Ace may sell or provide
or (ii) suspend Ace's right under this Agreement to sell or
provide any Money Transfer Services. If Company takes action
under the preceding sentence due to Company's receipt of any
written notice or communication from any agency or other
governmental authority, Company shall provide Ace with a copy
of such notice or communication within one business day after
Company's receipt of it, unless prohibited from doing so. In
addition, Company will give Ace prompt written notice (unless
prohibited) if Company learns of any pending or overtly
threatened action or proceeding or investigation that is
reasonably likely to result in such a notice or communication.
Ace will immediately stop selling or providing Money Transfer
Services if a governmental agency or authority specifically
orders that Ace stop selling or providing Money Transfer
Services.
c. To the extent that Company may reasonably deem it necessary to
investigate or respond to any fraudulent or other illegal
activity, or any reasonably suspected fraudulent or illegal
activity, involving the use of Money Transfer Services at any
Location, Company may suspend Ace's right to offer, sell, and
provide Money Transfer Services at a Location; this
suspension, however, shall be limited to only such time and
scope as are necessary to permit Company to so diligently
investigate or respond. Any such suspension or investigation
or response by Company shall be performed or conducted in such
a manner as to interfere as little as possible with Ace's
other business and operations at the Location.
6. CARE OF COMPANY'S PROPERTY.
Ace agrees to safeguard Sales Proceeds and blank Money Transfer Checks
with the same degree of care that a normally prudent person would give
to his own property. Ace will remain liable to Company for the Sales
Proceeds to be remitted until Company has received collected funds in
the full amount of the Sales Proceeds.
7. RESPONSIBILITIES -- ACE.
a. Ace is responsible for, and agrees to indemnify Company
against, any and all losses, damages, and expenses (including
attorneys' fees) which Company may sustain or incur resulting
from any act or failure to act (whether negligent, dishonest,
or otherwise) by Ace or any of Ace's employees or other
representatives (not including any franchisees) (whether or
not acting within the scope of employment) relating to this
Agreement.
b. Ace agrees to indemnify Company against any loss of blank
Money Transfer Checks that may occur by crime or mysterious
disappearance, except as stated in Section 8.a.
<PAGE>
8. RESPONSIBILITIES -- COMPANY.
a. Company (and not Ace) will be responsible for loss of a blank
Money Transfer Check only when all of the following conditions
occur:
(i) The loss is not the result of Ace's intentional
misconduct or breach of this Agreement;
(ii) Ace has given the same protection to the blank Money
Transfer Check that a prudent person would give to
his own cash;
(iii) Company receives a report of the loss, including the
serial number of the missing blank Money Transfer
Check, by telephone at least 24 hours before the
Money Transfer Check is presented to Company for
payment; and
(iv) Ace promptly submits to Company, by notice in
accordance with Section 23, a report describing the
loss and listing the serial number of the lost blank
Money Transfer Check.
b. Ace is not responsible to Company for counterfeited items
resembling Money Transfer Checks except to the extent that
Ace's act or failure to act contributed to or permitted the
counterfeiting.
c. Company will provide assistance to Ace, upon reasonable
request, in tracing lost, stolen, or missing Money Transfer
Checks. Company will act as quickly as possible on any report
from Ace made pursuant to Section 8.a(iii).
d. Company is responsible for, and agrees to indemnify Ace
against, any and all losses, damages, and expenses (including
attorneys' fees) which Ace may sustain or incur resulting from
any act or failure to act (whether negligent, dishonest, or
otherwise) by Company or any of Company's employees or other
representatives (whether or not acting within the scope of
employment) relating to this Agreement.
e. Company will, at its expense, provide training of Ace's
personnel from time to time (upon Ace's reasonable request)
regarding Money Transfer Services procedures in connection
with the establishment of the Money Transfer Services at an
Acquired Competitive Location (as defined in paragraph 3 of
Exhibit A) or regarding operational changes in the Software.
That training will be provided at the Acquired Competitive
Locations at which the Money Transfer Services are being
established or (if related to changes in the Software) at
Ace's regional locations and corporate office, as agreed by
the Parties.
9. NO PUNITIVE OR CONSEQUENTIAL DAMAGES. Under no circumstances shall a
Party be liable under this Agreement for any punitive or exemplary
damages (however described) or for any consequential, indirect, special,
or incidental damages (however described), even if the possibility of
<PAGE>
those damages was disclosed or otherwise known to that Party. This
exclusion, however, does not affect a Party's liability for lost profits
as part of actual damages for any breach of its obligations under this
Agreement.
10. FINANCIAL RESPONSIBILITY. Each Party agrees to maintain a sound
financial condition. In this Agreement, Ace's "sound financial
condition" means that Ace meets both of the following credit criteria:
a. Each day Ace shall maintain Liquid Assets (as defined
below) at least equal to Ace Working Indebtedness (as
defined below). For this purpose, "Liquid Assets"
means the sum (without duplication) of (i) the ledger
balances of all bank accounts of Ace, (ii) the
balances of all investment accounts of Ace, (iii)
checks and other liquid instruments held by Ace
pending deposit, (iv) cash in each of Ace's
locations, (v) cash, checks, and other instruments in
transit to bank accounts or to Ace's locations, and
(vi) cash, instruments, or other liquid assets of Ace
held by Company. For this purpose "Ace Working
Indebtedness" means the sum (without duplication) of
(A) the outstanding principal balance of Ace's
indebtedness to lenders under its revolving (working
capital) credit facilities and (B) the aggregate
amount of Sales Proceeds pending remittance to
Company under this Agreement.
b. The most recent quarterly or annual financial
statements of Ace reflect a positive amount after
deducting from EBITDA (as defined below) the sum of
Ace's taxes and interest expense. For this purpose,
"EBITDA" means Ace's earnings before interest, taxes,
depreciation and amortization.
c. Ace agrees that its reports on Forms 10-K and 10-Q
filed with the Securities and Exchange Commission
will support its compliance with the credit criteria
set forth in Sections 10.a and 10.b. In addition, if
the existing Money Order Agreement between Ace and
Travelers Express Company, Inc. dated as of April 6,
1998 (the "Money Order Agreement") expires or is
terminated in accordance with its terms and is not
replaced by an agreement between Ace and Travelers
Express Company, Inc. that requires Ace to provide
reports, at least as frequently as monthly, of
compliance with credit criteria comparable to those
set forth in Section 10.a, then Ace agrees to provide
to Company a report showing Ace's compliance with the
credit criteria set forth in Section 10.a as of the
<PAGE>
last business day of each calendar month during the
effectiveness of this Agreement; that report will be
provided to Company within five business days after
the last business day of that calendar month. Ace
further agrees that its annual audited financial
statements will include an "unqualified" opinion by
its outside auditors. As a publicly held company, Ace
is required by applicable securities laws to make
publicly available its annual and quarterly financial
statements and related information; if Company is
unable to obtain those financial statements and
information through other sources, Ace will provide
Company copies of those publicly available financial
statements and information promptly upon Company's
written request.
11. PAYMENTS AND COMMISSIONS TO ACE. The various payments to Ace and
commission schedules for Ace's service as Company's agent for Money
Transfer Services at Locations are set forth on Exhibit A.
12. REMITTANCES AND REPORTS.
a. Ace shall establish and maintain an account at a bank selected
by Ace into which it will deposit all Sales Proceeds, or an
amount of cash equal to all Sales Proceeds ("Trust Account"),
and shall notify Company of that Trust Account. Ace will
provide at least 15 days' written notice to Company before
changing a Trust Account and will not terminate or close an
existing Trust Account until a new Trust Account is open.
b. Ace shall authorize Company to initiate ACH debit and credit
entries on or to the Trust Account by executing and delivering
to Company an authorization agreement substantially in the
form of Exhibit B to this Agreement.
c. If a day on which any amount is to be paid or remitted by one
Party to the other in any manner (including by ACH debit or
credit entry) under this Agreement is not a business day, that
amount shall be due on the next business day.
d. Reports to Company of Money Transfer Services transactions at
Locations shall be made by Company's electronic transaction
information transmitted by the Software.
13. INTEREST.
a. Any amount of the Incentive Bonus (as defined in paragraph 2
of Exhibit A) not paid by Company when due to Ace under this
Agreement will bear interest (unless waived by Ace) until paid
at an annual rate equal to the Prime Rate (as defined below)
as that Prime Rate may be established from day to day. "Prime
Rate" means the prime commercial rate of interest published by
The Wall Street Journal for corporate loans by large U.S.
money-center commercial banks. No interest will accrue on any
adjustments.
b. Interest will not exceed the amount or rate that may lawfully
be charged under applicable Texas law, and any amount
contracted for, charged, or taken in excess of the amount or
rate allowed by law will be credited or refunded to Company.
This Section 13.b overrides any other provision in this
Agreement or in any document between the Parties related to
this Agreement.
<PAGE>
14. LOCATIONS. Ace is authorized to sell and provide Money Transfer
Services only at the Locations. Ace agrees to give Company a list,
before the Effective Date, of the Locations at which Money Transfer
Services will be offered, sold, and provided under this Agreement
beginning on or as of the Effective Date and to keep Company informed
of the Locations where Ace offers, sells, and provides Money Transfer
Services. Ace will give Company oral or written notice of Ace's intent
to open or acquire any new Location at which Money Transfer Services
will be offered, sold, and provided under this Agreement; Ace will give
that notice at least 30 days, or as soon as reasonably practicable,
before opening or acquiring the Location.
15. ADVERTISING AND SIGNAGE.
a. Company shall, at its expense, advertise and promote the Money
Transfer Services, at the Locations and otherwise, on a
national basis in the United States of America.
b. Ace agrees to include Company's name or logo for Money
Transfer Services on each permanent exterior sign for each
Location at which Money Transfer Services are offered
("Sign"), subject to Company's payment or reimbursement as set
forth in Section 15.c and to the Parties' agreement on the
design or appearance of such Sign. The Parties agree to
cooperate in good faith in determining the design or
appearance of such Signs.
c. Company agrees to pay or reimburse Ace the following for each
Sign: (i) $ * for each "can" or "pole" Sign and (ii) $ * for
each "channel-letter" Sign. Such payment shall be made to Ace,
by wire transfer to an account designated by Ace, by the tenth
day of each calendar month for all Signs delivered to the
applicable Locations in the preceding calendar month during
which this Agreement is effective. Company's payment or
reimbursement obligations regarding Signs that are
replacements of permanent exterior signs at Effective Date
Locations (as defined in paragraph 2.b of Exhibit A) shall not
exceed a total of $ * during any calendar year, unless Company
otherwise agrees. All costs or expenses of each Sign, other
than the costs or expenses described above in this Section
15.c, shall be Ace's responsibility.
d. Ace may not use Company's name or logo on any signage without
Company's consent or approval.
e. Each Party may, only with the other Party's written consent or
approval, use the other Party's name, logos, trademarks,
service marks, or other intellectual property in advertising
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
or promotional materials prepared (directly or indirectly) by
the first Party regarding the offering of Money Transfer
Services during the effectiveness of this Agreement.
f. Company may use or refer to Ace's name and Locations in any
listing by or on behalf of Company of Money Transfer Services
network locations.
16. CONFIDENTIALITY. The Parties shall perform the Confidentiality
Agreement that is set forth in the attached Exhibit C to this Agreement
(the "Confidentiality Agreement").
17. DISPUTE RESOLUTION. Without limiting a Party's right to terminate this
Agreement pursuant to any of subsections (i) through (x) of Section
18.b (including the other provisions of this Agreement referred to
therein), the Parties will resolve any dispute, disagreement, claim, or
controversy between them arising in connection with or relating to this
Agreement, or the validity, interpretation, performance, breach,
default, or termination of this Agreement ("Dispute"), in accordance
with the attached Exhibit D to this Agreement ("Dispute Resolution").
18. TERM AND TERMINATION.
a. The effective term of this Agreement expires or ends at
11:59:59 p.m., Central Time, on December 31, 2007 (the "Stated
Expiration Date"), subject, however, to extension of the term
as described below in this Section 18.a and to the right of
either Party to terminate this Agreement in accordance with
Section 18.b. The stated seven-year term shall be extended by
Company's payment of New Location Bonuses (as defined in
paragraph 3 of Exhibit A) for De Novo Locations (as defined in
paragraph 3 of Exhibit A) and Acquired Competitive Locations
(as defined in paragraph 3 of Exhibit A) as follows:
(i) This Agreement shall be effective as to each Acquired
Competitive Location and each De Novo Location for
which a New Location Bonus is paid (collectively, a
"Bonus Location") before the Stated Expiration Date
for seven years from the date at which the sale of
Money Transfer Services is begun at that Bonus
Location, and the term of this Agreement as to each
such Bonus Location shall be considered so extended
without any further action of either Party.
Nevertheless, if at the Stated Expiration Date such
seven-year term of this Agreement as to any Bonus
Location does not expire, then, in lieu of the
continuation of a separate term for each such Bonus
Location, the term of this Agreement as to all
Locations offering or (in accordance with paragraph
3.e of Exhibit A, if applicable) deemed to be
offering Money Transfer Services at the Stated
Expiration Date shall be extended, without any
further action of either Party, as set forth below in
this Section 18.a.
<PAGE>
(ii) As of the Stated Expiration Date, the number of full
calendar months (or partial months treated as full
calendar months as provided below) remaining in the
individual seven-year term ("Bonus Location Remaining
Months") as to each of such Bonus Locations shall be
determined. For purpose of this Section 18.a(ii), a
partial month, if the number of days then remaining
therein is 50% or more of the days in such month,
shall be counted as a full month, but if less than
50%, shall not be counted as a full month. Then the
aggregate number of Bonus Location Remaining Months
shall be divided by the number of such Bonus
Locations plus the number of other Locations at which
Money Transfer Services are then being offered, and
the product thereof in terms of whole months
(calculated to hundredths and then rounded down to
the next smaller whole number if .50 or less, or
rounded up to the next higher whole number is more
than .50) shall be the period by which the term of
the Agreement shall be extended from the Stated
Expiration Date. For example, if, at the --- -------
Stated Expiration Date, there are 1,000 non-Bonus
Locations and 100 Bonus Locations with the following
Bonus Location Remaining Months:
Bonus Locations Remaining Term
-----------------------------------------
20 72
20 60
20 42
15 30
15 12
10 6
The aggregate number of Bonus Location Remaining
Months would be 4,290 (i.e., 1,440 + 1,200 + 840 +
450 + 300 + 60), which, when divided by 1,100 (i.e.,
1,000 + 100), would result in 3.90 months. Thus,
under this example, the term of this Agreement would
be extended for four months, which would result in an
extension of the term of this Agreement to April 30,
2008.
b. A Party may terminate this Agreement as follows:
(i) Company may declare Ace to be in default and
terminate this Agreement immediately upon notice if
Ace shall fail to remit any Sales Proceeds due to
Company under this Agreement and that failure
continues for one business day after notice of
nonremittance to Ace.
(ii) Either Party may declare the other Party to be in
default and terminate this Agreement immediately upon
notice if the other Party shall fail to maintain a
sound financial position; provided, however, that the
nondefaulting Party shall have five business days to
declare the default and terminate this Agreement by
<PAGE>
written notice to the defaulting Party, and if the
nondefaulting Party does not so declare the default
and terminate within five business days, the
particular default shall be deemed waived.
(iii) Ace may declare Company to be in default and
terminate this Agreement immediately upon notice if
Company shall fail to pay any installment of the
Incentive Bonus due to Ace and that failure continues
for five days after notice of nonpayment to Company.
(iv) Either Party may declare the other Party to be in
default and terminate this Agreement on five days'
notice upon the occurrence of a payment-related
breach or default (other than as provided in
subsection (i) of this Section 18.b) that is not
cured within such five-day period.
(v) Either Party may declare the other Party to be in
default and terminate this Agreement immediately upon
notice if: (A) the other Party makes a general
assignment of all or substantially all of its assets
for the benefit of creditors; (B) the other Party
applies for, consents to, or acquiesces in the
appointment of a receiver, trustee, custodian, or
liquidator for its business or all or substantially
all of its assets; (C) the other Party files a
voluntary or petition for relief under the United
States Bankruptcy Code or other bankruptcy or
insolvency laws; or (D) an involuntary bankruptcy or
insolvency petition filed against the other Party is
not dismissed within 90 days.
(vi) Ace may declare Company to be in default and
terminate this Agreement upon notice as follows: If
(A) Company exercises its right under Section 5.b to
limit the number of Money Transfer Services
transactions or the dollar amount of Money Transfer
Services that Ace may sell or provide, or to suspend
Ace's right to sell or provide Money Transfer
Services, (B) the limitation or suspension is longer
than 30 consecutive days, and (C) the number or
dollar amount of Money Transfer Services transactions
that Ace is permitted to sell or provide during the
limitation or suspension period is less than 90% of
the number or dollar amount that Ace sold or provided
before the limitation or suspension was imposed, or
the effect of the limitation or suspension is to
reduce the number or dollar amount of Money Transfer
Services transactions that Ace sells or provides
during the limitation or suspension period to 90% of
the highest number or dollar amount that Ace sold or
provided during any 30-consecutive-day period before
the limitation or suspension, then Ace may terminate
this Agreement immediately by giving written notice
to Company within 90 days after the 30th day of the
limitation or suspension or after the ten percent or
more decrease occurs, whichever is later.
(vii) Ace may declare Company to be in default and
terminate this Agreement in accordance with the
<PAGE>
following: If a Commission Material Adverse Change
(as defined below) is determined to have occurred,
then (unless that determination is made by
arbitration in accordance with Exhibit D) Ace may
give Company at least 30 days' prior written notice
of termination; if that determination is made by
arbitration in accordance with Exhibit D, however,
Ace's notice of termination may be given ten days in
advance. A "Commission Material Adverse Change" for
purposes of this Section 18.b(vii) shall have
occurred if:
(A) Ace's total commissions earned or received
at all Locations from Money Transfer
Services under this Agreement during either
(x) any * shall have declined by an
aggregate of at least * as compared to the
total of such commissions earned or received
during the same period in the immediately
preceding * (which may include * preceding
the Effective Date), or (y) any * shall have
declined by an aggregate of at least * from
the total of such commissions earned or
received during the immediately preceding *
period (which may include * preceding the
Effective Date); and
(B) Such decline shall be solely a result of any
action or actions by Company (which shall
include any deliberate omission by Company
to act on any matter within its reasonable
control) regarding or affecting the Money
Transfer Services (including the pricing
therefor), whether or not related to this
Agreement, including, for example, Company's
failure to respond to changes in technology,
service capabilities, or products of
competitors of Company in the money transfer
business or Company's actions that
materially change the manner in which Money
Transfer Services are offered, sold, or
provided by its agents or trustees for Money
Transfer Services and Ace shall be unable to
adapt to such changes within a reasonable
time thereafter without a material adverse
change in its financial condition in order
to reasonably and materially adapt to such
changes;
provided,that if Company does not agree that a
Commission Material Adverse Change has occurred, then
it will not be deemed to have occurred until so
determined by agreement of the Parties or by
arbitration in accordance with Exhibit D. Ace shall
give written notice to Company of Ace's intent to
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
terminate under this Section 18.b(vii) within 30 days
following its receipt of the data related to the
commissions from Money Transfer Services conducted at
the Locations for the preceding calendar quarter; if
Ace does not give that notice within that 30-day
period, it shall not thereafter be entitled to
terminate this Agreement under this Section 18.b(vii)
based on any Commission Material Adverse Change that
may be asserted with respect to the two consecutive
calendar quarter period ended with that preceding
calendar quarter or the four consecutive calendar
quarter period ended with that preceding calendar
quarter.
(viii) Company may declare Ace to be in default and
terminate this Agreement in accordance with the
following: If a Commission Material Adverse Change
(as defined below) is determined to have occurred,
then (unless that determination is made by
arbitration in accordance with Exhibit D) Company may
give Ace at least 30 days' prior written notice of
termination; if that determination is made by
arbitration in accordance with Exhibit D, however,
Company's notice of termination may be given ten days
in advance. A "Commission Material Adverse Change"
for purposes of this Section 18.b(viii) shall have
occurred if:
(A) Ace's total commissions earned or received
at all Locations from Money Transfer
Services under this Agreement during either
(x) any * all have declined by an aggregate
of at least * as compared to the total of
such commissions earned or received during
the same period in the immediately preceding
* which may include calendar quarters
preceding the Effective Date) or (y) any *
shall have declined by an aggregate of at
least * from the total of such commissions
earned or received during the immediately
preceding * period (which may include *
preceding the Effective Date); and
(B) Such decline shall be solely a result of
any action or actions by Ace (which shall
include any deliberate omission by Ace to
act on any matter within its reasonable
control) regarding or affecting the offer,
sale, or provision of Money Transfer
Services at the Locations, whether or not
related to this Agreement, including, for
example, Ace's failure to respond to changes
in technology, service capabilities or
products and services made by Company and
its other agents or trustees for Money
Transfer Services unless such a response
would result in a material adverse change in
Ace's financial condition; or Ace's actions
that materially change the manner in which
Money Transfer Services are offered, sold,
or provided to its customers; or Ace's
material refusal or failure to promote the
Money Transfer Services at the Locations; or
Ace's changes in its store operations that
materially affect customer traffic at the
Locations and Company shall be unable to
adapt to such changes within a reasonable
time thereafter without a material adverse
change in its financial condition in order
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
to reasonably and materially adapt to such
changes; except that Ace's exercise of any
of its rights granted in this Agreement,
including any election to amend (or not
amend) any Consumer Fee under Section
3.b(ii) or any election not to participate
in any price promotion for Money Transfer
Services, shall not be deemed to be or to
cause a Commission Material Adverse Change;
provided,that if Ace does not agree that a
Commission Material Adverse Change has
occurred, then it will not be deemed to have
occurred until so determined by agreement of
the Parties or by arbitration in accordance
with Exhibit D. Company shall give written
notice to Ace of Company's intent to
terminate under this Section 18.b(viii)
within 30 days following its receipt of data
related to the commissions from Money
Transfer Services conducted at the Locations
for the preceding calendar quarter; if
Company does not give that notice within
that 30-day period, it shall not thereafter
be entitled to terminate this Agreement
under this Section 18.b(viii) based on any
Commission Material Adverse Change that may
be asserted with respect to the two
consecutive calendar quarter period ended
with that preceding calendar quarter or the
four consecutive calendar quarter period
ended with that preceding calendar quarter.
(ix) Either Party may declare the other Party in default
and terminate this Agreement upon 30 days' written
notice upon the occurrence of any material breach or
default by the other Party not covered by subsections
(i) through (viii) of this Section 18.b. which is not
cured within such 30-day period.
(x) Either Party may declare the other Party to be in
default and terminate this Agreement immediately upon
notice if the nondefaulting Party has terminated the
Money Order Agreement in accordance with its terms,
before the expiration of the Money Order Agreement,
because of a payment-related default by the
defaulting Party under the terms of the Money Order
Agreement.
c. A Party may not terminate this Agreement if the event or the
circumstance described in Section 18.b., upon which that Party
would rely in so terminating, was caused by that Party's
breach of or default under this Agreement. The termination
rights of a Party under Section 18.b. are not exclusive of any
other right or remedy available to or granted to a
nonbreaching or nondefaulting Party under this Agreement.
d. Upon the expiration or termination of this Agreement, Ace will
remit to Company, in accordance with Sections 3.b and 12, all
Sales Proceeds and will pay to Company any other amounts it
then owes to Company, and Company will pay to Ace all amounts
it then owes to Ace. Each Party will also remain liable until
it has fulfilled all of its obligations to the other Party
that arose or accrued before the expiration or termination.
Ace will pay the reasonable cost to return the blank Money
<PAGE>
Transfer Checks to Company if Company has terminated this
Agreement because of any breach or default by Ace; otherwise,
Company will pay that cost.
e. The Parties' respective rights and obligations under this
Agreement will survive the expiration or termination of this
Agreement to the extent necessary to give full effect to this
Agreement. Without limiting the preceding sentence, the
Parties' respective rights and obligations under Sections 4,
6, 7, 8, 12, 16, 17, 18, 19, 24, and 26 and under the
Confidentiality Agreement and Exhibit D will survive the
expiration or termination of this Agreement.
19. REMEDIES AND WAIVERS. All remedies for any breach or default of this
Agreement are cumulative. Except as provided in this Agreement, Party's
delay or failure to enforce a right or pursue a remedy is not a waiver.
A Party's waiver (not otherwise set forth in this Agreement) must be in
writing and signed by it. A waiver of a Party's rights or remedies
regarding a particular breach of or default under this Agreement is not
a waiver of those rights or remedies, or any other rights or remedies,
regarding any other breach of or default under this Agreement.
20. COMPLIANCE WITH LAW. Each Party agrees to comply in all material
respects with all laws and regulations applicable to its activities
under this Agreement, including laws and regulations that relate to
money laundering. Ace agrees that it will sell and provide Money
Transfer Services only at Locations where such Money Transfer Services
may legally be sold and provided.
21. CHANGE OF OWNERSHIP OR CONTROL. Each Party agrees to notify the other
Party if the first Party's board of directors votes or consents to
change, or to recommend to that Party's shareholders that they vote or
consent to change, the ownership or control of that Party or its
business. Regardless of any change and any notice thereof in accordance
with the preceding sentence, the Parties will remain obligated under
this Agreement until this Agreement expires or is terminated according
to its terms.
22. INSPECTIONS. Each Party has the right, once per calendar year,
exercisable by reasonable prior notice to the other Party, to examine or
inspect the books and records of the other Party relating to the
performance of this Agreement. Such inspections shall be conducted at
the office of the Party being audited. Each Party shall bear the
expenses of conducting an inspection of the other Party's books and
records. A Party's examination of the other Party's books and records
may be conducted only during the other Party's normal business hours or
at any other reasonable time to which the other Party may consent. An
inspection shall be performed in a manner that does not unreasonably
disrupt the other Party's normal business operations. The Party
conducting an inspection may make and take away copies of any or all of
the other Party's books and records being examined.
<PAGE>
23. NOTICES. Except as otherwise provided in this Agreement, all notices,
requests, and other communications from one Party to the other under
this Agreement must be in writing and sent by facsimile, certified mail,
overnight mail, or courier or delivered in person, in any case prepaid
by the notifying Party, and must be addressed as follows:
IF TO ACE: IF TO COMPANY:
Ace Cash Express, Inc. Travelers Express Company, Inc.
Attention: President Attention: General Mana
1231 Greenway Drive, Suite 800 1550 Utica Avenue South
Irving, Texas 75038 Minneapolis, Minnesota 55416
Facsimile: (972) 582-1430 Facsimile: (612) 591-3325
Copy to: Richard A. Tulli, Esq. Copies to:
Gardere & Wynne, L.L.P Contracts Administration
1601 Elm Street, Suite 3000 Facsimile: (612) 591-3399
Dallas, TX 75201 and
Facsimile: (214) 999-4667 Chief Legal Counsel
Facsimile: (612) 591-3859
A Party may change its address for this purpose by giving written
notice of that change to the other Party in accordance with this
Section 23. Each notice, request, or other communication sent or
delivered as provided above in this Section 23 will be deemed given,
received, and effective on the date of actual receipt (or refusal) by
the addressee.
24. ASSIGNMENT. This Agreement shall be binding on each of the Parties and
their respective permitted successors and permitted assigns. Neither
Party may assign its rights or obligations hereunder without the prior
written consent of the other Party, except that (i) the consent may not
be unreasonably withheld or delayed if the proposed assignment is to a
Person that is capable of performing the assigning Party's obligations
under this Agreement and is not a competitor of the nonassigning Party,
and (ii) this restriction on assignment will not apply to a merger,
consolidation, or share exchange by a Party or the transfer of the
capital stock of a Party unless such transaction will render the
assigning Party incapable of performing its obligations under this
Agreement or result in ownership or control by a competitor of the
non-assigning Party. Notwithstanding the foregoing, nothing in this
Agreement prohibits the assignment of a Party's right to receive Sales
Proceeds or other amounts due under this Agreement or Ace's grant of a
security interest or lien in its rights as permitted by this Agreement
to its secured creditors. Any purported assignment in violation of this
Section 24 is void and ineffective.
25. INTERPRETATION AND DEFINITIONS. This Agreement is the result of the
Parties' negotiations, and no provision of this Agreement is to be
construed for or against either Party because of the authorship of that
provision. In the interpretation of this Agreement, except where
otherwise stated or the context otherwise requires:
<PAGE>
a. "business day" or "banking day" means any Monday through
Friday, excluding any such day on which the Federal Reserve
Bank of Minneapolis is authorized to be closed;
b. "including" or "include" does not denote or imply any
limitation;
c. "Person" means any individual; any corporation, partnership,
limited liability company, association, or other entity of any
kind; or any government or governmental agency or authority;
d. "Section" refers to a Section of this Agreement; and
e. each Exhibit is an integral part of this Agreement.
26. MISCELLANEOUS. This Agreement, together with its Exhibits, is the entire
agreement between the Parties relating to the subject matter of this
Agreement. This Agreement can be amended or changed only by a writing
signed by the Parties. Section headings are not part of this Agreement.
If any part of this Agreement is or becomes invalid, it is or will be
severed from the rest of this Agreement, and the rest of this Agreement
remains or will remain in effect so long as (i) the continued
effectiveness of the rest of this Agreement will not impose or result in
any substantial economic detriment to either Party or (ii) the Parties
amend this Agreement as necessary to preserve their underlying economic
or financial arrangements. This Agreement may be signed in counterparts,
with the same effect as if both Parties had signed the same paper; all
counterparts are to be construed together to be one, and the same,
document.
27. GOVERNING LAW. TEXAS LAW GOVERNS THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT, INCLUDING THE VALIDITY
OR ENFORCEMENT AND THE CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT.
28. SIGNATURE DATE. This Agreement is signed by the Parties on June 30, 2000
(the "Signature Date").
<PAGE>
SIGNATURES
ACE: COMPANY:
ACE CASH EXPRESS, INC. TRAVELERS EXPRESS COMPANY, INC.
By:/s/ Jay B. Shipowitz By: /s/ Michael Berry
- ------------------------------------ ------------------------------------
Name: Jay B. Shipowitz Name: Michael Berry
- ------------------------------------ ------------------------------------
Title: President Title: VP-GM
- ------------------------------------ ------------------------------------
MONEYGRAM PAYMENT SYSTEMS, INC.
By: /s/ Michael Berry
-------------------------------------
Name: Michael Berry
-------------------------------------
Title: VP-GM
-------------------------------------
<PAGE>
EXHIBIT A TO MONEY TRANSFER AGREEMENT
Payments and Commissions
1. PAYMENT. Company is paying Ace the amount of $989,400 on the Signature
Date by wire transfer of funds to an account designated by Ace.
2. INCENTIVE BONUS.
a. Amount and Payment. Company shall pay Ace during the
effectiveness of this Agreement until the Stated Expiration
Date (but not during the term of any extension in accordance
with Section 18.a) a total of $12,446,772.24 ("Incentive
Bonus"). The Incentive Bonus shall be paid in equal
installments of $148,175.86 (without any interest) monthly, on
the first day of each calendar month beginning on the
Effective Date, by wire transfer of funds to an account
designated by Ace. The amounts of the Incentive Bonus paid to
Ace shall not be refundable (in whole or in part), but the
Incentive Bonus, and the corresponding installments thereof,
will be subject to reduction in accordance with paragraph 2.b
of this Exhibit A. The Incentive Bonus relates only to the
Locations, and not to any location owned and operated by any
franchisee of Ace or any franchisee of any of Ace's
subsidiaries.
b. Incentive Bonus Reduction. If the Incentive Bonus Reduction
Event (as defined below) occurs before the Stated Expiration
Date, the amount of each subsequent monthly installment of the
Incentive Bonus shall be reduced to the Prorata Installment
Amount. After the Incentive Bonus Reduction Event occurs, upon
each occurrence of a Subsequent Reduction Event (as defined
below), the amount of each subsequent monthly installment of
the Incentive Bonus shall be reduced to the Prorata
Installment Amount. In this Agreement, the following terms
shall have the respective meanings indicated:
(i) "Incentive Bonus Reduction Event": The initial
occurrence of a Net Location Reduction in excess of *
% of the total number of the Effective Date
Locations.
(ii) "Effective Date Locations": The Locations opened and
operating on the Effective Date.
(iii) "Net Location Reduction": The excess of (A) the total
number of the Effective Date Locations closed or sold
by Ace after the Effective Date, over (B) the total
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
number of the Acquired MoneyGram Locations (as
defined in paragraph 3.a of this Exhibit A) acquired
by Ace after the Effective Date.
(iv) "Subsequent Reduction Event": A Net Location
Reduction, after (and after giving effect to) the
occurrence of the Incentive Bonus Reduction Event,
equal to at least * percent of the total number of
the Effective Date Locations.
(v) "Prorata Installment Amount": That portion of
$148,175.86 which is equal to the ratio of (A) the
number of Locations at which the Money Transfer
Services are then offered at the conclusion of the
Incentive Bonus Reduction Event or a Subsequent
Reduction Event, to (B) the total number of the
Effective Date Locations.
3. NEW LOCATION BONUS.
a. Definitions. In this Agreement, the following terms shall
have the respective meanings indicated:
(i) "De Novo Location": Any Location constructed and
furnished by Ace on or after the Effective Date at or
from which no money transfer services (including the
Money Transfer Services) were offered by the previous
occupant (if any) of that Location.
(ii) "Acquired Competitive Location": A Location that Ace
has purchased or otherwise acquired directly, or
indirectly through the purchase or acquisition of
securities in any manner (including by merger,
consolidation, or share exchange), at or from which a
money transfer service competitive with the Money
Transfer Services was offered immediately before
Ace's acquisition.
(iii) "Acquired MoneyGram Location": Any Location that Ace
has purchased or otherwise acquired directly, or
indirectly by the purchase or acquisition of
securities in any manner (including by merger,
consolidation, or share exchange), at or from which
Money Transfer Services were offered immediately
before Ace's acquisition.
(iv) "Acquired Location": Collectively, an Acquired
Competitive Location or an Acquired MoneyGram
Location.
(v) "Grandfathered Location": Any Acquired Competitive
Location at which Ace begins to offer the Money
Transfer Services at any time from (and including)
January 1, 2000 through December 31, 2000.
- ------------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(vi) "Unmanned Location": Any De Novo Location which is
not operated on a regular basis by on-site personnel
of Ace and at which the Money Transfer Services are
offered solely through a check-cashing machine or
other automated or customer-operated equipment.
b. New Location Bonus. For each De Novo Location (other than an
Unmanned Location) opened by Ace and each Acquired
Competitive Location acquired by Ace on or after the
Effective Date at which the Money Transfer Services are
offered, Company shall pay Ace the amount of $10,000 ("New
Location Bonus"). The New Location Bonus shall be paid within
30 days after Ace first offers the Money Transfer Services at
that De Novo Location (other than an Unmanned Location) or
the Acquired Competitive Location, as the case may be, in
accordance with the standard operating procedures established
by the Parties for beginning to offer Money Transfer Services
at a De Novo Location or an Acquired Location. For each De
Novo Location that is an Unmanned Location, Company shall pay
Ace a New Location Bonus only if the number of Money Transfer
Service transactions conducted at that Unmanned Location
equals or exceeds 120 in a calendar month for any three
calendar months during any six consecutive calendar month
period (the "Threshold"). In this circumstance, the New
Location Bonus shall be paid within 30 days after the
Threshold is met. A New Location Bonus shall only be payable
regarding a Bonus Location, and not regarding any Acquired
MoneyGram Location or any Location (including any
Grandfathered Location) that was open and operating before
the Effective Date. A New Location Bonus shall be payable on
a pro rata basis for any Bonus Location opened or acquired by
Ace after the Stated Expiration Date; for this purpose, the
pro rata amount of the New Location Bonus shall be as
follows:
($10,000/84) times the number of full or partial
calendar months remaining from the date on which the
Bonus Location is opened or acquired through the
expiration of the extended term of this Agreement
under Section 18.a after the Stated Expiration Date.
c. Unmanned Location Bonus. For each Unmanned Location opened by
Ace on or after the Effective Date at which the Money Transfer
Services are offered, Company shall pay Ace the amount of
$1,000 ("Unmanned Location Bonus"). The Unmanned Location
Bonus shall be paid within 30 days after Ace first offers the
Money Transfer Services at the Unmanned Location. The Unmanned
Location Bonus paid to Ace for an Unmanned Location shall be
credited against any New Location Bonus that becomes payable
to Ace for that Unmanned Location.
d. Bonus Payments. Each New Location Bonus and each Unmanned
Location Bonus shall be paid by ACH credit to an account
designated by Ace. No Unmanned Location Bonus or, except as
described in paragraph 3.e of this Exhibit A, New Location
Bonus shall be refundable (in whole or in part).
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
e. Closed Bonus Locations. As of the Stated Expiration Date, the
Parties will determine the number of Bonus Locations that Ace
has closed or sold before the Stated Expiration Date. If the
number of closed or sold Bonus Locations exceeds a number
equal to * % of the total number of Bonus Locations, the
following provisions of this paragraph 3.e shall apply: For
each Bonus Location that is closed or sold by Ace before the
Stated Expiration Date, either:
(i) Ace shall repay to Company that portion of the New
Location Bonus which is equal to the ratio of (A) 84
less the number of full or partial months that the
Money Transfer Services were offered at that Bonus
Location to (B) 84; or
(ii) that Bonus Location shall be deemed to be open and
offering Money Transfer Services at the Stated
Expiration Date for the purpose of calculating the
extension of the term of this Agreement after the
Stated Expiration Date under Section 18.a, with the
remaining term for that Bonus Location being deemed
equal to 84 less the number of full and partial
months that the Money Transfer Services were offered
at that Bonus Location.
Ace's repayment of a portion of the New Location Bonus for a
closed or sold Bonus Location under clause (i) of this
paragraph 3.e, if it so chooses, shall be made within 30 days
after the Stated Expiration Date by ACH credit or wire
transfer to an account designated by Company.
f. Relocated Locations. Ace may from time to time relocate one or
more existing or previously existing Locations, including any
Bonus Location. Any such relocation will not constitute or be
considered the opening of a De Novo Location, the acquisition
of an Acquired Location, or the closing or sale of a Bonus
Location under this Agreement. For this purpose, a
"relocation" of a Location is Ace's closing of an existing
Location followed by the opening of a Location constructed and
furnished by Ace (at or from which no money transfer services
were offered by the previous occupant, if any) within a
two-mile radius of the closed Location and within six months
after the closing of the Location.
4. COMMISSIONS TO ACE.
a. Locations other than De Novo Locations. Upon and after the
Effective Date, Company shall pay Ace the following
commissions for Money Transfer Services transactions at all of
the Locations (other than De Novo Locations) at which the
Money Transfer Services are offered:
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
(i) An amount equal to * % of the applicable Consumer Fee
for each Transfer Send transaction; and
(ii) an amount equal to * % of the applicable Consumer Fee
for each Transfer Receive transaction.
b. De Novo Locations. Upon and after the Effective Date, Company
shall pay Ace commissions for Money Transfer Services
transactions at all of the De Novo Locations at which the
Money Transfer Services are offered, depending upon the time
during which the Money Transfer Services are offered at that
De Novo Location, as follows:
(i) During the first year in which the Money Transfer
Services are offered at the De Novo Location, an
amount equal to * of the applicable Consumer Fee for
each Transfer Send and each Transfer Receive
transaction.
(ii) During the second year in which the Money Transfer
Services are offered at the De Novo Location, an
amount equal to * of the applicable Consumer Fee for
each Transfer Send and each Transfer Receive
transaction.
(iii) Thereafter, an amount equal to * of the applicable
Consumer Fee for each Transfer Send and each Transfer
Receive transaction.
For the purpose of this paragraph 4.b, the "first year" shall
be (A) the 12-consecutive-calendar-month period beginning on
the first day of the calendar month in which the Money
Transfer Services are first offered at a De Novo Location, if
the Money Transfer Services are first offered at the De Novo
Location on or before the 15th day of the calendar month, or
(B) the 12-consecutive-calendar-month period beginning on the
first day of the calendar month immediately following the
calendar month in which the Money Transfer Services are first
offered at a De Novo Location, if the Money Transfer Services
are first offered at the De Novo Location after the 15th day
of the calendar month; and the "second year" shall be the
12-consecutive-calendar-month period immediately following the
expiration of the first year.
c. Promotional Pricing. Ace may (but is not required to) cause
the Locations within the market area(s) in which Company is
conducting a price promotion for Money Transfer Services to
participate in such price promotion. Ace understands that, if
the Locations do participate, price promotions may result in
reduced commissions (unless the Parties otherwise agree). If
Ace elects not to have any Locations participate in a price
promotion, the commissions payable to Ace under this Agreement
shall not be affected.
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
d. *
e. *
f. *
g. *
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT B TO MONEY TRANSFER AGREEMENT
ACH Authorization Agreement
1. Ace hereby authorizes Company to initiate Automatic Clearing House
("ACH") debit and credit entries to the account specified below, which
is the Trust Account under the Agreement. Such ACH debit and credit
entries shall be in accordance with the Agreement, this Authorization,
and the applicable rules relating to corporate trade payments entries
of the National Automated Clearing House Association and its related
member associations.
2. Ace warrants that the signatures below are all of the signatures
necessary to make this Authorization effective as to debit or credit
entries to the Trust Account. Ace will continue to maintain the account
as the Trust Account while this Authorization is in effect, except to
the extent permitted by Section 12. Neither Ace nor Company will be
liable for any act or omission of any automated clearing house,
depository, or other financial institution initiating or otherwise
having or conducting transactions with the account.
3. Ace may terminate this Authorization by notice to Company in accordance
with the Agreement. This Authorization shall remain in effect, however,
as to all ACH debit or credit entries which occurred before the
effective date of termination.
*
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
DEPOSITORY NAME AND ADDRESS
* *
------------------------------ ------------------------------
TRANSIT/ABA NUMBER ACCOUNT NUMBER
Ace Cash Express, Inc.
------------------------------ ------------------------------
* *
------------------------------ ------------------------------
EXACT NAME OF THE ACCOUNT AGENT'S TELEPHONE
/s/ Jay Shipowitz, President /s/ Debra A. Bradford, CFO
------------------------------ ------------------------------
SIGNATURE SIGNATURE
Jay Shipowitz, President Debra A. Bradford, CFO
------------------------------ ------------------------------
PRINTED NAME AND TITLE PRINTED NAME AND TITLE
June 30, 2000
------------------------------
DATE
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT C TO MONEY TRANSFER AGREEMENT
Confidentiality Agreement
1. CONFIDENTIAL INFORMATION. During the effectiveness of this Agreement, a
Party may disclose trade secrets and confidential and proprietary
information and materials, including information about its customers,
businesses, third-party relationships, and intellectual property, to the
other Party; that disclosure may be made in part by granting the other
Party access to books and records in accordance with Section 22. All of
this information is "Confidential Information" of the disclosing Party,
except as specifically excluded below.
2. RESTRICTIONS ON USE OR DISCLOSURE. A Party shall not use or disclose any
Confidential Information of the other Party except as necessary or
appropriate to perform, implement, or exercise (or defend) rights or
remedies under this Agreement.
3. INFORMATION EXCLUDED. A Party need not treat any of the following as
Confidential Information of the other Party under this Agreement:
a. Information which is or becomes publicly available or
available in the industry or is in the possession of a third
party without any violation of this Agreement.
b. Information which the Party can show was in its possession
prior to receipt from the other Party.
c. Information which is received by the Party from a third party
without (to the knowledge of that Party) any obligation of
confidentiality to the other Party.
4. COURT ORDERS, SUBPOENAS AND OTHER LEGAL REQUIREMENTS. A Party may
disclose the other Party's Confidential Information to the extent
required by court order or subpoena, without violating this Agreement;
in this circumstance, the Party required to disclose must notify the
other Party immediately and, at the reasonable request of the other
Party, cooperate in any lawful effort to contest the subpoena or other
legal process or to limit the scope of the disclosure. In addition, if a
- ---------------
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE>
Party reasonably believes that (based on advice of counsel) it has any
other legal obligation to disclose Confidential Information of the other
Party, then the disclosure may be made, to the extent required, without
the consent of the other Party.
5. PRESS RELEASE. The Parties may, on or promptly after the Signature Date,
jointly prepare and make a press release or public announcement about
their entering into this Agreement. Neither Party may (unless legally
required) make any other press release or public announcement about this
Agreement without the prior consent of the other Party (which may not be
unreasonably withheld or delayed).
6. MATERIALS. Materials in any medium containing Confidential Information,
whether furnished to a Party by the other Party or prepared by a Party,
are the sole property of the Party whose Confidential Information is
contained in the materials and must be kept confidential in accordance
with this Agreement, and must be delivered to the owning Party upon its
request and, in any event, upon the expiration or termination of this
Agreement.
7. REMEDIES. A Party's breach of the provisions of this Confidentiality
Agreement may cause irreparable harm to the other Party. Each Party
agrees that in the event of a breach or a threatened breach by it, the
other Party may seek injunctive relief in addition to other remedies
available to it.
<PAGE>
EXHIBIT D TO MONEY TRANSFER AGREEMENT
Dispute Resolution
1. NOTICE AND CURE. Except as otherwise specified in this Agreement, in the
event of an actual or alleged non-payment-related breach of or default
under this Agreement, the nonbreaching or nondefaulting Party shall give
the breaching or defaulting Party written notice of the breach or
default. The breaching or defaulting Party shall then have 30 days after
that notice in which to cure the specified non-payment-related breach or
default (unless that breach or default is not capable of being cured, in
which case there will be no cure period).
2. NEGOTIATION. If a Dispute (including any Dispute about any remittance or
payment to or by a Party under this Agreement) arises or if a
non-payment-related breach or default has not been cured within the
30-day cure period set forth in paragraph 1 of this Exhibit D (if
applicable), a Party may submit the Dispute (which, for the purpose of
this and the following provisions of Exhibit D, shall include an uncured
actual or alleged non-payment-related breach or default) in writing to
the other Party in accordance with Section 23. Upon the other Party's
receipt of that notice, the Parties agree to use their reasonable best
efforts to negotiate a resolution of the Dispute. If the Parties are
unable to resolve the Dispute by agreement within 30 days after receipt
of that notice, each Party will promptly designate in writing one
executive representative to, and they will use their respective
reasonable best efforts to, negotiate a resolution of the Dispute within
ten days after the expiration of that 30-day period.
3. MEDIATION.
a. If the Parties' representatives are unable to resolve the
Dispute as provided above, either Party may, by notice to the
other Party, require the Dispute to be submitted to nonbinding
mediation.
b. The Parties will attempt to agree upon and appoint a neutral
mediator promptly after notice of mediation is given. If the
Parties are unable to agree upon a mediator within five days
after that notice, either Party may request the American
Arbitration Association ("AAA") to appoint a neutral mediator,
who will conduct the mediation. The mediation will be
conducted, within 15 days after the mediator is appointed, in
St. Louis, Missouri.
c. Each Party will pay its own expenses, and the Parties will
share equally the fees and expenses of the mediator, in
connection with the mediation.
<PAGE>
4. ARBITRATION.
a. If mediation fails to resolve the Dispute within 30 days after
the date of submission, either Party may, by notice to the
other Party, require the Dispute to be submitted to binding
arbitration. When filing the demand for arbitration with AAA,
the filing Party shall request the AAA to appoint a panel or
board of three neutral arbitrators who are experienced in or
knowledgeable about the money-order or check-cashing business.
b. The board of arbitrators shall conduct the arbitration in
accordance with the Commercial Arbitration Rules of the AAA
then in effect, except as such rules may be modified for the
purpose of the arbitration proceeding by all or a majority of
the arbitrators or by written agreement of the Parties. The
arbitration shall be conducted in St. Louis, Missouri. The
arbitrators may, however, call and conduct hearings or
meetings at such other places as the Parties may agree or as
the arbitrators may, on the motion of a Party, determine to be
necessary to obtain significant testimony or evidence.
c. All statutes of limitations that would otherwise be applicable
shall apply to any arbitration hereunder. The Federal Rules of
Evidence and Procedure shall apply to the arbitration. The
arbitrators may authorize all forms of discovery, including
depositions, interrogatories and document production, on a
showing of particularized need that the requested discovery is
likely to lead to material evidence needed to resolve the
Dispute and is not excessive in scope, timing or cost.
d. The arbitration hearing shall be held within 30 days after the
appointment of the arbitrators, unless the Parties otherwise
agree. The final decision or award of the arbitrators shall be
rendered within 15 days after the hearing. That final decision
or award shall be made by unanimous or majority vote or
consent of the arbitrators and shall be deemed issued at the
place of arbitration. The arbitrators' decision shall be based
upon this Agreement and applicable law.
e. The final decision or award of the arbitrators shall be
binding upon the Parties, and judgment thereon may be entered
in any court having jurisdiction over one or both of the
Parties or any of their respective assets. The Parties waive
any right they may have to apply or appeal to any court for
relief from the preceding sentence or from any decision of the
board of arbitrators made, or any question of law arising,
before the final decision or award. The final decision or
award may include injunctive relief (other than temporary or
provisional relief in response to any actual or threatened
breach of this Agreement.
<PAGE>
f. The arbitrators shall award reasonable attorneys' fees and
costs to the prevailing Party in the arbitration. Otherwise,
each Party shall bear its own expenses, and one-half of the
fees and expenses of the arbitrators, in connection with the
arbitration proceedings.
5. TERMINATION AND OTHER REMEDIES. Except as provided in Section 18.b(i)
through (x), neither Party may terminate this Agreement or exercise any
other remedy until the Parties have worked through this dispute
resolution procedure or one Party has failed to cooperate or perform its
obligations under this Exhibit D; however, nothing in this Exhibit D
prevents (i) a Party from applying to a court having jurisdiction to (A)
enforce the dispute resolution procedure in this Exhibit D, (B) seek
temporary or provisional injunctive relief, in response to an actual or
threatened breach of this Agreement or otherwise so as to avoid
irrevocable damage or maintain the status quo, until a final arbitration
decision or award is rendered or the Dispute is otherwise resolved, or
(C) challenge or vacate any final arbitration decision or award that
does not comply with this dispute resolution procedure, as may have been
modified by the Parties' agreement (if applicable), or (ii) the Parties
from resolving any Dispute by written agreement.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.49
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>CHANGE-IN-CONTROL EXECUTIVE SEVERANCE AGREEMENT
<TEXT>
CHANGE-IN-CONTROL EXECUTIVE SEVERANCE AGREEMENT
This Change-in-Control Executive Severance Agreement (this "Agreement"), dated
and effective August 17, 2000, is between Ace Cash Express, Inc., a Texas
corporation (the "Company"), and Debra A. Bradford (the "Executive").
Statement of Purpose
The Company desires, for its continued success, to have the benefit of services
of experienced management personnel like the Executive. The Board of Directors
of the Company therefore believes that it is in the best interest of the Company
that, in the event of any prospective change in control of the Company, the
Executive be reasonably secure in her employment and position with the Company,
so that the Executive can exercise independent judgment as to the best interest
of the Company and its shareholders, without distraction by any personal
uncertainties or risks regarding the Executive's continued employment with the
Company created by the possibility of a change-in-control of the Company.
Therefore, the Company and the Executive are entering into this Agreement to
assure severance benefits to the Executive in connection with certain
terminations of employment upon or after a change in control of the Company.
Agreement
In consideration of the statements made in the Statement of Purpose and the
mutual agreements set forth below, the Company and the Executive agree as
follows:
1. Definitions and Interpretation. Various terms used in this Agreement
are defined in Exhibit A; each of the defined terms used in this
Agreement begins with a capital letter. Various interpretative matters
for this Agreement are also set forth in Exhibit A. Exhibit A is an
integral part of this Agreement and is incorporated in this Agreement
by reference.
2. Term of Agreement. This Agreement will continue in effect until the
earliest of the following:
(a) Any termination of the Executive's employment with the
Company before a Change in Control. (If the Executive is
employed by any Subsidiary, whether or not she is also
employed by the Company, any reference in this Agreement to
the Executive's employment by the Company shall be deemed to
include her employment by a Subsidiary.)
<PAGE>
(b) 11:59 p.m. on June 30 following at least six months'
Notice of termination of this Agreement by either Party, if
that June 30 occurs before a Change in Control. (c) The
Company's performance of all of its obligations, and the
Executive's receipt of all of the payments and benefits to
which she is entitled, under this Agreement after a Severance
Payment Event.
3. Severance Benefits. Upon a Severance Payment Event, in addition to any
other severance or employment-termination compensation or benefits to
which the Executive may be entitled from the Company or any Subsidiary
under the terms of any Plan of which the Executive was a participant or
a beneficiary immediately before the Severance Payment Event, the
Company shall:
(a) Pay the Executive in cash, within five Business Days
after the Severance Payment Event, all of her Base Salary and
all other earned but unpaid cash compensation or entitlements
due to the Executive through (and including) the date of the
Severance Payment Event, including unused earned and accrued
vacation pay and unreimbursed reimbursable business expenses.
(b) Make the Severance Payment in cash in two equal
installments: (i) the first within five Business Days after
the Severance Payment Event, and (ii) the second (without
interest), subject to Section 4, no later than noon on the
first anniversary of the Severance Payment Event.
(c) Provide or arrange to provide the Executive (whether or
not under any Welfare Benefit Plan then maintained), at the
Company's sole expense and for the Benefit Continuation
Period, Welfare Benefits that are substantially the same the
Welfare Benefits provided to the Executive (and her
dependents and beneficiaries) immediately before the
Severance Payment Event, except that the Welfare Benefits to
which the Executive is entitled under this subsection (c)
will be reduced to the extent that comparable welfare
benefits are received by the Executive from an employer other
than the Company or any Subsidiary during the Benefit
Continuation Period. (The fact that the cost of the
participation by the Executive, or her dependents or
beneficiaries, in any Welfare Benefit Plan was paid
indirectly by the Company, as a reimbursement or a credit to
the Executive, before the Severance Payment Event does not
mean that the corresponding Welfare Benefits were not
"provided to the Executive" by the Company for the purpose of
this subsection (c).)
In addition, each Stock Award outstanding immediately before the
Severance Payment Event and not yet exercised or forfeited (as the case
may be) will accelerate and become fully vested, exercisable, or
nonforfeitable upon the Severance Payment Event, as though all
requisite time had passed to vest the Stock Award or cause it to become
exercisable or nonforfeitable.
<PAGE>
4. Nondisclosure and Noncompetition. As an inducement to the Company to
enter into this Agreement, the Executive represents to and covenants
with or in favor of the Company as follows:
(a) The Executive has acquired and will acquire during her
employment with the Company knowledge or awareness of various
Trade Secrets. All of the Trade Secrets are valuable,
special, and unique assets of the Company, and the disclosure
of any of them, or their use in any manner, other than on
behalf of the Company would cause substantial injury, loss of
profits, and loss of goodwill to the Company.
(b) During her employment with the Company and at all times
thereafter, the Executive shall not, directly or indirectly,
disclose or disseminate any Trade Secret to any other Person
or lecture upon, publish articles concerning, or otherwise
use or employ any Trade Secret, except (in any case) to the
extent required in the course of her employment with the
Company or by applicable law, rule, or regulation (including
legal process). In addition, all Trade Secrets and materials
containing Trade Secrets prepared or compiled by the
Executive or furnished or made available to him during her
employment with the Company are the sole and exclusive
property of the Company, and none of those Trade Secrets or
materials containing Trade Secrets may be retained by the
Executive upon or following any termination of her employment
with the Company.
(c) If the Executive's employment with the Company terminates
(other than because of the Executive's death or Disability)
upon or before the termination of this Agreement, the
Executive shall not, at any time during the first year after
that termination of employment anywhere in the Restricted
Territory, directly or indirectly engage in any activity
which, or any activity for any enterprise or entity a
material part of the business of which, is competitive with
the business conducted, or proposed during her employment
with the Company to be conducted, by the Company. The
activity prohibited by the preceding sentence includes any
kind of ownership (other than ownership of securities of a
publicly held entity of which the Executive owns less than 1%
of a class of outstanding securities) in or of, or acting as
a director, officer, agent, employee, or consultant of or
for, any enterprise or entity referred to in the preceding
sentence.
(d) The Executive acknowledges and agrees that the
restrictions in this Section 4 are reasonable and not unduly
burdensome to him under the circumstances.
(e) The Executive's compliance with this Section 4 is a
condition to the second installment of the Severance Payment;
the Company may refuse to pay that second installment, and
that installment shall not be due to the Executive, if there
is any such noncompliance. The Company shall have the burden
of proof regarding any question of the Executive's compliance
or noncompliance with this Section 4.
<PAGE>
5. Tax Limitation. If any payment or benefit received or to be received by
the Executive under this Agreement or any other of the Total Severance
Benefits would not be deductible, in whole or in part, by the Company
as a result of Section 280G of the Code, the payments and benefits
under this Agreement shall be reduced until no portion of the Total
Severance Benefits is nondeductible as a result of Section 280G of the
Code. For the purposes of this Section 5:
(a) Any portion of the Total Severance Benefits that the
Executive has effectively waived in writing before the date
on which that portion is received shall not be taken into
account in determining the limitation on the Total Severance
Benefits;
(b) any portion of the Total Severance Benefits that does not
constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code shall not be taken into
account in determining the limitation on the Total Severance
Benefits; and
(c) the value of any non-cash benefit or deferred payment
included in the Total Severance Benefits shall be determined
by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
6. Executive's Legal Expenses. The Company shall pay the Executive an
amount equal to the reasonable legal fees and other expenses incurred
in good faith by him in obtaining or retaining payments and benefits
under this Agreement, including all such fees and expenses (if any) in
enforcing, in good faith, any right or benefit provided by this
Agreement or in connection with the contest or defense of any tax audit
or proceeding by the Internal Revenue Service to the extent that
Section 4999 of the Code is alleged or claimed to apply to any payment
or benefit provided under this Agreement. The Company will be obligated
under the preceding sentence even if the Executive is not successful in
any enforcement claim or counterclaim by him, or in any such tax
contest or defense, so long as he acted in good faith. The Company
shall make any payment required by this Section 6 within five Business
Days after Notice from the Executive requesting payment and providing
such evidence of the incurrence of those fees and expenses as the
Company may reasonably request.
7. No Mitigation. If a Severance Payment Event occurs, the Executive need
not seek other employment or attempt in any way to reduce the amount of
any payments or benefits to the Executive by the Company under this
Agreement. Other than as stated in subsection (c) of Section 3 and in
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subsection (e) of Section 4, the amount of the Severance Payment or any
other severance benefit provided or to be provided to the Executive by
the Company under Section 3 shall not be reduced by any compensation
earned by the Executive as the result of any other employment,
consulting relationship, or other business activity.
8. No Set-off. The Company's obligations under this Agreement are absolute
and unconditional, and not subject to any set-off, counterclaim,
recoupment, defense, or other right that the Company or any Subsidiary
may have against the Executive, except as stated in subsection (c) of
Section 3 and in subsection (e) of Section 4.
9. Tax Withholding. The Company shall withhold from any payments or
benefits under this Agreement (whether or not otherwise acknowledged
under this Agreement) all federal, state, local, or other taxes as may
be legally required to be withheld.
10. Employment Status. Nothing in this Agreement provides the Executive
with any continued employment with the Company or any Subsidiary or
shall interfere with the Company's right to terminate the Executive's
employment at any time and for any (or no) reason.
11. No Exclusivity. Nothing in this Agreement prevents or limits the
Executive's participation in any Plan for which the Executive may
qualify or shall impair any rights that the Executive may have under
any other contract or agreement with the Company or any Subsidiary,
except for any limitation resulting from Section 5.
12. Governing Law; Jurisdiction. All matters or issues relating to the
interpretation, construction, validity, and enforcement of this
Agreement shall be governed by the laws of Texas, without giving effect
to any choice-of-law principle that would cause the application of the
laws of any jurisdiction other than Texas. Jurisdiction and venue of
any action or proceeding relating to this Agreement or any Dispute (to
the extent arbitration is not required under Section 13) shall be
exclusively in Dallas County, Texas.
13. Arbitration. Except as provided in subsection (h) of this Section 13,
any Dispute must be resolved by binding arbitration in accordance with
the following:
(a) A Party may begin arbitration by filing a demand for
arbitration in accordance with the Arbitration Rules and
concurrently Notifying the other Party of that demand. If the
Parties are unable to agree upon a panel of three arbitrators
within ten days after the demand for arbitration was filed
(and do not agree to an extension of that ten-day period),
either Party may request the Dallas office of the American
Arbitration Association to appoint the arbitrator or
arbitrators necessary to complete the