<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NO. 333-38597
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
PAWNMART, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 5940 75-2520896
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
301 COMMERCE STREET, SUITE 3600
FORT WORTH, TEXAS 76102
(817) 335-7296
(Address and telephone number of principal executive offices
and principal place of business)
-----------------------
CARSON R. THOMPSON
PAWNMART, INC.
301 COMMERCE STREET, SUITE 3600
FORT WORTH, TEXAS 76102
(817) 335-7296
(Name, address and telephone number of agent for service)
-----------------------
COPIES TO:
JAKES JORDAAN, ESQ. RICHARD F. DAHLSON, ESQ.
LARA SALDIVAR, ESQ. JACKSON WALKER L.L.P.
JORDAAN & PENNINGTON, PLLC 901 MAIN STREET, SUITE 6000
300 CRESCENT COURT, SUITE 1670 DALLAS, TEXAS 75201
DALLAS, TEXAS 75201 (214) 953-5896
(214) 871-6550
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the date this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------
CALCULATION OF REGISTRATION FEE. See next page.
-----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
================================================================================
(REGISTRATION STATEMENT COVER PAGE CONT'D)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE $.01
PER SHARE(2) 1,380,000 $ 5.00 $ 6,900,000 $2,035.50
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK UNDERLYING
UNDERWRITER WARRANTS 120,000 $ 6.00 $ 720,000 $ 212.40
- --------------------------------------------------------------------------------------------------------------------------------
SERIES A REDEEMABLE COMMON
STOCK PURCHASE WARRANTS (3)
1,500,000 $ .125 (4) (4)
- --------------------------------------------------------------------------------------------------------------------------------
SERIES B REDEEMABLE COMMON
STOCK PURCHASE WARRANTS (3)
1,500,000 $.0625 (4) (4)
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, ISSUABLE
UNDER SERIES A REDEEMABLE
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PURCHASE
WARRANTS (5) 1,500,000 $ 6.00 $ 9,000,000 $ 2,655.00
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, ISSUABLE UNDER
SERIES B REDEEMABLE COMMON
STOCK PURCHASE WARRANTS (6)
1,500,000 $ 8.00 $12,000,000 $ 3,540.00
- --------------------------------------------------------------------------------------------------------------------------------
UNDERWRITER WARRANTS 120,000 $ .001 $ 120 $ 0.04
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 8,442.94(7)
================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 180,000 shares of Common Stock that may be purchased by the
Underwriter from the Company to cover over-allotments, if any.
(3) Includes 180,000 warrants that may be purchased by the Underwriter to cover
over-allotments, if any, and 120,000 warrants underlying the Underwriter
Warrants.
(4) Because the shares of Common Stock underlying the warrants are registered,
no additional registration fee required.
(5) Represents shares of Common Stock issuable upon exercise of the Series A
Redeemable Common Stock Purchase Warrants registered hereby together with
such additional indeterminate number of shares as may be issued upon
exercise of such Series A Redeemable Common Stock Purchase Warrants by
reason of the anti-dilution provisions contained therein.
(6) Represents shares of Common Stock issuable upon exercise of the Series B
Redeemable Common Stock Purchase Warrants registered hereby together with
such additional indeterminate number of shares as may be issued upon
exercise of such Series B Redeemable Common Stock Purchase Warrants by
reason of the anti-dilution provisions contained therein.
(7) Of this amount, $8,442.94 was previously paid.
================================================================================
<PAGE> 3
SUBJECT TO COMPLETION, DATED FEBRUARY , 1998
PAWNMART, INC.
1,200,000 SHARES OF COMMON STOCK
1,200,000 SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
1,200,000 SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------------------
PawnMart, Inc. (the "Company") is offering (the "Offering") 1,200,000
shares (the "Shares") of Common Stock, $.01 par value per share (the "Common
Stock"), 1,200,000 Series A Redeemable Common Stock Purchase Warrants (the
"Series A Warrants") and 1,200,000 Series B Redeemable Common Stock Purchase
Warrant (the "Series B Warrants"). The Common Stock, the Series A Warrants and
the Series B Warrants (collectively, the "Securities") are being offered
separately and not as units, and each is separately transferable. Prior to this
Offering, there has been no public market for the Securities. It is estimated
that the initial public offering price will be $5.00 per Share, $0.125 per
Series A Warrant and $0.0625 per Series B Warrant. Each Series A Warrant and
Series B Warrant (collectively, the "Warrants") entitles the holder to purchase
one share of Common Stock at a price of $6.00 per share and $8.00 per share,
respectively, during the respective five and six-year periods commencing on the
date of this Prospectus. The Series A Warrants and Series B Warrants are
redeemable by the Company for $.05 per warrant on not less than 30 nor more than
60 days written notice if the closing price for the Common Stock for seven
trading days during a 10 consecutive trading day period ending not more than 15
days prior to the date that the notice of redemption is mailed equals or exceeds
$9.00 per share and $11.00 per share, respectively. Any redemption of the
Warrants during the one-year period commencing on the date of this Prospectus
shall require the written consent of First London Securities Corporation, the
representative of the Underwriter (the "Representative"). See "Description of
Securities."
Prior to this Offering, there has been no public market for the Securities.
The initial public offering price of the Securities and the exercise price and
other terms of the Warrants have been determined through negotiations between
the Company and the Representative and are not related to the Company's assets,
book value, financial condition or other recognized criteria of value. Although
the Company has applied for the inclusion of the Common Stock and the Warrants
on the Boston Stock Exchange under the proposed symbols "PMT", "PMTA" and
"PMTB," respectively, and on the Nasdaq SmallCap Market under the symbols
"PMRT", "PMRTA" and "PMRTB", respectively, there can be no assurance that an
active trading market in the Securities will develop or be sustained.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AS WELL AS
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND
"DILUTION," COMMENCING ON PAGES 7 AND 15, RESPECTIVELY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================================
PRICE TO Underwriting Proceeds to
PUBLIC Discounts and Company (2)
Commissions (1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................................. $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Per Series A Warrant................................... $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Per Series B Warrant................................... $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total(3)............................................... $ $ $
==========================================================================================================================
</TABLE>
*See Footnotes on following Page
The Securities are offered by the Underwriter on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter, and subject to their right to reject orders in whole or in part. It
is expected that delivery of the certificates for the shares of Common Stock and
Warrants will be made on or about , 1998.
FIRST LONDON SECURITIES CORPORATION
The date of this Prospectus is , 1998.
<PAGE> 4
ARTWORK
1. First Picture -- color photos of exterior and interior of PawnMart stores
and of PawnMart customers viewing store merchandise. Caption: "PawnMart stores
are attractive, clean, well-lit and often located close to national discount
stores. Merchandise is displayed in an organized, easy-to-shop manner.
PawnMart plans to expand by opening company-owned stores in metropolitan areas
in states with favorable pawn regulations and with franchise operations in
smaller markets."
2. Second Picture -- color photos of interior of PawnMart stores and PawnMart
customers viewing merchandise and transacting business at a service counter.
Caption: "PawnMart has developed extensive demographical information that
identifies both its borrowing and retail customers. The data indicates that
PawnMart customers have median household incomes in the $45,000 to $55,000
range, more than 50% are female, and approximately half are married with
children. This demographic data will be utilized in direct marketing for
customer acquisition, retention and promotions, and for store site selection."
3. Third Picture -- color photos of PawnMart customers viewing store
merchandise. Caption: "PawnMart is a financial services and specialty retail
enterprise principally engaged in establishing and operating stores which
advance money secured by the pledge of tangible personal property and sell
pre-owned merchandise to the value-conscious consumer. PawnMart's key
merchandise categories include jewelry, consumer electronics, tools, musical
instruments, and other pre-owned products. All merchandise sold is backed by
a 30-day guarantee."
CAPTION: "PAWNMART(SM) -- AN ESTATE SALE EVERYDAY(SM)"
<PAGE> 5
Footnotes
(1) Does not include additional underwriting compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance equal
to 3% of the gross proceeds of this Offering, of which $25,000 has been
paid to date, and (ii) warrants issued to the Representative (the
"Representative's Warrants") to purchase up to 120,000 of each of the
Securities, which Representative's Warrants are exercisable for a four-year
period commencing one year from the effective date of this Offering at a
purchase price of 120% of the initial offering price of the Securities. In
addition, the Company has granted to the Representative certain
registration rights with respect to registration of the shares of Common
Stock and the Warrants underlying the Representative's Warrants (the
"Underlying Warrants") and the shares of Common Stock issuable upon
exercise of the Underlying Warrants. The Company has agreed to pay the
Representative upon the exercise or redemption of the Warrants a fee equal
to 5% of the gross proceeds received by the Company from the exercise of
the Warrants and 5% of the aggregate redemption price for Warrants
redeemed. Such fee will be paid to the Representative or its designee no
sooner than 12 months after the effective date of this Offering. The
Company has agreed to indemnify the Underwriter against certain liabilities
arising under the Securities Act of 1933, as amended (the "Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $450,000,
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Representative an option (the "Representative's
Over-Allotment Option"), exercisable within 30 days from the date of this
Prospectus, to purchase on the same terms as the Securities offered hereby
up to 180,000 additional Securities solely to cover over-allotments, if
any. If the Representative's Over-Allotment Option is exercised in full,
the total Price to Public, Underwriting Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Act with respect to the Securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. THE STATEMENTS CONTAINED IN
THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT IDENTIFIED
AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY COMPLETE, AND IN EACH
INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR DOCUMENT FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT BEING QUALIFIED IN ANY AND
ALL RESPECTS BY SUCH REFERENCE. For further information with respect to the
Company and the Securities offered hereby, reference is made to the Registration
Statement and exhibits which may be inspected without charge at the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, (the "Exchange
Act") and in accordance therewith will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its New
York Regional Office, Room 1300, 7 World Trade Center, New York, New York 10048;
and at its Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may
also be obtained from the Public Reference Section of the Commission at
prescribed rates. The Company's Registration Statement on Form SB-2 as well as
any reports to be filed under the Exchange Act can also be obtained
electronically after the Company has filed such documents with the Commission
through a variety of databases, including among others, the Commission's
Electronic Data Gathering, Analysis And Retrieval ("EDGAR") program,
Knight-Ridder Information, Inc., Federal Filings/Dow Jones and Lexis/Nexis.
Additionally, the Commission maintains a Website (at http://www.sec.gov) that
contains such information regarding the Company.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law. Such requests may be directed to
Carson R. Thompson, Chairman of the Board, PawnMart, Inc., 301 Commerce Street,
Suite 3600, Fort Worth, Texas 76102, telephone number (817) 335-7296.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK,
THE SERIES A WARRANTS AND THE SERIES B WARRANTS ON NASDAQ IN ACCORDANCE WITH
RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 6
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Except as
otherwise noted herein, all information in this Prospectus (i) assumes a public
offering price of Common Stock of $5.00 per share; (ii) assumes no exercise of
the Warrants or Underwriter's over-allotment option; (iii) gives effect to the
Preferred Stock Conversion (as defined below) and the Debenture Conversion (as
defined below); (iv) gives effect to a 1-for-2 and a subsequent 1-for-1.5163715
reverse stock split (collectively, the "Reverse Stock Split") of the Company's
outstanding shares of Common Stock; and (v) assumes no exercise or conversion of
outstanding options or warrants. See "Description of Capital Stock,"
"Underwriting" and Notes 5, 7, 8, 10, 11 and 12 of Notes to Audited Consolidated
Financial Statements.
THE COMPANY
GENERAL
The Company is a financial services and specialty retail enterprise
principally engaged in establishing and operating stores which advance money
secured by the pledge of tangible personal property and sell pre-owned
merchandise to the value-conscious consumer. The Company generates income in two
ways: through collection of a monthly service charge from advancing money to
individuals based primarily upon the estimated resale value of pledged personal
property such as jewelry, consumer electronics, tools, musical instruments,
firearms, automobiles, and other miscellaneous items and through a profit
realized on the retail sale of unredeemed or other purchased pre-owned
merchandise.
MARKET POSITIONING STRATEGY
The Company has developed extensive demographical information that
identifies both its borrowing and retail customers. This data indicates that the
Company's customers have a median household income in the $45,000 to $55,000
range, more than 50 percent are female and approximately half are married with
children. In this regard, the Company's strategic market positioning targets
these customer groups for both pawn and retail transactions with specialty
retail concepts such as "PAWNMART(sm) -- An Estate Sale Everyday(sm)." To
attract these customers, PAWNMART(sm) stores are attractive, clean, well-lit and
often located close to national discount stores, with merchandise displayed in
an organized and easy-to- shop manner similar to national discount stores.
Because the Company believes that most existing pawnshops are situated in
locations that do not satisfy the Company's customer demographics, the Company
has opened new stores rather than acquire smaller "mom and pop" stores.
Currently, the Company owns and operates 19 stores, of which 11 are located in
Georgia, five in Alabama, two in North Carolina and one in Texas.
FINANCIAL RESTRUCTURING
The Company's capital structure will automatically change upon consummation
of the Offering, resulting in an approximate $1,654,000 decrease in the
Company's annual cash interest requirements and an approximate $130,000 decrease
in the Company's annual dividend requirements. The Company's total stockholders'
equity (deficit) at October 26, 1997 will improve by $14,146,107 from a total
deficit of ($5,476,043) on an actual basis to total equity of $3,495,064 on a
pro forma and $8,670,064 on an adjusted basis. See "Capitalization."
In particular, the Company's $.50 Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), Series B Convertible Preferred Stock (the "Series B
Preferred Stock"), Series C Convertible Preferred Stock (the "Series C Preferred
Stock"), and 12% Series D Convertible Exchangeable Preferred Stock (the "Series
D Preferred Stock") will be converted automatically into an aggregate of
1,482,766 shares of Common Stock at an average conversion price of $2.90 per
share of Common Stock (the "Preferred Stock Conversion") and $9,520,000
aggregate principal amount of the Company's 14% Convertible Subordinated
Debentures due June 30, 1999, June 30, 2000 and January 31, 2001, respectively,
(collectively, the "Subordinated Debentures") will be converted automatically
into an aggregate of 2,380,000 shares of Common Stock at a conversion price of
$4.00 in principal amount per share of Common Stock (the "Debenture
Conversion"). Additionally, the Company intends to use approximately 41.4% of
the net proceeds from the Offering for the repayment of $2,142,000 in 15% notes
payable. See "Use of Proceeds."
3
<PAGE> 7
FRAGMENTED AND GROWING INDUSTRY
The pawnshop industry is a multi-billion dollar, rapidly growing industry
and is highly fragmented. Of the approximately 13,000 pawnshops in the United
States, the industry's four public companies collectively own approximately five
percent. The Company's strategic objective is to capitalize upon growth
opportunities afforded by this highly fragmented industry through a roll-out of
new PAWNMART(sm) stores.
GROWTH STRATEGY
The Company has adopted the following strategy:
o Develop new -- rather than acquire existing -- stores that satisfy the
Company's strategic market positioning similar to national discount stores;
o Expand in metropolitan areas in states with favorable pawn regulations;
o Franchise operations in smaller markets;
o Utilize information technology as a platform for collateral assessment and
management control; and
o Direct customer marketing.
EXPERIENCED SPECIALTY RETAIL MANAGEMENT TEAM AND BOARD OF DIRECTORS
Carson Thompson, the Company's Chief Executive Officer and Chairman of the
Board, served as President and Chief Executive Officer for The Bombay Company,
Inc. during its roll-out phase. Also, Robert Bourland, the Company's Chief
Operating Officer and Director, worked for Tandy Corporation for twenty years
serving as Senior Vice President -- Managing Director, Tandy U.K. operations and
other management capacities. Between 1979 and 1985, he acted as Tandy's
Divisional Vice President responsible for 1,200 Radio Shack stores. As such,
these executives have, collectively, more than 50 years of specialty retail and
management experience.
The Company's Board of Directors includes Robert Camp who has 19 years of
experience with Pier 1 Imports, Inc., including five years as Chief Executive
Officer or Chief Operating Officer. Additional Directors include James Berk, who
is Vice Chairman and Chief Executive Officer of APC, Inc. and has served as
President and Chief Executive Officer of Bizmart, Inc.; Monty Standifer, who
served as Chief Financial Officer of Bizmart, Inc. and is presently the Chief
Financial Officer of Gadzooks, Inc. (Nasdaq:GADZ); and Mark Kane, who founded,
and served as President and Chief Executive Officer of CD Warehouse, Inc.
(Nasdaq:CDWI). See "Management -- Directors and Executive Officers." The Company
intends to capitalize upon the specialty retail experience and talents of these
individuals to expand rapidly in a fragmented industry.
THE COMPANY
The Company was incorporated under the laws of the State of Delaware on
January 13, 1994 and began operations under the name "Pawnco, Inc." On June 14,
1994, the Company changed its name to PCI Capital Corporation and conducted
business under the trade name "PAWNMART(sm)." On October 21, 1997, the Company
changed its name to "PawnMart, Inc." The Company's principal office is located
at 301 Commerce Street, Suite 3600, Fort Worth, Texas 76102 and its telephone
number is (817) 335-7296. As of December 1, 1997, the Company has a total of 115
employees.
4
<PAGE> 8
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by the Company:
Common Stock..............................................1,200,000 shares
Series A Warrants.........................................1,200,000 warrants
Series B Warrants.........................................1,200,000 warrants
Common Stock Outstanding:
Prior to the Offering.....................................5,800,000 shares (1)
After the Offering........................................7,000,000 shares (1)
Estimated Net Proceeds........................................$5.175 million (2)
Use of Proceeds...............................................The Company intends to use the net proceeds of this Offering
to develop new stores, repay indebtedness and for working
capital and other general corporate purposes.
Proposed Trading Symbols (3):
Boston Stock Exchange:
Common Stock............................................PMT
Series A Warrants......................................PMTA
Series B Warrants......................................PMTB
Nasdaq SmallCap Market:
Common Stock...........................................PMRT
Series A Warrants......................................PMRTA
Series B Warrants......................................PMRTB
Risk Factors..................................................The Common Stock and the Warrants offered hereby are
speculative and involve a high degree of risk. Investors
should carefully consider the risk factors enumerated
hereafter before investing in the Common Stock and the
Warrants. See "Risk Factors" and "Dilution."
</TABLE>
(1) See "Capitalization."
(2) After subtracting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, including a 3% non-accountable
expense allowance to the Representative.
Boston Stock Exchange and the Nasdaq SmallCap Market symbols do not imply
that an established public trading market will develop for any of these
securities, or if developed, that any such market will be sustained. See
"Risk Factors--Possible Applicability of Rules Relating to Low-Priced
Stock; Possible Failure to Qualify for Boston Stock Exchange or Nasdaq
SmallCap Market Listing."
5
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------------ ----------------------------
SELECTED STATEMENTS OF OPERATIONS DATA: January 28, January 26, October 27, October 26,
1996 1997 1996 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Pawn service charges............................. $1,337,618 $2,291,104 $ 1,622,310 $ 2,106,525
Merchandise sales................................ 3,051,678 5,522,731 3,887,577 4,981,240
Other income..................................... 34,206 89,567 8,050 67,320
----------- ----------- ----------- -----------
Total revenue.................................... 4,423,502 7,903,402 5,517,937 7,155,085
Less cost of sales............................... (1,941,489) (3,527,670) (2,540,902) (3,458,769)
----------- ----------- ----------- -----------
Gross profit..................................... 2,482,013 4,375,732 2,977,035 3,696,316
EXPENSES:
Operating expenses............................... 2,625,716 3,863,843 2,553,588 2,788,950
Interest......................................... 720,301 1,360,511 947,015 1,355,951
Depreciation and amortization.................... 375,023 495,125 389,554 377,094
Administrative................................... 1,588,600 1,712,568 1,343,400 1,518,913
----------- ----------- ----------- -----------
Total expenses................................... 5,309,640 7,432,047 5,233,557 6,040,908
----------- ----------- ----------- -----------
Net loss......................................... $(2,827,627) $(3,056,315) $(2,256,522) $(2,344,592)
=========== =========== =========== ===========
Pro forma loss per common share (1).............. $ (0.34) $ (0.19)
=========== ===========
Pro forma common and common equivalent
shares outstanding (1)........................... 6,145,847 6,398,644
OTHER DATA:
Stores owned at end of period.................... 17 19 19 19
Average age of stores at end of period........... .93 years 1.77 years 1.52 years 2.52 years
</TABLE>
<TABLE>
<CAPTION>
At October 26, 1997
--------------------------------------------------------------
SELECTED BALANCE SHEET DATA: Actual Pro Forma (2) As Adjusted (3)
------ ------------- ---------------
<S> <C> <C> <C>
Loans................................. $ 2,426,158 $ 2,426,158 $ 2,426,158
Inventories, net...................... 2,227,782 2,227,782 2,227,782
Working capital....................... 3,045,668 3,045,668 6,830,668
Total assets.......................... 7,036,763 6,487,870 9,520,870
Long-term notes payable,
net of current installments....... 10,272,000 752,000 --
Stockholders' equity (deficit) (4).... (5,476,043) 3,495,064 8,670,064
</TABLE>
- ----------
(1) Pro forma loss per common share is determined based on the weighted average
number of common and common equivalent shares outstanding during each
period giving effect to the Reverse Stock Split, the Preferred Stock
Conversion, the Debenture Conversion and the exercise or conversion of
outstanding options and warrants. See the consolidated financial statements
and the notes thereto of the Company included elsewhere in the Prospectus.
(2) Gives effect to the Preferred Stock Conversion and the Debenture
Conversion.
(3) Pro forma as adjusted to give effect to the sale of (i) the Securities,
(ii) the application of the net proceeds therefrom of approximately $5.175
million and (iii) the retirement of $2,142,000 in debt of which $1,390,000
was current at October 26, 1997. See "Use of Proceeds" and
"Capitalization."
(4) See "Capitalization."
6
<PAGE> 10
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK, INCLUDING THE RISK FACTORS DESCRIBED BELOW. IN ADDITION
TO THE OTHER INFORMATION PRESENTED IN THIS PROSPECTUS, EACH PROSPECTIVE INVESTOR
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING
THE BUSINESS OF THE COMPANY AND THIS OFFERING BEFORE MAKING AN INVESTMENT
DECISION. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS REGARDING
THE COMPANY'S BUSINESS AND PROSPECTS THAT ARE BASED UPON NUMEROUS ASSUMPTIONS
ABOUT FUTURE CONDITIONS WHICH MAY ULTIMATELY PROVE TO BE INACCURATE AND ACTUAL
EVENTS AND RESULTS MAY MATERIALLY DIFFER FROM ANTICIPATED RESULTS DESCRIBED IN
SUCH STATEMENTS. THE COMPANY'S ABILITY TO ACHIEVE SUCH RESULTS IS SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, SUCH AS THOSE RISKS DETAILED IN THIS SECTION,
AND OTHER RISKS DETAILED THROUGHOUT THIS PROSPECTUS. THESE FORWARD-LOOKING
STATEMENTS REPRESENT THE COMPANY'S JUDGMENT AS OF THE DATE OF THE FILING OF THIS
PROSPECTUS. THE COMPANY DISCLAIMS, HOWEVER, ANY INTENT OR OBLIGATION TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
LACK OF PROFITABILITY, POTENTIAL LOSSES
From its inception on January 13, 1994 through October 26, 1997, the
Company has experienced aggregate losses of $9,882,688. Further, a key element
of the Company's strategy consists of developing (rather than acquiring)
multiple PAWNMART(sm) stores meeting the Company's required store size,
configuration, and site selection requirements in regional and local markets.
This strategy may result in continued net losses for the Company during its
roll-out phase due to start-up losses associated with the anticipated high
number of new stores. The Company's audited consolidated financial statements
include a "going concern" explanatory paragraph, and there can be no assurance
that the Company will be able to achieve profitability. Results of operations in
the future will be influenced by numerous factors including, among others, new
store expansions, the ability of the Company to manage its growth and maintain
the quality of its personnel, and the ability of the Company to implement its
strategic plan. Potential investors should be aware of the problems, delays,
expenses and difficulties encountered by any company in an expansion stage, many
of which may be beyond the Company's control. These include, but are not limited
to, unanticipated regulatory compliance, marketing problems and intense
competition that may exceed current estimates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
CAPITAL REQUIREMENTS
The Company is dependent upon the proceeds of this Offering and the
anticipated cash flow from operations to complete its current expansion plans.
Should the Company's cash flow from operations fail to meet anticipated levels,
or should its costs and capital expenditures exceed the amounts currently
expected to be required, the Company could be required to seek unanticipated
financing in the future. There can be no assurance that the Company will be able
to raise such capital or financing when needed or on acceptable terms, and
therefore, the Company may be unable to achieve its goals, including anticipated
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business --
Growth Strategy."
MANAGEMENT OF GROWTH
The Company plans to expand its business through a roll-out of new
PAWNMART(sm) stores. To a significant extent, the Company's future success will
be dependent upon its ability to engage in a successful expansion program and
will be dependent, in part, upon its ability to secure suitable sites for its
new stores, obtain adequate inventory for its new stores, maintain adequate
financial controls and reporting systems to manage a larger operation, and to
obtain additional capital upon favorable terms. There can be no assurance that
the Company will be able to successfully implement its planned expansion,
finance its growth or manage the resulting larger operation.
AVAILABILITY OF QUALIFIED STORE MANAGEMENT PERSONNEL
The Company's ability to expand may also be limited by the availability of
qualified store management personnel. While the Company seeks to train existing
qualified personnel for management positions and to create attractive
compensation packages to retain existing management personnel, there can be no
assurance that sufficient qualified personnel will be available to satisfy the
Company's needs with respect to its planned expansion.
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<PAGE> 11
COMPETITION
The Company encounters significant competition in connection with the
operation of its business. In connection with lending operations, the Company
competes with other pawnshops (owned by individuals and by large operators) and
certain financial institutions, such as consumer finance companies, which
generally lend on an unsecured as well as on a secured basis. The Company's
competitors in connection with its retail sales include numerous retail and
discount stores. Many competitors have greater financial resources than the
Company, including Cash America International, Inc. and EZCORP, Inc. These
competitive conditions may adversely affect the Company's revenues,
profitability and ability to expand.
GOVERNMENT REGULATION
The Company's lending operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations. These statutes prescribe, among other things,
service charges a pawnshop may charge for lending money and the rules of conduct
that govern an entity's ability to maintain a pawnshop license. With respect to
firearm and ammunition sales, a pawnshop must comply with the regulations
promulgated by the United States Department of the Treasury-Bureau of Alcohol,
Tobacco and Firearms. Governmental regulators have broad discretionary authority
to refuse to grant a license or to suspend or revoke any or all existing
licenses of licensees under common control if it is determined that any such
licensee has violated any law or regulation or that the management of any such
licensee is not suitable to operate pawnshops. In addition, there can be no
assurance that additional state or federal statutes or regulations will not be
enacted at some future date which could inhibit the ability of the Company to
expand, significantly decrease the service charges it can charge for lending
money, or prohibit or more stringently regulate the sale of certain goods, such
as firearms, any of which could significantly adversely affect the Company's
prospects. The Company's ability to open new stores in other states could be
affected by the enactment of state or local legislation, similar to current
Texas legislation, which requires a finding of public need and probable
profitability by the Texas Consumer Credit Commissioner as a condition to the
issuance or activation of any new pawnshop license in Texas counties having a
population of more than 250,000. In addition, the present statutory and
regulatory environment of some states renders expansion into those states
impractical. For instance, certain states require public sale of forfeited
collateral or do not permit service charges sufficient to make pawnshop
operations profitable.
RISKS RELATED TO IMPROPER ASSESSMENT OF THE PLEDGED PROPERTY'S ESTIMATED
RESALE VALUE
The Company makes pawn loans without the borrower's personal liability and
does not investigate the creditworthiness of the borrower, but relies on the
pledged personal property, and the possibility of its forfeiture, as a basis for
its lending decision. In this regard, the recovery of the amount advanced, as
well as realization of a profit on sale of merchandise, is dependent on the
Company's initial assessment of the property's estimated resale value. Improper
assessment of the resale value of the collateral in the lending function can
result in reduced marketability of the property and resale of the merchandise
for an amount less than the amount advanced. Although, historically, the Company
has experienced profits from the sale of such merchandise, no assurances can be
given that the Company's historical results will continue. For example,
unexpected technological changes could adversely impact the value of consumer
electronic products and declines in gold and silver prices could reduce the
resale value of jewelry items acquired in pawn transactions and could adversely
affect the Company's ability to recover the amount advanced on the acquired
collateral.
DEPENDENCE ON KEY MANAGEMENT
The Company relies on the business and technical expertise of its executive
officers and certain other key employees, particularly its Chief Executive
Officer, Carson Thompson and its Chief Operating Officer, Robert Bourland. The
Company does not have an employment agreement with any member of its executive
staff. The loss of the services of any of these individuals could have a
material adverse effect on the Company. No assurance can be given that their
services will be available in the future. The Company's success will also be
dependent on its ability to attract and retain additional qualified management
personnel. See "Management."
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<PAGE> 12
RISKS RELATED TO FIREARM SALES
The Company has not, and, at present, the Company does not intend to engage
in the sale of handguns or assault rifles to the public. The Company does
wholesale handguns and assault rifles to licensed firearm dealers. The Company
has engaged in the sale of sporting rifles to the public leaving it open to the
risk of lawsuits from persons who may claim injury as a result of an improper
sale. No such claims have been asserted against the Company as of the date
hereof. The Company does maintain insurance covering potential risks related to
the sale of firearms.
RISKS RELATED TO AUTOMOBILE TITLE LOANS
Alabama and Georgia pawn regulations allow the Company to advance funds
secured by automobile titles. Approximately 9% of the Company's total revenues
for the nine months ended October 26, 1997 were related to pawn service charges
generated from such advances. The adoption of additional, or the revision of
existing, laws and regulations impacting the Company's ability to advance funds
against automobile titles could have a material adverse effect on the Company's
business. In addition, the Company could be subject to consumer claims and
litigation seeking damages based upon wrongful repossession of automobiles.
NO TRADEMARK PROTECTION
The Company has not been issued any registered trademark for its
"PAWNMART(sm) " or "PAWNLINK(TM)" trade names. No assurance can be given that
the Company will be successful in obtaining any trademarks, or that the
trademarks, if obtained, will afford the Company any competitive advantages.
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF
COMMON STOCK
Sales of shares of Common Stock in the public market, including "restricted
shares" first becoming eligible for resale following this Offering, could
adversely affect prevailing market prices. As of the date of this Prospectus,
there were outstanding on a pro forma basis 5,800,000 shares of Common Stock,
all of which shares were "restricted securities" under applicable securities
laws. Additional shares of Common Stock may become eligible for sale in the
public market from time to time upon exercise of warrants and stock options. See
"Description of Capital Stock --Shares Eligible for Future Sale."
NO DIVIDENDS
The Company has not paid any cash or other dividends on its Common Stock
and does not expect to declare or pay any cash dividends on its Common Stock in
the foreseeable future. See "Dividend Policy."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Although the Company has applied to list the Common Stock
and the Warrants on the Boston Stock Exchange and the Nasdaq SmallCap Market,
there can be no assurance that a regular trading market will develop (or be
sustained, if developed) for the Common Stock or the Warrants upon completion of
this Offering, or that purchasers will be able to resell their Common Stock or
Warrants or otherwise liquidate their investment without considerable delay, if
at all. Recent history relating to the market prices of newly public companies
indicates that, from time to time, there may be significant volatility in their
market price. There can be no assurance that the market price of the Common
Stock or the Warrants will not be volatile as a result of a number of factors,
including the Company's financial results or various matters affecting the stock
market generally.
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants, as well as the exercise price of the
Representative's Warrants, have been determined solely by negotiations between
the Company and the Representative. Among the factors considered in determining
these prices were the Company's current financial condition and prospects,
market prices of similar securities of comparable publicly traded companies, and
the general condition of the
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<PAGE> 13
securities market. However, the public offering price of the Common Stock and
the Warrants and the exercise price of the Warrants and the Representative's
Warrants do not necessarily bear any relationship to the Company's assets, book
value, earnings or any other established criterion of value. See"Underwriting."
NECESSITY TO MAINTAIN CURRENT PROSPECTUS AND REGISTRATION STATEMENT
The Company must maintain an effective registration statement on file with
the Commission before any of the Warrants may be redeemed or exercised. It is
possible that the Company may be unable to cause a registration statement
covering the Common Stock underlying the Warrants to be effective. It is also
possible that the Warrants could be acquired by persons residing in states where
the Company is unable to qualify the Common Stock underlying the Warrants for
sale. In either event, the Warrants may expire, unexercised, which would result
in the holders losing all the value of the Warrants.
STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants have the right to exercise the Warrants only if the
underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. The Company cannot issue shares of Common Stock
to holders of the Warrants in states where such shares are not qualified,
registered or exempt. The Company has undertaken, however, to qualify the
Warrants for listing on the Boston Stock Exchange which provides for blue sky
registration in 12 states. See "Description of Capital Stock--Series A Warrants
and Series B Warrants."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the then
current market price when the holder might otherwise wish to hold the Warrants
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrants in the
event of a call for redemption. Holders who do not exercise their Warrants prior
to redemption by the Company will forfeit their right to purchase the shares of
Common Stock underlying the Warrants. The foregoing notwithstanding, the Company
may not redeem the Warrants at any time that a current registration statement
under the Act is not then in effect. See "Description of Capital Stock--Series A
Warrants and Series B Warrants."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Common Stock and the
Warrants will be sold to customers of the Representative. Although the
Representative have advised the Company that they intend to make a market in the
Common Stock and the Warrants, they will have no legal obligation to do so. The
prices and the liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in the market. No assurance can be given that any market making
activities of the Representative, if commenced, will be continued. See
"Underwriting."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED OR "PENNY" STOCKS;
POSSIBLE FAILURE TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET
LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the price at which
the shares of Common Stock offered to the public pursuant to this Offering will
be equal to $5.00, the Warrants offered hereby will initially be "penny stocks"
and become subject to rules that impose additional sales practice requirements
on broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the Common Stock and the Warrants are
listed on the Boston Stock Exchange. There can be no assurance that the Company
will be able to satisfy the listing criteria of the Boston Stock Exchange or
that the Common Stock or the Warrants will trade for $5.00 or more per security
after the
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<PAGE> 14
Offering. Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell the Company's securities and may affect the ability of
purchasers in this Offering to sell the Company's securities in a secondary
market.
Although the Company has applied for listing of the Common Stock and the
Warrants on the Boston Stock Exchange and the Nasdaq SmallCap Market, there can
be no assurance that such application will be approved or that a trading market
for the Common Stock and the Warrants will develop or, if developed, will be
sustained. Furthermore, there can be no assurance that the securities purchased
by the public hereunder may be resold at their original offering price or at any
other price.
In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least 3.0 million in total assets, 2.0
million in tangible assets, 1.5 million "public float," and a minimum bid price
for its securities of $2.00 per share. For continued listing on the Boston Stock
Exchange, a company must maintain a $500,000 market value of the public float,
$1 million in total assets and $500,000 in stockholders equity. The failure to
meet these maintenance criteria in the future may result in the discontinuance
of the listing of the Common Stock and Warrants on the Boston Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least $4,000,000 in total assets, $2.0
million of total capital and surplus, $1.0 million "public float," and a minimum
bid price for its securities of $3.00 per share. For continued listing on the
Nasdaq SmallCap Market, a company must maintain a $200,000 market value of the
public float, $2.0 million in total assets and $1.0 million in total capital and
surplus. In addition, continued inclusion requires two market- makers and a
minimum bid of $1.00 per share. The failure to meet these maintenance criteria
in the future may result in the discontinuance of the listing of the Common
Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria (either
initially or on a continued basis) of the Boston Stock Exchange or the Nasdaq
SmallCap Market and is never traded or becomes delisted therefrom, trading, if
any, in the Common Stock and the Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
"Electronic Bulletin Board" administered by the National Association of
Securities Dealers, Inc. (the "NASD"). In such an event, the market price of the
Common Stock and the Warrants may be adversely impacted. As a result, an
investor may find it difficult to dispose of or to obtain accurate quotations as
to the market value of the Common Stock and the Warrants.
EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representative or its designee, for nominal consideration, the Representative's
Warrants to purchase up to 120,000 shares of Common Stock, 120,000 Series A
Warrants and 120,000 Series B Warrants. The Representative's Warrants will be
exercisable for a four-year period commencing one year from the effective date
of this Offering at an exercise price of 120% of the price at which the Common
Stock and Warrants are sold to the public, subject to adjustment. The
Representative's Warrants may have certain dilutive effects because the holders
thereof will be given the opportunity to profit from a rise in the market price
of the underlying shares with a resulting dilution in the interest of the
Company's other stockholders. The terms on which the Company could obtain
additional capital during the life of the Representative's Warrants may be
adversely affected because the holders of the Representative's Warrants might be
expected to exercise them at a time when the Company would otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of the Representative's Warrants.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws could prohibit or delay mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company. These provisions include: (i) a classified
Board of Directors; (ii) a prohibition on stockholder action through written
consents; (iii) a requirement that special meetings of stockholders be called
only by the Board; (iv) advance
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<PAGE> 15
notice requirements for stockholder proposals and nominations; (v) limitations
requiring the affirmative vote of holders of at least 66 2/3% of the total votes
eligible to be cast in the election of directors to amend, alter or repeal the
Company's Restated Certificate of Incorporation and By-laws; and (vi) the
authority of the Board to issue preferred stock with such terms as the Board may
determine without stockholder approval. The Company will also be afforded the
protections of Section 203 of the Delaware General Corporation Law, which could
have similar effects. See "Description of Capital Stock."
DILUTION
Purchasers of the Common Stock will experience immediate and substantial
dilution of $3.77 (75.4%) per share between the pro forma net tangible book
value per share of Common Stock after the Offering and the assumed initial
public offering price of $5.00 per share. See "Dilution."
OUTSTANDING OPTIONS AND WARRANTS; RISK OF FURTHER DILUTION
As of the date of this Prospectus, the Company has outstanding warrants to
purchase a total of 213,455 shares of Common Stock at an exercise price of $5.50
per share and outstanding options to purchase a total of 308,764 shares of
Common Stock at an exercise price of $3.79 per share. The price that the Company
would receive for its Common Stock upon exercise of such options or warrants may
be significantly less than the value of, or market price for, the Common Stock
at the time such options or warrants are exercised. To the extent that any such
options or warrants are exercised, the interests of the Company's stockholders
may be diluted proportionately.
LIMITATIONS ON DIRECTOR LIABILITY
The Company's Restated Certificate of Incorporation provides, as permitted
by the Delaware General Corporation Law, that a director of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, with certain exceptions. These
provisions may discourage stockholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by stockholders on behalf of the Company against a director. In
addition, the Company's Restated Certificate of Incorporation and By-laws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. In addition, the Company has entered into
indemnification agreements pursuant to which the Company is obligated to advance
litigation costs and indemnify its directors and officers to the fullest extent
permitted by Delaware law. See "Description of Capital Stock -- Limitations on
Liability and Indemnification of Officers and Directors."
AUTHORIZATION OF PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of up to 10,000,000 shares of preferred stock with such rights and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
under the Restated Certificate of Incorporation, the Board of Directors may,
without stockholder approval, issue preferred stock with dividend, liquidation,
conversion, voting, redemption or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. The
issuance of any shares of preferred stock having rights superior to those of the
Company's Common Stock may result in a decrease of the value or market price of
the Common Stock and could further be used by the Board as a device to prevent a
change in control of the Company. Holders of the preferred stock may have the
right to receive dividends, certain preferences in liquidation and conversion
rights.
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered by
the Company are estimated to be approximately $5.175 million after deducting
underwriting discounts and estimated offering expenses.
The following table sets forth the anticipated uses of the net proceeds
from this Offering:
<TABLE>
<CAPTION>
Dollar Percent of
Amount Net Proceeds
<S> <C> <C>
Capital expenditures for new store development .................. $2,825,000 54.6%
Repayment of indebtedness (1) ................................... 2,142,000 41.4%
Working capital and other general corporate purposes ............ 208,000 4.0%
---------- -----
Total uses ................................................... $5,175,000 100.0%
========== =====
</TABLE>
(1) Includes (i) $1,390,000 in 15% notes payable issued by the Company to
various individuals to mature on March 31, 1998, (ii) $278,000 in 15% notes
payable issued by the Company to various individuals to mature on March 31,
2000 and (iii) $474,000 in 15% notes payable issued by the Company to
various individuals to mature on December 31, 2000, the proceeds of which
were used to fund capital expenditures for the development of two
additional stores.
The exact allocation of the proceeds for such purposes and the timing of
such expenditures may vary significantly depending upon numerous factors,
including the number of stores to be developed by the Company. Pending the
application of such proceeds, the Company intends to invest the net proceeds of
this Offering in short-term, investment-grade securities. The Company estimates
that such proceeds together with the proceeds from anticipated commercial credit
facilities will be sufficient to fund such expenditures and other cash
requirements for the next 12 months. However, if the Company fails to obtain
such credit facilities, the Company may be required to delay the development of
new stores. Over the longer term, it is likely that the Company will require
additional capital to fund its anticipated growth. The Company has no present
plans, proposals, arrangements, commitments, agreements or understandings with
respect to any acquisitions. However, the Company may use a portion of the net
proceeds to acquire additional stores or other pawnshop companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
During the nine months ended October 26, 1997, the Company paid $33,059 in
dividends on its Series D Preferred Stock. The annual dividend requirements
related to the Company's Series D Preferred Stock total approximately $130,000.
The Company has not paid any cash dividends on its other classes of outstanding
common and preferred stock since its inception and for the foreseeable future
intends to follow a policy of retaining all of its earnings, if any, to finance
the development and continued expansion of its business. There can be no
assurance that dividends on its other classes of outstanding common and
preferred stock will ever be paid by the Company. Any future determination as to
payment of dividends will depend upon the Company's financial condition, results
of operations and such other factors as the Board of Directors deems relevant.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company, (i) on an actual basis after giving effect to the Reverse Stock Split;
(ii) on a pro forma basis after giving effect to the Preferred Stock Conversion
and the Debenture Conversion; and (iii) on an as adjusted basis to additionally
reflect the issuance of the Securities offered by the Company and the
application of the estimated net proceeds therefrom. The following table should
be read in conjunction with the respective consolidated financial statements and
notes thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At October 26, 1997
---------------------------------------
Actual Pro Forma As Adjusted (1)
------ --------- ---------------
(in thousands)
<S> <C> <C> <C>
Long-term notes payable, net of current installments (2) ................... $ 10,272 $ 752 $ --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; authorized 10,000,000 shares:
Series A Preferred Stock; 2,000,000 shares issued and
outstanding (liquidation preference of $.50 per
share) (3) ..................................................... 20 -- --
Series B Preferred Stock; 1,091,858 issued
(liquidation preference of $2.00 per share) (3) ................ 11 -- --
Series C Convertible Preferred stock; 26,842 shares issued
and outstanding (liquidation preference of $2.50 per
share) (3) ..................................................... 1 -- --
Series D Preferred Stock; 542,500 shares issued
and outstanding (liquidation preference of $2.00 per
share) (3) ..................................................... 5 -- --
Common stock, $.01 par value; authorized 20,000,000
shares; 1,950,424 shares issued (actual), 5,821,432 shares
issued (pro forma), and 7,021,432 shares issued (as adjusted)
(2)(3)(4) ............................................................ 20 58 70
Series A Redeemable Common Stock Purchase Warrants ....................... -- -- 150
Series B Redeemable Common Stock Purchase Warrants ....................... -- -- 75
Additional paid-in capital (2)(3)(4) ..................................... 4,453 16,626 21,564
Accumulated deficit ...................................................... (9,916) (13,119) (13,119)
Less treasury stock, at cost: 13,189 common shares and 25,000
Series B Convertible Preferred shares (actual) and 21,432
common shares (pro forma and as adjusted) ............................... (70) (70) (70)
-------- -------- --------
Total stockholders' equity (deficit) ....................................... (5,476) 3,495 8,670
-------- -------- --------
Total capitalization .................................................... $ 4,796 $ 4,247 $ 8,670
======== ======== ========
</TABLE>
- -----------
(1) Does not include: (i) 213,455 shares of Common Stock which may be issued
upon exercise of currently outstanding Common Stock purchase warrants
issued to broker/dealers in connection with the private placement of the
Company's securities; and (ii) 120,000 shares of Common Stock, 120,000
Series A Warrants and 120,000 Series B Warrants issuable upon exercise of
the Representative's Warrants; (iii) 308,764 shares of Common Stock which
may be issued upon exercise of currently outstanding Common Stock options
issued under the 1997 PawnMart, Inc. Employee Stock Option Plan; and (iv)
2,400,000 shares of Common Stock which may be issued upon exercise of the
Warrants.
(2) Pro forma common shares outstanding includes 2,380,000 shares issued in
connection with the Debenture Conversion. See "Prospectus Summary -
Financial Restructuring" and Notes 5, 11 and 12 of Notes to Audited
Consolidated Financial Statements.
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<PAGE> 18
(3) Pro forma common shares outstanding includes 1,482,766 shares issued in
connection with the Preferred Stock Conversion. See "Prospectus Summary -
Financial Restructuring" and Notes 8, 11 and 12 of Notes to Audited
Consolidated Financial Statements.
(4) As adjusted common shares outstanding includes the issuance of 1,200,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $5.00 per share.
DILUTION
The pro forma net tangible book value of the Company at October 26, 1997
was $3,417,272, or $0.59 per share. "Pro forma net tangible book value per
share" represents the amount of total tangible assets less total liabilities,
divided by the number of shares of Common Stock outstanding on a pro forma
basis. After giving effect to the sale by the Company of the Securities, the pro
forma net tangible book value of the Company at October 26, 1997 would have been
$8,592,272, or $1.23 per share, representing an immediate increase in net
tangible book value of $.64 per share to existing stockholders and an immediate
dilution of $3.77 per share to the persons purchasing shares at the initial
public offering price ("New Investors").
The following table illustrates the per share dilution in net tangible book
value per share to New Investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................................. $ 5.00
Pro forma net tangible book value per share................................... $0.59
Increase per share attributable to New Investors.............................. $0.64
Pro forma net tangible book value after the Offering............................. 1.23
-------
Dilution of net tangible book value to New Investors............................. $ 3.77
=======
Percentage dilution................................................................ 75.4%
=======
</TABLE>
The following table summarizes as of the date of this Prospectus the
difference between existing stockholders and New Investors with respect to the
number of shares purchased from the Company, the total consideration paid to the
Company and the average price paid per share (for New Investors, at the assumed
initial public offering price):
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price Per
Number Percent Amount Percent Share
------------------ -------------------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ............................... 5,800,000 82.9% $13,762,134 69.6% $ 2.37
New Investors ....................................... 1,200,000 17.1% 6,000,000 30.4% $ 5.00
--------- ----- ----------- -----
Total .......................................... 7,000,000 100.0% $19,762,134 100.0%
========= ===== =========== =====
</TABLE>
The computations in both of the foregoing tables assume no exercise of
outstanding employee stock options and warrants, the Warrants, or of the
Underwriter's over-allotment option. See "Underwriting." As of the date of this
Prospectus, options to purchase 308,764 shares of Common Stock at an exercise
price of $3.79 per share were outstanding. See "Management -- Employee Stock
Option Plan." In addition, warrants to purchase 213,455 shares of Common Stock
at an exercise price of $5.50 per share had been granted.
15
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth, for the periods and at the dates indicated,
selected historical financial data of the Company. The selected consolidated
historical financial data has been derived from the audited and unaudited
historical consolidated financial statements of the Company and should be read
in conjunction with such financial statements and the notes thereto included
elsewhere in this Prospectus. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations for the periods presented.
<TABLE>
<CAPTION>
Year Ended Nine Months
--------------------------- -----------------------------
SELECTED STATEMENTS OF OPERATIONS DATA: January 28, January 26, October 27, October 26,
1996 1997 1996 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Pawn service charges ........................ $ 1,337,618 $ 2,291,104 $ 1,622,310 $ 2,106,525
Merchandise sales ........................... 3,051,678 5,522,731 3,887,577 4,981,240
Other income ................................ 34,206 89,567 8,050 67,320
----------- ----------- ----------- -----------
Total revenue ............................... 4,423,502 7,903,402 5,517,937 7,155,085
Less cost of sales .......................... (1,941,489) (3,527,670) (2,540,902) (3,458,769)
----------- ----------- ----------- -----------
Gross profit ................................ 2,482,013 4,375,732 2,977,035 3,696,316
EXPENSES:
Operating expenses .......................... 2,625,716 3,863,843 2,553,588 2,788,950
Interest .................................... 720,301 1,360,511 947,015 1,355,951
Depreciation and amortization ............... 375,023 495,125 389,554 377,094
Administrative .............................. 1,588,600 1,712,568 1,343,400 1,518,913
----------- ----------- ----------- -----------
Total expenses .............................. 5,309,640 7,432,047 5,233,557 6,040,908
----------- ----------- ----------- -----------
Net loss .................................... $(2,827,627) $(3,056,315) $(2,256,522) $(2,344,592)
=========== =========== =========== ===========
Pro forma loss per common share (1) ......... $ (0.34) $ (0.19)
=========== ===========
Pro forma common and common
equivalent shares outstanding (1) ........... 6,145,847 6,398,644
OTHER DATA:
Stores owned at end of period ............... 17 19 19 19
Average age of stores at end of period ...... .93 years 1.77 years 1.52 years 2.52 years
</TABLE>
<TABLE>
<CAPTION>
At October 26, 1997
-------------------------------------------------------------
SELECTED BALANCE SHEET DATA: Actual Pro Forma (2) As Adjusted (3)
------ -------------- ---------------
<S> <C> <C> <C>
Loans................................. $ 2,426,158 $ 2,426,158 $ 2,426,158
Inventories, net...................... 2,227,782 2,227,782 2,227,782
Working capital....................... 3,045,668 3,045,668 6,830,668
Total assets.......................... 7,036,763 6,487,870 9,520,870
Long-term notes payable,
net of current installments....... 10,272,000 752,000 --
Stockholders' equity (deficit) (4).... (5,476,043) 3,495,064 8,670,064
</TABLE>
- --------
(1) Pro forma loss per common share is determined based on the weighted average
number of common and common equivalent shares outstanding during each
period giving effect to the Reverse Stock Split, the Preferred Stock
Conversion, the Debenture Conversion and the exercise or conversion of
outstanding options and warrants. See the consolidated financial statements
and the notes thereto of the Company included elsewhere in the Prospectus.
(2) Gives effect to the Preferred Stock Conversion and the Debenture
Conversion.
(3) Pro forma as adjusted to give effect to the sale of (i) the Securities;
(ii) the application of the net proceeds therefrom of approximately $5.175
million and (iii) the retirement of $2,142,000 in debt of which $1,390,000
was current at October 26, 1997. See "Use of Proceeds" and
"Capitalization."
(4) See "Capitalization."
16
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in January 1994, the Company's store growth has been
funded primarily through debt and equity issuances. Additionally, the Company
has invested in the management and financial controls necessary to support rapid
growth. This growth strategy and the investment in management and financial
controls have substantially increased interest expense and general and
administrative expenses as a percentage of total revenue. Other factors which
have impacted or are expected to impact the Company's results of operations and
cash flows include the maturation of newly established stores and the initial
capital expenditures and costs associated with new stores. Management of the
Company believes that material fluctuations in the results of operations from
lending activities and product sales due to seasonality will not occur.
Maturation of Newly Established Stores
During the fiscal years ended January 29, 1995, January 28, 1996 and
January 26, 1997, the Company opened seven, ten and two stores, respectively.
The Company's newer stores typically experience lower profitability and
operating cash flows than its more mature stores. The Company's newly
established stores experience substantially higher levels of profitability after
reaching two years of age. Historical operating results from the Company's
stores which had been open at least three years as of October 26, 1997 (six
stores) indicate average gross profit during the first three years of operations
of approximately $190,000, $314,000, and $327,000, respectively, and average
store contribution (defined as total store revenues less direct operating
expenses, which exclude general and administrative expenses, interest expense,
and depreciation and amortization expense) during the first three years of
operations of approximately $3,000, $107,000, and $124,000, respectively. As of
October 26, 1997, seven of the Company's 19 stores were under two years of age.
These stores are expected to have a favorable impact on profitability if they
achieve the substantially increased lending and retail volumes experienced by
the Company in its other stores. There can be no assurance that future average
gross profit and store contribution associated with newly established stores
will not vary from historical amounts.
The Company's historical operating results have also indicated improvements
in same store (stores open 12 months or more) total revenues and store
contribution. The Company experienced increases in total revenues and total
store contribution of 23% and 44%, respectively, during the fiscal year ended
January 26, 1997 based on a same store comparison of stores which have been open
for at least two years (seven stores). There can be no assurance that future
same store total revenues and total store contribution will not vary from
historical amounts.
Initial Capital Expenditures and Costs
A key element of the Company's strategy has been to establish (rather than
acquire) PAWNMART(sm) stores meeting the Company's required store size,
configuration, and site selection requirements, in regional and local markets.
Management believes that such anticipated expansion will continue to provide
economies of scale in supervision, purchasing supplies and inventory,
administration and marketing by decreasing the overall average cost of such
functions per unit owned.
After a suitable location has been found and a lease and license are
obtained, the new location can be ready for business within four to six weeks,
with completion of counters, vaults and security system and transfer of
merchandise from existing stores, and external purchases of pre-owned
merchandise. The Company projects the following initial capital expenditures and
costs associated with opening a new PAWNMART(sm) store:
<TABLE>
<S> <C>
Leasehold Improvement......................................... $ 35,000
Fixtures & Equipment.......................................... 45,000
Pre-opening Expenses.......................................... 7,000
Advertising................................................... 15,000
Initial Inventory............................................. 120,000
---------
Total Initial Opening Capital Expenditures and Costs....... $ 222,000
=========
</TABLE>
In addition, the Company projects incurring aggregate start-up losses of
approximately $13,000 during the first four months of new store operations.
Because of these start-up losses and expenditures necessary to support its
anticipated growth,
17
<PAGE> 21
the Company may incur losses during its high-growth phase. See "Risk Factors --
Lack of Profitability, Potential Losses." There can be no assurance that future
initial capital expenditures and costs and start-up losses with new store
operations will not vary from historical amounts. The Company does not
capitalize start-up losses and does not recognize pawn service charges on
defaulted loans.
Presented below is selected consolidated historical data for the Company
for the fiscal years ended January 28, 1996 and January 26, 1997, and the nine
months ended October 27, 1996 and October 26, 1997. The following table sets
forth certain consolidated financial data expressed as a percentage of total
revenue for the periods indicated and should be read in conjunction with "Risk
Factors" and the consolidated financial statements and notes thereto of the
Company included elsewhere in the Prospectus. Year Ended Nine Months Ended
<TABLE>
<CAPTION>
January 28, January 26, October 27, October 26,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Pawn Service Charges....................................... 30.2% 29.0% 29.4% 29.4%
Merchandise Sales.......................................... 69.0 69.9 70.5 69.6
Other Income............................................... 0.8 1.1 0.1 1.0
----- ----- ----- -----
Total Revenue ............................................. 100.0 100.0 100.0 100.0
Cost of Sales ............................................. 43.9 44.6 46.0 48.3
----- ----- ----- -----
Gross Profit .............................................. 56.1 55.4 54.0 51.7
Operating Expenses ........................................ 59.3 48.9 46.3 39.0
----- ----- ----- -----
Store Contribution ........................................ (3.2) 6.5 7.7 12.7
Administrative Expenses ................................... 35.9 21.7 24.3 21.2
Interest .................................................. 16.3 17.2 17.2 19.0
Depreciation and Amortization ............................. 8.5 6.3 7.1 5.3
----- ----- ----- -----
Net Loss .................................................. (63.9)% (38.7)% (40.9)% (32.8)%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 26, 1997 COMPARED TO NINE MONTHS ENDED OCTOBER 27,
1996
Total revenues increased 30% to $7,155,085 for the nine months ended
October 26, 1997 (the "Nine Month 1997 Period") as compared to $5,517,937 for
the nine months ended October 27, 1996 (the "Nine Month 1996 Period").
$1,258,905 of this increase was due to a 24% increase in comparative store
revenue for stores opened 12 months or more ("Comparative Stores") and $378,243
from two stores opened after Fiscal 1995 (as defined below). Comparative Store
revenue gains were primarily attributable to store maturation, increased store
traffic and special promotions. The overall increase is primarily attributable
to a 28% increase in product sales and a 30% increase in pawn service charges.
Merchandise sales increased 28% to $4,981,240 for the Nine Month 1997
Period from $3,887,577 for the Nine Month 1996 Period. $821,009 of this increase
was due to a 22% increase in sales gains for Comparative Stores and $272,654
from two stores opened after Fiscal 1995.
Pawn service charges increased 30% to $2,106,525 in the Nine Month 1997
Period from $1,622,310 in the Nine Month 1996 Period primarily due to pawn loans
increasing 12% from $2,167,538 at October 27, 1996 to $2,426,158 at October 26,
1997. $369,180 of this increase was due to a 24% increase in pawn service charge
gains for Comparative Stores and $115,035 from two stores opened after Fiscal
1995. The Company expects that, during the first four years of operation, a
store should experience significant increases in loan activity resulting in a
higher percentage of loans being renewed, causing pawn service charges to
increase as a percentage of loans outstanding.
18
<PAGE> 22
Gross profit as a percentage of total revenues declined 2.3% from 54.0% in
the Nine Month 1996 Period to 51.7% in the Nine Month 1997 Period primarily due
to a conscious effort by the Company to turn older inventory and an uninsured
theft at one of the Company's locations during February 1997. The Company
currently maintains theft insurance at all locations.
Operating expenses increased 9% to $2,788,950 in the Nine Month 1997 Period
from $2,553,588 in the Nine Month 1996 Period primarily due to the addition of
two new stores after fiscal 1995. Operating expenses as a percent of total
revenues decreased to 39% in the Nine Month 1997 Period from 46% in the Nine
Month 1996 Period primarily resulting from the large increases in comparable
store sales and pawn service charges discussed above.
Interest expense increased 43% to $1,355,951 in the Nine Month 1997 Period
from $947,015 in the Nine Month 1996 Period primarily due to increases in the
aggregate outstanding principal amount of Subordinated Debentures.
Administrative expenses increased 13% to $1,518,913 in the Nine Month 1997
Period from $1,343,400 in the Nine Month 1996 Period primarily due to increased
salaries associated with the hiring of additional executive management and
increased expenses associated with development of marketing strategies. However,
administrative expenses decreased to 21% of total revenues in the Nine Month
1997 Period compared to 24% in the Nine Month 1996 Period primarily resulting
from significant increases in comparable store sales and pawn service charges
discussed above.
Store contribution margin increased 114% to $907,366 in the Nine Month 1997
Period compared to $423,447 for the Nine Month 1996 Period primarily due to
increases in same store product sales and pawn service charges which were not
offset by corresponding increases in operating expenses.
YEAR ENDED JANUARY 26, 1997 COMPARED TO YEAR ENDED JANUARY 28, 1996
Total revenues increased 79% to $7,903,402 during the fiscal year ended
January 26, 1997 ( "Fiscal 1996") as compared to $4,423,502 during the fiscal
year ended January 28, 1996 ("Fiscal 1995"). $744,620 of this increase was due
to a 23% increase in revenue for Comparative Stores and $2,735,280 from 12
stores opened after the fiscal year ended January 29, 1995 ("Fiscal 1994").
Comparative Store product revenue gains were primarily attributable to store
maturation, increased store traffic and special promotions. The overall increase
is primarily attributable to a 81% increase in product sales and a 71% increase
in pawn service charges.
Product sales increased 81% to $5,522,731 during Fiscal 1996 from
$3,051,678 during Fiscal 1995. $510,841 of this increase was due to a 24%
increase in sales gains for Comparative Stores and $1,960,212 from 12 stores
opened after Fiscal 1994.
Pawn service charges increased 71% to $2,291,104 during Fiscal 1996 from
$1,337,618 during Fiscal 1995 primarily due to pawn loans increasing 54% from
$1,446,503 at January 28, 1996 to $2,227,565 at January 26, 1997. $206,995 of
this increase was due to a 19% increase in pawn service charge gains for
Comparative Stores and $746,491 from 12 stores opened after Fiscal 1994. The
Company expects that, during the first four years of operation, a store should
experience significant increases in loan activity resulting in a higher
percentage of loans being renewed causing pawn service charges to increase as a
percentage of loans outstanding.
Operating expenses increased 47% to $3,863,843 during Fiscal 1996 from
$2,625,716 during Fiscal 1995 primarily due to the addition of ten new stores
during Fiscal 1995 and two new stores during Fiscal 1996. Operating expenses as
a percent of total revenues decreased to 49% during Fiscal 1996 from 59% during
Fiscal 1995 primarily resulting from the large increases in comparable store
sales and pawn service charges discussed above.
Interest expense increased 89% to $1,360,511 during Fiscal 1996 from
$720,301 during Fiscal 1995 primarily due to increases in the aggregate
outstanding principal amount of Subordinated Debentures.
Administrative expenses increased 8% to $1,712,568 during Fiscal 1996 from
$1,588,600 during Fiscal 1995 primarily due to increased costs associated with
stock issuances, increased salaries, and other miscellaneous items. However,
administrative expenses decreased to 22% of total revenues during Fiscal 1996
compared to 36% during Fiscal 1995 primarily resulting from the large increases
in comparable store sales and pawn service charges discussed above.
19
<PAGE> 23
Store contribution margin increased 256% to $511,889 during Fiscal 1996
compared to a deficit of $143,703 during Fiscal 1995 primarily due to
improvement in store contribution from the maturation of stores opened prior to
January 28, 1996 (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview") and only two stores being
opened during Fiscal 1996 lowering the amount of start-up losses.
At January 26, 1997, the Company has accumulated net operating loss carry
forwards for tax purposes of approximately $7,500,000 which are available to
offset future federal taxable income, if any, through 2012.
LIQUIDITY AND CAPITAL RESOURCES
The profitability and liquidity of the Company are affected by the amount
of loans outstanding, which is controlled in part by the Company's loan
decisions. The Company is able to influence the frequency of forfeiture of
collateral by increasing or decreasing the amount loaned in relation to the sale
value of the pledged property. Tighter credit decisions generally result in
smaller loans in relation to the estimated sale value to the pledged property
and can thereby decrease the Company's aggregate loan balance and, consequently,
decrease pawn service charges. Additionally, small loans in relation to the
pledged property's estimated sale value tend to increase loan redemptions and
improve the Company's liquidity. Conversely, providing larger loans in relation
to the estimated sale value of the pledged property can result in an increase in
the Company's pawn service charge income. Also larger average loan balances can
result in an increase in loan forfeitures, which increases the quantity of goods
on hand and, unless the Company increases inventory turnover, reduces the
Company's liquidity. In addition to these factors, liquidity is also affected by
product sales and the pace of store expansions.
At January 26, 1997 and October 26, 1997, the Company operated 19 stores.
The Company funded these operations from proceeds attributable to debt and
equity issuances. At October 26, 1997, the Company's primary sources of
liquidity were $166,776 in cash and cash equivalents, $250,606 in pawn service
charges receivable, $2,426,158 in loans, and $2,227,782 in inventories. The
Company had a current ratio of approximately 1.9 to 1.0 and 2.4 to 1.0 at
January 26, 1997 and October 26, 1997, respectively. Net cash used in operating
activities was $2,356,914 in Fiscal 1996, $3,354,770 in Fiscal 1995, $2,852,487
in the Nine Month 1997 Period and $1,896,488 in the Nine Month 1996 Period.
Since its inception in January 1994, the Company has invested in the
management and financial controls necessary to support rapid growth. This
investment substantially increased general and administrative expenses as a
percentage of total revenue. The Company anticipates incurring aggregate
start-up losses of approximately $13,000 per store during the first four months
of the new store's operation. Because of these start-up losses and the Company's
aggressive expansion plans, the Company may incur losses during its high-growth
phase. See "Risk Factors -- Lack of Profitability, Potential Losses."
The Company's newly established stores generate substantially higher levels
of profitability after reaching two years of age. As of October 26, 1997 seven
of the Company's 19 stores were under two years of age. Presently, 18 of the
Company's stores are experiencing positive store contribution margins. The
Company believes that its store expansion program will be funded by cash flow
from operations from its established stores and the proceeds from the Offering.
In addition to the expansion capital expected to be available from the proceeds
of the Offering, the Company has had discussions with several commercial banks
with regard to a credit facility which would be provided to the Company upon
completion of the Offering. No assurance can be made that the Company will
obtain long or short-term financing to realize certain business opportunities.
In the event the Company does not obtain the credit facility, the Company will
modify or reduce its expansion schedule. While management does not expect that
the failure to obtain the credit facility would adversely affect the Company's
cash flows, there can be no assurance that cash flow would not be affected.
CAPITAL REQUIREMENTS
The Company is dependent upon the proceeds of this Offering and the
anticipated cash flow from operations to complete its current expansion plans.
Should the Company's cash flow from operations fail to meet anticipated levels,
or should its costs and capital expenditures exceed the amounts currently
expected to be required, the Company could be required to seek unanticipated
financing in the future. There can be no assurance that the Company will be able
to raise such capital or financing when needed or on acceptable terms, and
therefore, the Company may be unable to achieve its goals, including anticipated
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business --
Growth Strategy."
20
<PAGE> 24
BUSINESS
INDUSTRY
The pawnshop industry is a multi-billion dollar, rapidly growing industry
with an increasing number of states adopting favorable pawnshop regulations.
States with favorable pawn regulations include, but are not limited to, Alabama,
Florida, Georgia, Indiana, Kentucky, Illinois, Mississippi, Missouri, North
Carolina, Oklahoma, South Carolina, Tennessee and Texas. The industry is highly
fragmented, with approximately 95% of the approximately 13,000 stores in the
United States owned by "mom and pop" operators and less than 700 owned by public
companies. The Company believes that pawnshops generally perform well during
recessions and all other economic cycles due to (i) the need for loans, by
non-banking individuals, remaining stable during such economic cycles and (ii)
pawnshops serving as a value-priced retailer regardless of economic conditions.
Pawnshops provide short-term secured loans. Most pawn loans are for less
than $500. Industry sources believe that banks could not recover the
administrative costs of these small loans without substantial increases in rates
and charges. In addition, many pawn loans are to people who would not qualify as
"credit worthy" at a bank. An estimated 20-40 million people occasionally have
short-term needs, such as for utility bills and medical expenses. For these
people, pawnshops supply cash conveniently and quickly.
During the fiscal years ended January 26, 1997 and January 28, 1996, the
Company's promotional and advertising strategies primarily consisted of
newspaper ads and store promotional signs. During recent months, the Company has
developed a targeted database marketing segmentation system and has utilized
such information to begin a direct mailing campaign targeting specific customer
profiles. During the four months ended December 28, 1997, the Company has
incurred approximately $25,000 in research and development costs to implement
the targeted database marketing segmentation system.
Based on its research, the Company has observed somewhat different
demographics for its customers from those generally published for the pawnshop
industry in general. Many of the Company's customers have a median annual
household income of more than $40,000 and have bank credit cards. Many are
women. The Company's stores also provide a retail outlet for its value-conscious
customers.
THE COMPANY -- GENERAL
The Company is a financial services and specialty retail enterprise
principally engaged in establishing and operating stores which advance money
secured by the pledge of tangible personal property and sell pre-owned
merchandise to the value-conscious consumer. The Company generates income in two
ways: through collection of a monthly service charge from advancing money to
individuals based primarily upon the estimated resale value of pledged personal
property such as jewelry, consumer electronics, tools, musical instruments,
firearms, automobiles and other miscellaneous items and through a profit
realized on the retail sale of the unredeemed or other purchased pre-owned
merchandise.
The Company was incorporated under the laws of the State of Delaware on
January 13, 1994 and began operations under the name "Pawnco, Inc." On June 14,
1994, the Company changed its name to PCI Capital Corporation and conducted
business under the trade name "PAWNMART(sm)." On October 21, 1997, the Company
changed its name to "PawnMart, Inc." The Company's principal office is located
at 301 Commerce Street, Suite 3600, Fort Worth, Texas 76102 and its telephone
number is (817) 335-7296.
STRATEGIC MARKET POSITIONING
The Company has developed extensive demographical information that
identifies both its borrowing and retail customers. This data indicates that the
Company's customers have a median household income in the $45,000 to $55,000
range, more than 50 percent are female and approximately half are married with
children. In this regard, the Company's strategic market positioning targets
these customer groups for both pawn and retail transactions with specialty
retail concepts such as "PAWNMART(sm) -- An Estate Sale Everyday(sm)." To
attract these customers, all PAWNMART(sm) stores are attractive, clean, well-lit
and often located close to national discount stores, with merchandise displayed
in an organized and easy-to-shop manner similar to national discount stores.
Because the Company believes that most existing pawnshops are situated in
locations that do not satisfy the Company's customer demographics, the Company
has opened new stores rather than acquire smaller "mom and pop" stores.
Currently, the Company owns and operates 19 stores, of which 11 are located in
Georgia, five in Alabama, two in North Carolina and one in Texas.
21
<PAGE> 25
GROWTH STRATEGY
The pawnshop industry is a multi-billion dollar, rapidly growing industry
and is highly fragmented. Of the approximately 13,000 pawnshops in the United
States, the industry's four public companies collectively own approximately five
percent. The Company's strategic objective is to capitalize upon growth
opportunities afforded by this highly fragmented industry through a roll-out of
new PAWNMART(sm) stores. To achieve its strategic objective, the Company has
adopted the following strategy:
o DEVELOP NEW -- RATHER THAN ACQUIRE -- STORES THAT MEET SITE SELECTION,
STORE SIZE AND CONFIGURATION REQUIREMENTS IN SELECTED MARKETS. The Company
believes that by opening new stores -- rather than acquiring smaller "mom
and pop" stores -- it will enjoy substantial long-term strategic benefits.
First, the Company believes that ideal site selection is one of the most
critical factors in creating a successful PAWNMART(sm) store. In this
regard, the Company has developed extensive customer demographics that
identify both its borrowing and retail customers. The Company believes that
most existing pawnshops are situated in less than ideal locations. The
Company, therefore, believes that by opening new stores only in locations
meeting its demographic and site selection requirements, it will be well
situated to compete effectively in the highly fragmented pawnshop industry.
Second, the Company believes that the "look and feel" of its stores is an
important factor in establishing a successful specialty retail store and
that most existing pawnshops do not meet, and cannot cost-effectively be
modified to meet, the Company's store size and configuration requirements.
By opening new stores only in accordance with its specifications, the
Company can ensure that each PAWNMART(sm) has a similar "look and feel."
During the next fiscal year, the Company anticipates opening between 15 and
20 stores.
o MARKET POSITIONING STRATEGY. The Company's strategy is to operate
attractive stores that are clean, well-lit and conveniently located, with
merchandise displayed in an organized and easy-to-shop manner, similar to
national discount stores. The Company's store design and layout
specifically target both its borrowing and retail customers.
o UTILIZE TARGETED DATABASE MARKETING. The Company has developed a targeted
database marketing segmentation system that identifies the customers for
both pawn and product sales from proprietary data collected at the store
level. Given this customer information, the Company has developed a
marketing strategy that seeks to leverage its understanding of customer
demographics, motivations and purchasing behavior. This demographic data
will include utilizing direct marketing for customer acquisition, retention
and promotions, and for store site selection.
o EXPAND IN METROPOLITAN AREAS IN STATES WITH FAVORABLE PAWN REGULATIONS. The
Company's roll-out strategy is to generate operating efficiencies by first
expanding in the metropolitan areas of Atlanta, Georgia, Mobile, Alabama
and Charlotte, North Carolina, and thereafter, in metropolitan areas in
states with favorable pawn regulations.
o FRANCHISE OPERATIONS IN SMALLER MARKETS. The Company intends to sell
PAWNMART(sm) franchises in secondary markets. The Company's franchise
strategy is designed to allow future franchisees to benefit from the
Company's targeted database marketing segmentation system, PAWNLINK(TM)
computer software and information system, as well as the Company's
standardized operating procedures.
o UTILIZE INFORMATION TECHNOLOGY. The Company has developed PAWNLINK(TM), a
proprietary software system, which is connected to a "wide area network"
that allows for real-time point of sale connectivity. PAWNLINK(TM) is a
user friendly, menu driven software package that operates in a Windows
95(TM) environment. PAWNLINK(TM) interfaces with the Company's centralized
database, assists in determining the maximum amount of funds to advance on
any particular pawn item, and provides in-store assistance with operational
and sales management, inventory control and accounting.
o OPERATIONAL EXCELLENCE. The Company believes that its success will be
substantially dependent on its ability to achieve excellence in operating
its stores. In this regard, the Company intends to capitalize upon the
operational expertise of its experienced specialty retail management team
and board of directors, employ specialty retailers as store management
personnel, utilize extensive training programs for employees and maintain
effective extensive operating controls.
LENDING OPERATIONS
The Company is a financial services and specialty retail enterprise
principally engaged in developing and operating stores which advance money
secured by the pledge of tangible personal property and sell pre-owned
merchandise to the value-conscious
22
<PAGE> 26
consumer. The pledged tangible personal property is intended to provide security
to the Company for the repayment of the amount advanced plus accrued pawn
service charges. Pawn loans are made without personal liability to the borrower.
Because the loan is made without the borrower's personal liability, the Company
does not investigate the creditworthiness of the borrower, but relies on the
pledged personal property, and the possibility of its forfeiture, as a basis for
its lending decision. PAWNLINK(TM) interfaces with the Company's centralized
database, and assists in determining the maximum amount of funds to advance on
any particular pawn item. The Company contracts for a pawn service charge as
compensation for the use of the funds advanced to cover costs such as storage,
insurance, title investigation and other transaction costs. Pawn service charges
contributed 30.2% and 29.0% of the Company's total revenues during the fiscal
years ended January 28, 1996 and January 26, 1997, respectively.
The pledged property is held through the term of the transaction, which
generally is one month with an automatic sixty-day redemption period, except for
automobile title loans, where a shorter redemption period applies under state
regulations. The term of the transaction may continue if the loan is extended
prior to the end of the redemption period. Extensions are for one month with an
additional redemption period. Most of the Company's loans are repaid in full
with accrued service charges or extended through payment of accrued service
charges. In the event the pledgor does not repay or extend the loan by the end
of the redemption period, the unredeemed collateral is forfeited to the Company
and becomes merchandise available for sale.
The recovery of the amount advanced, as well as realization of a profit on
sale of merchandise, is dependent on the Company's initial assessment of the
property's estimated resale value. Improper assessment of the resale value of
the collateral in the lending function can result in reduced marketability of
the property and resale of the merchandise for an amount less than the amount
advanced. For example, unexpected technological changes could adversely impact
the value of consumer electronic products and declines in gold and silver prices
could reduce the resale value of jewelry items acquired in pawn transactions and
could adversely affect the Company's ability to recover the carrying cost of the
acquired collateral. However, historically, the Company has experienced profits
from the sale of such merchandise.
RETAIL SALES OPERATIONS
The Company retails pre-owned products acquired either when a loan is not
repaid or from individual customers or other sources. For the year ended January
26, 1997, $3,847,227 of products were added to inventory, of which $3,155,129
was from loans not repaid and $692,098 was otherwise purchased.
The Company provides its customers with a 30-day guarantee on pre-owned
products, providing the customer with an exchange or cash refund. The Company
believes that most pawnshops do not offer this type of guarantee. The Company
provides a layaway plan, with a maximum holding period of 90 days, whereby the
customer agrees to purchase an item by making an initial cash deposit
representing at least 20% of the sales price and making additional, non-interest
bearing payments of the balance of the sales price in accordance with a
specified schedule. The Company then holds the item until the sales price is
paid in full. Should the customer fail to make a required payment, the item
becomes inventory available for sale and previous payments are forfeited to the
Company.
FRANCHISING
The Company's business strategy is to continue expanding its pawnshop
business within new geographic markets through its franchising operation. The
Company is prepared to begin offering single store and multi-store franchises
throughout the United States. Although, the Company is currently legally
permitted to offer and sell its franchises in over 40 states, no franchise has
been sold as of the date of this Prospectus. The Company's franchises will
generally be offered directly by the Company.
Although no assurances can be given that the Company will be able to sell
any franchises, the Company believes that it offers potential franchisees with
the following benefits:
o Site Selection and Store Opening Assistance. The Company plans to visit
each franchisee market area and will provide extensive demographic data to
assist each franchisee in selecting the location of his PAWNMART(sm) store.
Once a site is chosen, the Company will provide advice throughout the lease
negotiation, building and store opening process.
o Opening Inventory. Each PAWNMART(sm) franchise must open with an initial
assortment of retail merchandise. The Company intends to provide each
franchisee with a balanced opening inventory of attractive and desirable
merchandise. Inventory is planned to be sold to each franchisee at
wholesale prices, and may be exchanged for similar merchandise during the
first six months of operations.
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<PAGE> 27
o Marketing and Advertising. The Company plans to assist each franchisee in
developing a marketing plan directed to consumers in each market area.
PAWNMART(sm) advertising materials are planned to be provided to each
franchisee.
o Accounting and Payroll Services. The Company intends to offer optional
accounting and payroll services to franchisees. Easy and efficient data
access through the PAWNLINK(TM) software system, combined with the
Company's internal accounting department should allow the Company to
provide cost-effective accounting and payroll management assistance.
Accounting services may include the preparation of monthly financial
statements, bank statement reconciliation, accounts payable reports and
general ledger information.
o Jewelry Cleaning and Assessment. The Company operates an in-house jewelry
center for its PAWNMART(sm) stores. The Company contemplates that each
franchisee can utilize this expert facility to restore and refurbish each
franchisee's "out of pawn" jewelry.
o Franchise Training. The Company has developed a comprehensive management
training program for PAWNMART(sm) franchisees. Franchisee training includes
an in-depth analysis of the pawn industry and PAWNMART(sm) management,
merchandising and store operation practices. Franchisee training involves
active, hands-on participation in mock negotiations, loan transactions,
inventory control procedures and jewelry evaluation. Use of the
PAWNLINK(TM) information system also forms an integral part of the training
program.
o Ongoing Franchisee Support. The Company plans that a Company employed
professional district manager will be assigned to each PAWNMART(sm)
franchisee. The Company anticipates that each district manager will visit
their store on a regular basis to provide ongoing support.
PROPERTIES
The Company's corporate offices are leased under a five year lease expiring
in May 1999. As of the date of this Prospectus, the Company operated 19 leased
store locations with monthly rental payments ranging from $2,000 to $6,250 per
location and having initial lease terms expiring from January 1999 through May
2002. All of the Company's leased locations include renewal options. The size of
the leased store locations range from approximately 4,000 to 12,000 square feet.
With the exception of the location in Weatherford, Texas, the Company leases all
of these properties from unaffiliated third parties. See "Certain Transactions."
The following table sets forth, as of the date of this Prospectus, the
geographic markets served by the Company and the number of stores in each
market.
<TABLE>
<CAPTION>
Number of Stores
<S> <C>
GEORGIA:
Atlanta Metropolitan Area. . . . . . . . . . . . . . . . 9
Rome . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Calhoun . . . . . . . . . . . . . . . . . . . . . . . . 1
---
Total Georgia . . . . . . . . . . . . . . . . . . . 11
ALABAMA:
Mobile . . . . . . . . . . . . . . . . . . . . . . . . 4
Dothan . . . . . . . . . . . . . . . . . . . . . . . . 1
---
Total Alabama . . . . . . . . . . . . . . . . . . . 5
NORTH CAROLINA:
Charlotte. . . . . . . . . . . . . . . . . . . . . . . . 2
---
Total North Carolina . . . . . . . . . . . . . . . . 2
TEXAS:
Weatherford . . . . . . . .. . . . . . . . . . . . . . . 1
---
Total Texas . . . . . .. . . . . . . . . . . . . . . 1
---
TOTAL . . . . . . . . . . . . . . . . . . . . . . 19
===
</TABLE>
The Company considers its equipment, furniture and fixtures and leased
buildings to be in good condition. The Company's leases typically require the
Company to pay all maintenance costs, insurance costs and property taxes.
24
<PAGE> 28
OPERATIONS
Retail Store Management. Each location has a store manager who typically
supervises its personnel and assures that it is managed in accordance with
Company guidelines and established policies and procedures. Each store manager
reports to a District Manager who will typically supervise up to seven stores.
As of the date of this Prospectus, the Company has established three operating
districts, each of which is managed by a District Manager.
Trade Name. The Company operates its stores under the trade name
"PAWNMART(sm)." The Company has filed applications to register the
"PAWNMART(sm)" marks and descriptive logos and phrases with the United States
Patent and Trademark Office. However, such trademark protection has not been
granted as of the date of this filing.
Personnel. As of December 1, 1997, the Company has a total of 115 employees
(of which 14 were in executive, administrative, clerical and accounting
functions), 59 of whom were salaried and 56 of whom were hourly employees. The
Company has an established training program that provides a combination of
classroom instruction and on-the-job loan and specialty retail training.
COMPETITION
The Company encounters significant competition in connection with the
operation of its business. In connection with lending operations, the Company
competes with other pawnshops (owned by individuals and by large operators) and
certain financial institutions, such as consumer finance companies, which
generally lend on an unsecured as well as on a secured basis. The Company's
competitors in connection with its retail sales include numerous retail and
discount stores. Many competitors have greater financial resources than the
Company, including Cash America International, Inc. and EZCORP, Inc. These
competitive conditions may adversely affect the Company's revenues,
profitability and ability to expand.
The Company's stores are positioned similarly to national discount stores.
They are attractive, clean, well-lit and conveniently located. Merchandise is
displayed in an organized, easy-to-shop manner and the Company's stores do not
retail handguns or assault rifles. The Company believes that this positioning
provides a more comfortable and desirable shopping experience with better
customer demographics.
REGULATION
The Company's store operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations in the four states in which it operates. See
"Business -- Properties." Set forth below is a summary of the state pawnshop
regulations in those states of the Company's present operating locations.
Georgia Pawnshop Regulations. Georgia state law requires pawnbrokers to
maintain detailed permanent records concerning pawn transactions and to keep
them available for inspection by duly authorized law enforcement authorities.
The Georgia statute prohibits pawnbrokers from failing to make entries of
material matters in their permanent records; making false entries in their
records; falsifying, obliterating, destroying, or removing permanent records
from their places of business; refusing to allow duly authorized law enforcement
officers to inspect their records; failing to maintain records of each pawn
transaction for at least four years; accepting a pledge or purchase from a
person under the age of eighteen or who the pawnbroker knows is not the true
owner of the property; making any agreement requiring the personal liability of
the pledgor or seller or waiving any of the provisions of the Georgia statute;
or failing to return or replace pledged goods upon payment of the full amount
due (unless the pledged goods have been taken into custody by a court or a law
enforcement officer). In the event pledged goods are lost or damaged while in
the possession of the pawnbroker, the pawnbroker must replace the lost or
damaged goods with like kinds of merchandise. Under Georgia law, total interest
and service charges may not, during each thirty-day period of the loan, exceed
25% of the principal amount advanced in the pawn transaction (except that after
ninety days from the original date of the loan, the maximum rate declines to
12.5% for each subsequent thirty-day period). The statute provides that
municipal authorities may license pawnbrokers, define their powers and
privileges by ordinance, impose taxes upon them, revoke their licenses, and
exercise such general supervision as will ensure fair dealing between the
pawnbroker and his customers.
Alabama Pawnshop Regulations. The Alabama Pawnshop Act regulates the
licensing, operation and reporting requirements of pawnshops in that state. The
general fitness of pawnshop applicants is investigated by the Supervisor of the
Bureau of Loans of the State Department of Banking ("the Supervisor"). The
Supervisor also issues pawnshop licenses. The Alabama Pawnshop Act requires that
certain bookkeeping records be maintained and made available to the Supervisor
and to local law enforcement
25
<PAGE> 29
authorities and that motor vehicles are retained on the premises for at least 21
days prior to sale by the pawnshop. The Alabama Pawnshop Act establishes a
maximum allowable pawn service charge of 300% annually.
North Carolina Pawnshop Regulations. In North Carolina, the Pawnbrokers
Modernization Act of 1989 regulates the licensing, reporting and financial
responsibility of pawnbrokers. Appropriate city and county governments must be
petitioned in order to acquire a license. Once licensed, a pawnbroker must keep
consecutively numbered records of each and every pawn transaction. No pawnbroker
may receive an effective rate of interest in excess of 2% per month, except that
the pawnbroker may charge additional fees up to 20% per month for services such
as title investigation, insurance, reporting fees, etc., so long as certain
total dollar limits are not exceeded. Mobile homes, recreational vehicles, or
motor vehicles other than a motorcycle may not be pledged.
Texas Pawnshop Regulations. Pursuant to the terms of the Texas Pawnshop
Act, the Texas Consumer Credit Commissioner has primary responsibility for the
regulation of pawnshops and enforcement of laws relating to pawnshops in Texas.
The Company is required to furnish the Texas Consumer Credit Commissioner with
copies of information, documents and reports which are required to be filed by
it with the Securities and Exchange Commission.
The Texas Pawnshop Act prescribes the stratified loan amounts and the
maximum allowable rates of service charge that pawnbrokers in Texas may charge
for the lending of money within each stratified range of loan amounts ranging
from one percent per month to 20% per month.
As part of the license application process, any existing pawnshop licensee
who would be affected by the granting of the proposed application may request a
public hearing at which to appear and present evidence for or against the
application. For an application for a new license in a county with a population
of 250,000 or more, the Consumer Credit Commissioner must find not only that the
applicant meets the other requirements for a license, but also that (i) there is
a public need for the proposed pawnshop and (ii) the volume of business in the
community in which the pawnshop will conduct business indicates a profitable
operation is probable.
Other Regulatory Matters, Etc. With respect to firearm sales, each of the
stores must comply with the Brady Handgun Violence Prevention Act (the "Brady
Act"), which took effect on February 28, 1994. The Brady Act imposes a waiting
period/background check in connection with the disposition of handguns by
federally licensed firearms dealers. In addition, the Company must continue to
comply with the longstanding regulations promulgated by the Department of the
Treasury, Bureau of Alcohol, Tobacco and Firearms, which require each store
dealing in guns to maintain a permanent written record of all receipts and
dispositions of firearms.
In addition to the state statutes and regulations described above, many of
the Company's stores are subject to municipal ordinances, which may require, for
example, local licenses or permits and specified record-keeping procedures,
among other things. Each of the Company's stores, voluntarily or pursuant to
municipal ordinance, provides to the police department having jurisdiction
copies of all daily transactions involving pawn loans and over-the-counter
purchases. These daily transaction reports are designed to provide the local
police with a detailed description of the goods involved including serial
numbers, if any, and the name and address of the owner obtained from a valid
identification card.
A copy of the transaction ticket is provided to local law enforcement
agencies for processing by the National Crime Investigative Computer to
determine rightful ownership. Goods which are either purchased or held to secure
pawn loans and which are determined to belong to an owner other than the
borrower or seller are subject to recovery by the rightful owner. However, the
Company historically has not experienced a material number of claims of this
sort, and the claims experienced have not had a material adverse effect on the
Company's results of operations.
Casualty insurance, including burglary coverage, is maintained for each of
the Company's stores, and fidelity bond coverage is maintained on each of the
Company's employees.
Management of the Company believes its operations are conducted in material
compliance with all federal, state and local laws and ordinances applicable to
its business.
26
<PAGE> 30
LEGAL PROCEEDINGS
The Company is a defendant in certain lawsuits encountered in the ordinary
course of its business. Certain of these matters are covered to an extent by
insurance. In the opinion of management, the resolution of these matters will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
27
<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the date of this
Prospectus with respect to the directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Carson R. Thompson (1) 58 Chief Executive Officer and Chairman of the Board
Robert D. Bourland, Jr. (2) 56 President, Chief Operating Officer and Director
Thomas W. White 28 Vice President-- Finance and Chief Accounting
Officer
Randall L. Haden 36 Vice President-- Information Services
James E. Berk (2) 52 Director
Robert E. Camp (1) 54 Director
Mark E. Kane (3) 43 Director
Monty R. Standifer (3) 57 Director
</TABLE>
- ------------
(1) Class I Director whose term expires in 1998.
(2) Class II Director whose term expires in 1999.
(3) Class III Director whose term expires in 2000.
The business experience, principal occupations and employment of each of
the directors and executive officers of the Company during at least the past
five years, together with their periods of service as directors and executive
officers of the Company are set forth below.
Carson R. Thompson joined the Company in August 1996 as a Director. In
March 1997, he was named Chairman of the Board and Chief Executive Officer of
the Company. Prior to this, Mr. Thompson had served as President, Chief
Executive Officer and Chairman of The Bombay Company, Inc., a specialty retailer
of home furnishing products. Mr. Thompson joined Tandy Corporation, Fort Worth,
Texas in 1957, and held various management positions before becoming President
in 1981 of Tandy Brands, Inc., a spin-off of Tandy Corporation and a
manufacturer and specialty retailer of various products. From 1982 to 1991, Mr.
Thompson was Chairman and Chief Executive Officer, from 1991 to 1996, he was
Chairman, and from 1996 to 1997, he was President and Chief Executive Officer of
The Bombay Company. Mr. Thompson serves as a director of the University of North
Texas Health Science Center at Fort Worth, and the Osteopathic Health
Foundation, Inc., and is a member of the Board of Advisors of the College of
Business Administration at the University of Oklahoma.
Robert D. Bourland, Jr. joined the Company in July 1994 as a Director and
President. From 1985 until joining the Company, he served as President of Cook's
Nook, Inc., a specialty retailer of gourmet cookware. From 1964 until that time,
he served in various retail management positions with the Radio Shack division
of Tandy Corporation, including serving as Senior Vice President -- Managing
Director, Tandy U.K. and as Tandy's Divisional Vice President responsible for
1,200 Radio Shack stores. Radio Shack is a specialty retailer of consumer
electronic products.
Thomas W. White joined the Company on October 15, 1997 as Vice President --
Finance and Chief Accounting Officer. Mr. White was previously employed for six
years with the accounting firm of KPMG Peat Marwick LLP, most recently as an
assurance manager serving numerous clients within the financial services,
manufacturing and retailing industries.
Randall L. Haden joined the Company in February 1994 as Vice President --
Information Systems. Since November 1991 until joining the Company, he was
employed by Search Capital Group, Inc., a publicly held consumer finance
company, most recently as Vice President -- Information Services.
28
<PAGE> 32
James E. Berk joined the Company in 1997 as a Director. Presently, Mr. Berk
is the Vice Chairman and Chief Executive Officer of APC, Inc., a specialty
retailer and wholesaler of auto parts. Mr. Berk founded and, from 1993 to 1997,
served as the President, Chief Executive Officer and Chairman of the Board for
Teach & Play Smart, Inc., a privately held specialty retail chain of children's
educational products. Prior to that time, he served as President and Chief
Executive Officer of Bizmart, Inc., a chain of office products superstores, and
President and Chief Operating Officer of The Wholesale Club, a chain of discount
retail stores, and served in various other companies in management capacities.
Robert E. Camp joined the Company in July 1995 as a Director. He founded
and, from 1993 until the present, served as President of Hero's Welcome, Inc., a
privately held retail/mail order business. From 1982 until 1992, Mr. Camp was
the founder and Chief Executive Officer of Simpson & Fisher Companies, Inc., a
specialty retailer of apparel and home furnishing products. Mr. Camp is the
former Chief Executive Officer of Fort Worth based Pier 1 Imports, Inc., a
specialty retailer of home furnishing products, having been with that firm for
18 years.
Mark E. Kane joined the Company in September 1997 as Director. Presently,
he is President and Chief Executive Officer of Compact Discs International, LLC,
an international affiliate of CD Warehouse Inc. that owns the worldwide
development rights for the CD Warehouse Inc. franchise concept. Mr. Kane founded
and, from 1992 to 1997, served as President and Chief Executive Officer of CD
Warehouse Inc., a publicly traded national franchising firm specializing in the
sale of new and pre- owned compact discs.
Monty R. Standifer joined the Company in August 1997 as a Director. Mr.
Standifer has served as Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of Gadzooks, Inc., a specialty retailer of apparel
products, since July 1995. From June 1992 until July 1995, Mr. Standifer served
as Vice President -- Treasurer and Chief Financial Officer of Gadzooks, Inc.
From July 1991 to June 1992, Mr. Standifer served as Senior Vice President and
Chief Financial Officer of AmeriServ Food Company, a food service systems
distributor. Prior to that time, Mr. Standifer was a co-founder of Bizmart,
Inc., a chain of office products superstores, serving as Vice President --
Finance, Treasurer and Secretary from its founding in October 1987 until July
1991, shortly after the company was sold. Mr. Standifer was previously employed
by Tandy Corporation for 14 years in various financial management positions.
COMPENSATION OF DIRECTORS
Cash Compensation. No cash compensation has been paid by the Company to its
directors prior to this Offering. Directors are reimbursed for their ordinary
and necessary expenses incurred in attending meetings of the Board of Directors
or a committee thereof.
1997 Stock Option Plan for Directors. Effective as of October 16, 1997, the
1997 PawnMart, Inc. Director Stock Option Plan ("Directors' Option Plan") was
approved by the Company's Board of Directors and the holders of a majority of
the outstanding shares of the Company's Common Stock.
Stock options will be granted under the Directors' Option Plan to any
director who is not an employee of the Company and is not a holder of more than
5% of the outstanding shares of the Company's Common Stock or a person who is in
control of such holder ("Eligible Directors").
A maximum of 263,788 shares of Common Stock (subject to certain
anti-dilution adjustments) may be issued to Eligible Directors upon the exercise
of options granted under the Directors' Option Plan. Currently, no options have
been granted under the Directors' Option Plan.
Newly appointed Eligible Directors will automatically receive an initial
grant of options to purchase 25,000 shares of Common Stock upon their
appointment to the Board of Directors. All Eligible Directors will receive
annual grants of options to purchase the lesser of 20,000 shares of Common Stock
or $200,000 in market value of underlying Common Stock as of the date following
each annual meeting of the Company's stockholders. The exercise price of options
granted under the Directors' Option Plan will be the closing sales price of the
Common Stock on the date of grant. Options granted pursuant to the Directors'
Option Plan are immediately exercisable. The expiration date is six years from
the date of grant. Payment for shares purchased upon exercising an option is
made in cash or by certified check, bank draft or money order, or by delivery of
previously owned shares of Common Stock held for at least six months (at their
fair market value), or partly in cash and partly in such Common Stock.
29
<PAGE> 33
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
President and Chief Executive Officer during the fiscal years ended January 29,
1995, January 28, 1996 and January 26,1997, for services rendered to the Company
in all capacities during those fiscal years. No other executive officer of the
Company had total salary and bonus which exceeded $100,000 for any of those
fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------------------------------------------------
FISCAL OTHER ANNUAL
YEAR SALARY Bonus COMPENSATION (1)
---- ------ ----- ----------------
<S> <C> <C> <C> <C>
Robert D. Bourland, Jr.
President and Chief Executive Officer........... 1996 $90,000 $15,000 --
1995 $90,000 -- --
1994 $90,000 -- --
</TABLE>
(1) Mr. Bourland received personal benefits in addition to salary and bonuses.
The aggregate amount of such personal benefits, however, did not exceed the
lesser of $50,000 or 10% of the total of his annual salary and bonus.
EMPLOYEE STOCK OPTION PLAN
The Board of Directors and the stockholders of the Company have approved
the adoption of the 1997 PawnMart, Inc. Employee Stock Option Plan (the "Plan").
Stock options granted pursuant to the Plan may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), or non-qualified stock options. The
number of shares of Common Stock reserved for issuance pursuant to the Plan is
494,602 shares. As of the date of this Prospectus, options for 308,764 shares of
Common Stock had been granted and are outstanding under the Plan. All options
have an exercise price of $3.79 per share of Common Stock.
The Plan is administered by the Compensation and Human Resources Committee
(the "Committee") of the Board of Directors. Subject to the provisions of the
Plan, the Committee has the exclusive power to grant options, to interpret the
Plan, to grant waivers of restrictions thereunder and to adopt such rules and
regulations as it may deem necessary or appropriate in keeping with the
objectives of the Plan.
Options granted pursuant to the Plan become exercisable on such date or
dates as may be established by the Committee. The exercise price of options
granted under the Plan may not be an amount less than the market value of Common
Stock at the time of grant. The exercise price must be paid in full in cash at
the time an option is exercised or, if permitted by the Committee, by means of
tendering previously owned shares of Common Stock held for at least six months
(at their fair market value), or partly in cash and partly in Common Stock.
In the event of a stock split, stock dividend, combination or
reclassification or certain other corporate transactions, the Committee is
authorized to make appropriate adjustments to the exercise price and number of
shares subject to options granted under the Plan. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Plan to meet any changes in legal requirements or for any other purpose
permitted by law.
30
<PAGE> 34
FINANCIAL RESTRUCTURING
The Company's capital structure will automatically change upon consummation
of the Offering, resulting in an approximate $1,654,000 decrease in the
Company's annual cash interest requirements and an approximate $130,000 decrease
in the Company's annual dividend requirements. The Company's total stockholders'
equity (deficit) at October 26, 1997 will improve by $14,146,107 from a total
deficit of ($5,476,043) on an actual basis to total equity of $3,495,064 on a
pro forma and $8,670,064 on an adjusted basis. See "Capitalization."
In particular, the Company's $.50 Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), Series B Convertible Preferred Stock (the "Series B
Preferred Stock"), Series C Convertible Preferred Stock (the "Series C Preferred
Stock"), and 12% Series D Convertible Exchangeable Preferred Stock (the "Series
D Preferred Stock") will be converted automatically into an aggregate of
1,482,766 shares of Common Stock at an average conversion price of $2.90 per
share of Common Stock (the "Preferred Stock Conversion") and $9,520,000
aggregate principal amount of the Company's 14% Convertible Subordinated
Debentures due June 30, 1999, June 30, 2000 and January 31, 2001, respectively,
(collectively, the "Subordinated Debentures") will be converted automatically
into an aggregate of 2,380,000 shares of Common Stock at a conversion price of
$4.00 in principal amount per share of Common Stock (the "Debenture
Conversion"). Additionally, the Company intends to use approximately 41.4% of
the net proceeds from the Offering for the repayment of $2,142,000 in 15% notes
payable. See "Use of Proceeds," "Capitalization" and Notes 5, 11 and 12 of Notes
to Audited Consolidated Financial Statements.
CERTAIN TRANSACTIONS
In July of 1997, Mr. Thompson acquired an aggregate of 375,000 shares of
Series D Preferred Stock for $750,000 in connection with Mr. Thompson's becoming
a Chief Executive Officer of the Company. In connection with the Offering, the
375,000 shares of Series D Preferred Stock will automatically be converted into
187,500 shares of Common Stock at a conversion price of $4.00. In March of 1996,
Mr. Thompson purchased a principal amount of $228,000 of 14% unsecured
Convertible Subordinated Debentures due June 30, 1999. In October 1997, Mr.
Standifer acquired an aggregate of 50,000 shares of Series D Preferred Stock for
$100,000 in connection with Mr. Standifer's becoming a Director of the Company.
In connection with the Offering, the 50,000 shares of Series D Preferred Stock
will automatically be converted into 25,000 shares of Common Stock at a
conversion price of $4.00.
In consideration for serving as a Director of the Company, in September
1997, Mr. Berk received 8,243 shares of Common Stock; in April 1996 and August
1997, Mr. Camp received an aggregate amount of 16,487 shares of Common Stock; in
September 1997, Mr. Kane received 8,243 shares of Common Stock; in September
1997, Mr. Standifer received 8,243 shares of Common Stock and in April 1996 and
August 1997, Mr. Thompson received 8,243 and 4,946 shares of Common Stock,
respectively. In connection with his employment with the Company, in August
1997, Mr. Bourland received 16,487 shares of Common Stock. In connection with
joining the Company, in October 1997, Mr. White received 8,243 shares of Common
Stock.
The Company's Weatherford, Texas store is leased under a five year lease
agreement with a joint venture owned by Joe Owens, a principal stockholder, and
another stockholder. The terms of the lease agreement include monthly rental
payments of $4,000 and an initial lease term which expires on February 1, 1999.
31
<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus, on a pro forma basis before the Offering and as adjusted to reflect
the sale of 1,200,000 shares of Common Stock by the Company in this Offering,
regarding the beneficial ownership of the Company's Common Stock by: (i) all
persons known by the Company to own beneficially more than 5% of the Company's
Common Stock; (ii) each director of the Company; (iii) the Chief Executive
Officer of the Company; and (iv) all directors and executive officers of the
Company individually and as a group.
<TABLE>
<CAPTION>
Percent Beneficially Owned (1)
-----------------------------------------
Name and Address
of Beneficial Owners Number of Shares Before Offering After Offering
- -------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
Carson R. Thompson(2)........ 341,406 5.9% 4.9%
Robert D. Bourland,
Jr.(2)....................... 74,083 1.3% 1.1%
Thomas W. White(2)........... 8,243 * *
Randall L. Haden(2).......... 35,351 * *
Robert E. Camp(3)............ 16,487 * *
James E. Berk (4)............ 8,243 * *
Monty R. Standifer(5)........ 33,243 * *
Mark E. Kane(6).............. 8,243 * *
All directors and
executive officers as a
group (8 persons)............ 525,299 9.1% 7.5%
OTHER SIGNIFICANT
HOLDERS:
Joe Owens(7)................. 317,913 5.5% 4.5%
</TABLE>
*Less than 1%.
(1) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares
beneficially owned by such persons.
(2) His address is 301 Commerce Street, Suite 3600, Fort Worth, Texas 76102.
(3) The address for Mr. Camp is Rural Route 1, Box 202, North Hero, Vermont
05474.
(4) The address for Mr. Berk is 5825 Obelin, Suite 100, San Diego, California
92121.
(5) The address for Mr. Standifer is 4121 International Parkway, Carrollton,
Texas 75007.
(6) The address for Mr. Kane is 1017 N. Central Expressway, Suite 200, Plano,
Texas 75075.
(7) Mr. Owens is one of the founders of the Company, and his address is 5201
Odessa Dr., Fort Worth, Texas 76133.
32
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock and selected
provisions of its Restated Certificate of Incorporation and By-laws, is a
summary and is qualified in its entirety by the Company's Restated Certificate
of Incorporation and By-laws, as amended, copies of which have been filed with
the Securities and Exchange Commission as exhibits to the Registration Statement
of which this Prospectus is a part.
GENERAL
At the time of the Offering, the total amount of authorized capital stock
of the Company will consist of 20,000,000 shares of Common Stock, par value $.01
per share and 10,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). Upon completion of the Offering, 7,000,000 shares of
Common Stock and no shares of Preferred Stock will be issued and outstanding
(assuming an initial public offering price of $5 per share). After giving effect
to the Preferred Stock and Debenture Conversions, there will be approximately
850 holders of record of the Company's Common Stock. The following summary of
certain provisions of the Company's capital stock describes all material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, the Restated Certificate of Incorporation and the
By-laws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law.
The Restated Certificate of Incorporation and By-laws will contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved by
the Board of Directors.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company will be upon payment therefor, validly
issued, fully paid and nonassessable. Subject to the prior rights of the holders
of any Preferred Stock, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
time and in such amounts as the Board of Directors may from time to time
determine. See "Dividend Policy." The shares of Common Stock are not convertible
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Each outstanding share of
Common Stock is entitled to one vote on all matters submitted to a vote of
stockholders. There is no cumulative voting. Accordingly, holders of a majority
of the shares of Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. Except as otherwise required
by law or the Restated Certificate of Incorporation, the Common Stock will vote
on all matters submitted to a vote of the stockholders, including the election
of directors.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. Upon the affirmative vote of a majority
of the total number of directors then in office, the Board of Directors, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of Common
Stock. Upon consummation of the Offering, there will be no shares of Preferred
Stock outstanding, and the Company has no present intention to issue any shares
of Preferred Stock.
33
<PAGE> 37
SERIES A WARRANTS
The Series A Warrants will be issued in registered form pursuant to an
agreement dated the date of this Prospectus (the "Series A Warrant Agreement"),
between the Company and Continental Stock Transfer & Trust Company, a New York
corporation, as the Warrant Agent (the"Warrant Agent"). The following discussion
of certain terms and provisions of the Series A Warrants is qualified in its
entirety by reference to the Series A Warrant Agreement. A form of the
certificate representing the Series A Warrants which form a part of the Series A
Warrant Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
Each of the Series A Warrants entitles the registered holder to purchase
one share of Common Stock. The Series A Warrants are exercisable at a price
equal to $6.00 (which exercise price has been arbitrarily determined by the
Company and the Representative) subject to certain adjustments. The Series A
Warrants are entitled to the benefit of adjustments in their exercise prices and
in the number of shares of Common Stock or other securities deliverable upon the
exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
The Series A Warrants may be exercised at any time and continuing
thereafter until the close of five years from the date hereof, unless such
period is extended by the Company. After the expiration date, Series A Warrant
holders shall have no further rights. Series A Warrants may be exercised by
surrendering the certificate evidencing such Series A Warrant, with the form of
election to purchase on the reverse side of such certificate properly completed
and executed, together with payment of the exercise price and any transfer tax,
to the Warrant Agent. If less than all of the Series A Warrants evidenced by a
warrant certificate are exercised, a new certificate will be issued for the
remaining number of Series A Warrants. Payment of the exercise price may be made
by cash, bank draft or official bank or certified check equal to the exercise
price.
Series A Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time beginning six
months from the date hereof to redeem the Series A Warrants, at a price of $.05
per Series A Warrant, by written notice to the registered holders thereof,
mailed not less than 30 nor more than 60 days prior to the Redemption Date. The
Company may exercise this right only if the closing bid price for the Common
Stock for seven trading days during a 10 consecutive trading day period ending
no more than 15 days prior to the date that the notice of redemption is given,
equals or exceeds $9.00 per share, subject to adjustment. If the Company
exercises its right to call Series A Warrants for redemption, such Series A
Warrants may still be exercised until the close of business on the day
immediately preceding the Redemption Date. If any Series A Warrant called for
redemption is not exercised by such time, it will cease to be exercisable, and
the holder thereof will be entitled only to the repurchase price. Notice of
redemption will be mailed to all holders of Series A Warrants of record at least
30 days, but not more than 60 days, before the Redemption Date. The foregoing
notwithstanding, the Company may not call the Series A Warrants at any time that
a current registration statement under the Act is not then in effect. Any
redemption of the Series A Warrants during the one-year period commencing on the
date of this Prospectus shall require the written consent of the Representative.
The Series A Warrant Agreement permits the Company and the Warrant Agent
without the consent of Series A Warrant holders, to supplement or amend the
Series A Warrant Agreement in order to cure any ambiguity, manifest error or
other mistake, or to address other matters or questions arising thereafter that
the Company and the Series A Warrant Agent deem necessary or desirable and that
do not adversely affect the interest of any Series A Warrant holder. The Company
and the Warrant Agent may also supplement or amend the Series A Warrant
Agreement in any other respect with the written consent of holders of not less
than a majority in the number of the Series A Warrants then outstanding;
however, no such supplement or amendment may (i) make any modification of the
terms upon which the Series A Warrants are exercisable or may be redeemed; or
(ii) reduce the percentage interest of the holders of the Series A Warrants
without the consent of each Series A Warrant holder affected thereby.
In order for the holder to exercise a Series A Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Series A Warrants,
and the issuance of such shares to the holder must be registered, qualified or
exempt under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Series A Warrants prior to the exercise of such
Series A Warrants and will deliver a prospectus with respect to such securities
to all holders thereof as required by Section 10(a)(3) of the Act. See "Risk
Factors--Necessity to Maintain Current Prospectus and Registration Statement"
and "State Blue Sky Registration Required to Exercise Warrants."
34
<PAGE> 38
SERIES B WARRANTS
The Series B Warrants will be issued in registered form pursuant to an
agreement dated the date of this Prospectus (the "Series B Warrant Agreement"),
between the Company and the Warrant Agent. The following discussion of certain
terms and provisions of the Series B Warrants is qualified in its entirety by
reference to the Series B Warrant Agreement. A form of the certificate
representing the Series B Warrants which form a part of the Series B Warrant
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
Each of the Series B Warrants entitles the registered holder to purchase
one share of Common Stock. The Series B Warrants are exercisable at a price
equal to $8.00 (which exercise price has been arbitrarily determined by the
Company and the Representative) subject to certain adjustments. The Series B
Warrants are entitled to the benefit of adjustments in their exercise prices and
in the number of shares of Common Stock or other securities deliverable upon the
exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
The Series B Warrants may be exercised at any time and continuing
thereafter until the close of six years from the date hereof, unless such period
is extended by the Company. After the expiration date, Series B Warrant holders
shall have no further rights. Series B Warrants may be exercised by surrendering
the certificate evidencing such Series B Warrant, with the form of election to
purchase on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price and any transfer tax, to
the Warrant Agent. If less than all of the Series B Warrants evidenced by a
warrant certificate are exercised, a new certificate will be issued for the
remaining number of Series B Warrants. Payment of the exercise price may be made
by cash, bank draft or official bank or certified check equal to the exercise
price.
Series B Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time beginning six
months from the date hereof to redeem the Series B Warrants, at a price of $.05
per Series B Warrant, by written notice to the registered holders thereof,
mailed not less than 30 nor more than 60 days prior to the Redemption Date. The
Company may exercise this right only if the closing bid price for the Common
Stock for seven trading days during a 10 consecutive trading day period ending
no more than 15 days prior to the date that the notice of redemption is given,
equals or exceeds $11.00 per share, subject to adjustment. If the Company
exercises its right to call Series B Warrants for redemption, such Series B
Warrants may still be exercised until the close of business on the day
immediately preceding the Redemption Date. If any Series B Warrant called for
redemption is not exercised by such time, it will cease to be exercisable, and
the holder thereof will be entitled only to the repurchase price. Notice of
redemption will be mailed to all holders of Series B Warrants of record at least
30 days, but not more than 60 days, before the Redemption Date. The foregoing
notwithstanding, the Company may not call the Series B Warrants at any time that
a current registration statement under the Act is not then in effect. Any
redemption of the Series B Warrants during the one-year period commencing on the
date of this Prospectus shall require the written consent of the Representative.
The Series B Warrant Agreement permits the Company and the Warrant Agent
without the consent of Series B Warrant holders, to supplement or amend the
Series B Warrant Agreement in order to cure any ambiguity, manifest error or
other mistake, or to address other matters or questions arising thereafter that
the Company and the Series B Warrant Agent deem necessary or desirable and that
do not adversely affect the interest of any Series B Warrant holder. The Company
and the Warrant Agent may also supplement or amend the Series B Warrant
Agreement in any other respect with the written consent of holders of not less
than a majority in the number of the Series B Warrants then outstanding;
however, no such supplement or amendment may (i) make any modification of the
terms upon which the Series B Warrants are exercisable or may be redeemed; or
(ii) reduce the percentage interest of the holders of the Series B Warrants
without the consent of each Series B Warrant holder affected thereby.
In order for the holder to exercise a Series B Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Series B Warrants,
and the issuance of such shares to the holder must be registered, qualified or
exempt under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Series B Warrants prior to the exercise of such
Series B Warrants and will deliver a prospectus with respect to such securities
to all holders thereof as required by Section 10(a)(3) of the Act. See "Risk
Factors--Necessity to Maintain Current Prospectus and Registration Statement"
and "State Blue Sky Registration Required to Exercise Warrants."
35
<PAGE> 39
REPRESENTATIVE WARRANTS
At the closing of this Offering, the Company will issue to the
Representative or its designees, for nominal consideration, Representative's
Warrants to purchase up to 120,000 shares, 120,000 Series A Warrants and 120,000
Series B Warrants. The Representative's Warrants are exercisable for a four-year
period commencing one year from the effective date of this Offering at a
purchase price of 120% of the Initial Public Offering price of the Securities.
In addition, the Company has granted to the Representative certain registration
rights with respect to registration of the shares of Common Stock and the
Warrants underlying the Representative's Warrants (the "Underlying Warrants")
and the shares of Common Stock issuable upon exercise of the Underlying
Warrants. The Company has agreed to pay the Representative upon the exercise or
redemption of the Warrants a fee equal to 5% of the gross proceeds received by
the Company from the exercise of the Warrants and 5% of the aggregate redemption
price for Warrants redeemed. Such fee will be paid to the Representative or its
designee no sooner than 12 months after the effective date of this Offering. The
Company has agreed to indemnify the Underwriter against certain liabilities
arising under the Securities Act of 1933. See "Underwriting."
OTHER WARRANTS
Presently, the Company has outstanding warrants to purchase an aggregate of
213,455 shares of Common Stock at an exercise price of $5.50 per share. In
connection with the Preferred Stock Conversion and Debenture Conversion, the
Company has granted holders of these warrants certain piggy-back registration
rights. These warrants expire January 2, 2002.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Restated Certificate of Incorporation provides for the Board to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the Board will be elected each year.
See "Management." Under the Delaware General Corporation Law, directors serving
on a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of the
outstanding voting stock from obtaining control of the Board until the second
annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the effect
of discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company and could increase the likelihood
that incumbent directors will retain their positions.
The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provide that, except as otherwise required by law,
special meetings of the stockholders can only be called pursuant to a resolution
adopted by a majority of the Board of Directors or by the Chief Executive
Officer of the Company. Stockholders will not be permitted to call a special
meeting or to require the Board to call a special meeting.
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to the Company's Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or deter a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
The Restated Certificate of Incorporation and By-laws provide that the
affirmative vote of holders of at least 66 2/3% of the total votes eligible to
be cast in the election of directors is required to amend, alter, change or
repeal certain of their provisions. This requirement of a super-majority vote to
approve amendments to the Restated Certificate of Incorporation and By-laws
could enable a minority of the Company's stockholders to exercise veto power
over any such amendments.
36
<PAGE> 40
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless: (i) the transaction
is approved by the Board of Directors prior to the date the "interested
stockholder" obtained such status; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder," owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation limits the liability of directors
to the fullest extent permitted by the Delaware General Corporation Law. In
addition, the Restated Certificate of Incorporation will provide that the
Company shall indemnify directors and officers of the Company to the fullest
extent permitted by such law. The Company anticipates entering into separate
indemnification agreements with its current directors and executive officers
prior to the completion of the Offering which will have the effect of providing
such persons indemnification protection in the event the Restated Certificate of
Incorporation is subsequently amended.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and Warrants is
Continental Stock Transfer & Trust Company, a New York corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 7,000,000 shares of
Common Stock outstanding. All of the 1,200,000 shares sold by the Company in
this Offering will be freely transferable without further restriction or
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as defined under the Securities Act). At the date of
this Prospectus there were outstanding 5,800,000 shares of Common Stock on a pro
forma basis, all of which shares are "restricted securities" under applicable
securities laws. All of these shares either will be subject to the resale
restrictions described below or will be held for a period of one year from the
effective date of this Offering. Additional shares of Common Stock may become
eligible for sale in the public market from time to time upon exercise of
warrants and stock options.
Holders of restricted securities must comply with the requirements of Rule
144 in order to sell their shares in the open market. In general, under Rule 144
as currently in effect, any affiliate of the Company and any person (or persons
whose sales are aggregated) who has beneficially owned his or her restricted
shares for at least one year would be entitled to sell in the open market within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the then outstanding shares of the Company's Common Stock (70,000
shares immediately after this Offering) or (ii) the average weekly trading
volume of the Company's Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain limitations on
manner of sale, notice requirements, and availability of current public
information about the Company. Nonaffiliates who have held their restricted
shares for two years are entitled to sell their shares under Rule 144 without
regard to any of the above limitations, provided they have not been affiliates
of the Company for the three months preceding such sale. An aggregate of 494,602
shares of Common Stock has been reserved for issuance to employees of the
Company pursuant to the Plan. In addition, an aggregate of 263,788 shares of
Common Stock have been reserved for issuance to directors of the Company
pursuant to the Directors' Option Plan.
37
<PAGE> 41
Subject to certain exceptions, each of the officers and directors of the
Company and each other holder of Common Stock prior to the Offering have agreed
with the Representative not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of one year from the
effective date of this Offering without the prior written consent of the
Representative.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of Common Stock,
as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities.
REGISTRATION RIGHTS
Upon the expiration of the contractual one-year lock-up period described
above, certain shares issued or issuable upon the exercise of options granted
prior to the date of this Prospectus also may be issuable for sale in the public
market pursuant to Rule 701 under the Securities Act. In general, Rule 701
permits resales of shares issued pursuant to certain compensatory benefit plans
and contracts commencing at the end of the 90 day period after the Company
becomes subject to the reporting requirements of the Exchange Act.
The Company intends to file a registration statement under the Securities
Act to register all shares of Common Stock issuable pursuant to the Company's
Stock Option Plan. See "Management--Stock Option Plan." Subject to the
completion of the one-year period described above, shares of Common Stock issued
after the effective date of such registration statement upon the exercise of
awards issued under such plan generally will be eligible for sale in the public
market.
The Company cannot predict the effect, if any, that sales of restricted
securities or the availability of such securities for sale could have on the
market price, if any, prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's securities, including the securities
offered hereby, could adversely affect prevailing market prices of the Company's
securities and the Company's ability to raise additional capital by occurring at
a time when it would be beneficial for the Company to sell securities.
38
<PAGE> 42
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriter named below, for whom First London Securities Corporation is acting
as the Representative, have severally agreed to purchase from the Company an
aggregate of 1,200,000 shares of Common Stock, 1,200,000 Series A Warrants and
1,200,000 Series B Warrants. The number of shares of Common Stock and Warrants
which each Underwriter has agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES NUMBER OF SERIES A NUMBER OF SERIES B
WARRANTS WARRANTS
<S> <C> <C> <C>
First London Securities Corporation
Total 1,200,000 1,200,000 1,200,000
========= ========= =========
</TABLE>
The Securities are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriter is committed to purchase all Securities offered by this Prospectus,
if any are purchased.
The Company has been advised by the Representative that the Underwriter
proposes initially to offer the Securities offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriter proposes to offer
the Securities through members of the NASD, and may allow a concession, in their
discretion, to certain dealers who are members of the NASD and who agree to sell
the Securities in conformity with the NASD Conduct Rules. Such concessions shall
not exceed the amount of the underwriting discount that the Underwriter is to
receive.
The Company has granted to the Representative an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 180,000
shares of Common Stock, an additional 180,000 Series A Warrants and an
additional 180,000 Series B Warrants at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus (the
"Over-Allotment Option"). The Representative may exercise the Over-Allotment
Option solely to cover over-allotments in the sale of the Securities being
offered by this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider the Offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation. As of February 5, 1998, no plans, proposals, arrangements or
understandings have been made. Furthermore, no reservations of shares have been
implemented. However, in the future, such plans, proposals, arrangements or
understandings may be made and such reservations of shares may be implemented.
The Company has agreed to pay the Representative a commission of 10% of the
gross proceeds of the Offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the Over-Allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representative a non-accountable
expense allowance of three percent (3%) of the gross proceeds of this Offering,
including proceeds from any Securities purchased pursuant to the Over-Allotment
Option. The Representative's expenses in excess of the non-accountable expense
allowance will be paid by the Representative. To the extent that the expenses of
the Representative are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation to
the Representative. The Company has agreed to pay the Representative upon the
exercise or redemption of the Warrants a fee equal to 5% of the gross proceeds
received by the Company from the exercise of the Warrants and 5% of the
aggregate redemption price for Warrants redeemed. Such fee will be paid to the
Representative or its designees no sooner than 12 months after the effective
date of this Offering. The Representative has informed the Company
39
<PAGE> 43
that they do not expect sales to discretionary accounts to exceed 5% of the
total number of Securities offered by the Company hereby.
Prior to this Offering, there has been no public market for the Securities.
Consequently, the initial public offering price for the Securities, and the
terms of the Warrants (including the exercise price of the Warrants), have been
determined by negotiation between the Company and the Representative. Among the
factors considered in determining the public offering price were the history of,
and the prospect for, the Company's business, an assessment of the Company's
management, its past and present operations, the Company's development and the
general condition of the securities market at the time of this Offering. The
initial public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criteria of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Common Stock
or Warrants will develop after the close of this Offering, or if a public market
in fact develops, that such public market will be sustained, or that the Common
Stock or Warrants can be resold at any time at the offering or any other price.
See "Risk Factors."
At the closing of this Offering, the Company will issue to the
Representative or its designee, for nominal consideration, Representative's
Warrants to purchase up to 120,000 shares of Common Stock, 120,000 Series A
Warrants and 120,000 Series B Warrants. The Representative's Warrants will be
exercisable for a four-year period commencing one year from the effective date
of this Offering at a purchase price of 120% of the price at which the Common
Stock and Warrants are sold to the public, subject to adjustment. The
Representative's Warrants will not be transferable, except (i) to officers of
the Representative, other Underwriters, and officers and partners thereof; (ii)
by will; or (iii) by operation of law. The Representative's Warrants contain
provisions providing for appropriate adjustment in the event of any merger,
consolidation, recapitalization, reclassification, stock dividend, stock split
or similar transaction. The Representative's Warrants contain net issuance
provisions permitting the holders thereof to elect to exercise the
Representative's Warrants in whole or in part and instruct the Company to
withhold from the securities issuable upon exercise, a number of securities,
valued at the current fair market value on the date of exercise, to pay the
exercise price. Such net exercise provision has the effect of requiring the
Company to issue shares of Common Stock without a corresponding increase in
capital. A net exercise of the Representative's Warrants will have the same
dilutive effect on the interests of the Company's stockholders as will a cash
exercise. The Representative's Warrants do not entitle the holders thereof to
any rights as a shareholder of the Company until such Representative's Warrants
are exercised and shares of Common Stock are purchased thereunder.
The Company has granted to the holders of the Representative's Warrants
certain rights with respect to registration of the Shares, the Underlying
Warrants and the Common Stock issuable upon exercise of the Representative's
Warrants (the "Registrable Securities") under the Securities Act. For a period
of four years commencing one year following the date of this Prospectus, the
holders representing more than 50% of the Registrable Securities may require the
Company at the Company's sole expense to prepare and file one registration
statement under the Securities Act with respect to the Registrable Securities.
For a period of four years commencing one year following the date of this
Prospectus, the holders representing more than 50% of the Registrable Securities
also have the right at the Representative's or holders' expense to require the
Company to prepare and file one registration statement with respect to the
Registrable Securities. In addition, subject to certain limitations, in the
event the Company proposes to register any of its securities under the
Securities Act during the seven year period following the date of this
Prospectus, the holders of the Registrable Securities are entitled to notice of
such registration and may elect to include the Registrable Securities held by
them in such registration statement at the sole expense of the Company.
The Company has agreed to indemnify the Underwriter against any costs or
liabilities incurred by the Underwriter by reasons of misstatements or omissions
to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriter has in turn agreed to
indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriter and furnished in
writing by the Underwriter. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
40
<PAGE> 44
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Jordaan & Pennington, P.L.L.C., Dallas, Texas. Certain legal matters
in connection with the sale of the Securities offered hereby will be passed on
for the Underwriter by Jackson Walker L.L.P., Dallas, Texas. Members of Jordaan
& Pennington, P.L.L.C. own beneficially an aggregate of 90,677 shares of Common
Stock.
EXPERTS
The consolidated financial statements of PawnMart, Inc. as of January 26,
1997 and January 28, 1996, and for the years then ended have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations, has experienced negative cash flows
from operating activities and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
41
<PAGE> 45
PAWNMART, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholder's Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 46
Independent Auditors' Report
The Board of Directors and Stockholders
PawnMart, Inc.:
We have audited the accompanying consolidated balance sheets of PawnMart, Inc.
and subsidiaries, (formerly PCI Capital Corporation and subsidiaries) as of
January 28, 1996 and January 26, 1997, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PawnMart, Inc. and
subsidiaries as of January 28, 1996 and January 26, 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2(j) to
the consolidated financial statements, the Company has suffered recurring losses
from operations, has experienced negative cash flows from operating activities,
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 2(j). The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Fort Worth, Texas
June 27, 1997, except for the
last four paragraphs of note 11
which are as of August 21, 1997
F-2
<PAGE> 47
PAWNMART, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
January 28, January 26, October 26, October 26, 1997
1996 1997 1997 (note 2(o))
----- ---- ---- -----------
Assets (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 126,918 142,993 166,776 166,776
Accounts receivable 10,239 22,735 38,073 38,073
Pawn service charges receivable 207,746 229,918 250,606 250,606
Loans (note 5) 1,446,503 2,227,565 2,426,158 2,426,158
Inventories, net (note 5) 1,489,529 1,970,741 2,227,782 2,227,782
Prepaid expenses and other current assets 47,230 18,117 177,079 177,079
---------- ---------- ---------- ----------
Total current assets 3,328,165 4,612,069 5,286,474 5,286,474
---------- ---------- ---------- ----------
Property and equipment, net (notes 3 and 5) 1,205,245 1,049,281 879,258 879,258
Goodwill and other intangible assets, net (note 4) 182,781 122,787 77,792 77,792
Debt issuance costs, net of accumulated amortization of $101,480,
$329,838, $525,063 and $212,655 at January 28, 1996, January 26,
1997, October 26, 1997 (actual)
and October 26, 1997 (pro forma), respectively (note 5) 408,535 555,262 612,438 63,545
Other assets 123,864 134,296 180,801 180,801
---------- ---------- ---------- ----------
$5,248,590 6,473,695 7,036,763 6,487,870
========== ========== ========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable, including $80,000 to a company
owned by a stockholder at January 26, 1997 $ 299,727 331,489 163,569 163,569
Bank overdraft 28,347 109,915 -- --
Accrued interest payable 88,281 103,291 131,838 131,838
Accrued payroll and payroll taxes 147,044 384,930 109,185 109,185
Deferred rent 112,722 115,316 115,316 115,316
Accrued bonuses 79,708 78,573 25,721 25,721
Other accrued expenses 128,402 284,130 141,145 141,145
Current installments of notes payable, including $103,100,
$50,000 and $50,000 payable to stockholders at
January 28, 1996, January 26, 1997 and October 26, 1997
(actual) and (pro forma), respectively (note 5) 193,100 1,056,667 1,554,032 1,554,032
---------- ---------- ---------- ----------
Total current liabilities 1,077,331 2,464,311 2,240,806 2,240,806
---------- ---------- ---------- ----------
Long-term notes payable, net of current
installments (note 5) 5,445,150 8,287,333 10,272,000 752,000
---------- ---------- ---------- ----------
Total liabilities 6,522,481 10,751,644 12,512,806 2,992,806
---------- ---------- ---------- ----------
(continued)
</TABLE>
F-3
<PAGE> 48
PAWNMART, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
<TABLE>
<CAPTION>
Pro Forma
January 28, January 26, October 26, October 26, 1997
1996 1997 1997 note 2(o)
---- ---- ---- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Stockholders' equity (deficit) (notes 5, 7, 8, 10, 11, and 12):
Preferred stock, $.01 par value; authorized 10,000,000 shares:
$.50 Series A Convertible Preferred stock; 2,000,000
shares issued and outstanding (liquidation
preference of $.50 per share) $ 20,000 20,000 20,000 --
Series B Convertible Preferred stock; 1,074,626, 1,089,020,
and 1,091,858 shares issued at January 28, 1996, January 26,
1997 and October 26, 1997, respectively (liquidation
preference of $2.00 per share) 10,746 10,890 10,918 --
Series C Convertible Preferred stock; 26,842 shares issued
and outstanding at October 26, 1997 (liquidation preference
of $2.50 per share) -- -- 269 --
12% Series D Convertible Exchangeable Preferred stock;
542,500 shares issued and outstanding at October 26, 1997
(liquidation preference of $2.00 per share) -- -- 5,425 --
Common stock, $.01 par value; authorized 20,000,000 shares;
1,759,071 shares issued and outstanding at January 28, 1996
and 1,844,998, 1,950,424 and 5,821,432 shares issued at
January 26, 1997, October 26, 1997 (actual) and October 26,
1997 (pro forma), respectively 17,591 18,450 19,504 58,214
Additional paid-in capital 3,209,553 3,275,807 4,453,588 16,625,894
Accumulated deficit (4,481,781) (7,538,096) (9,915,747) (13,119,044)
----------- ----------- ----------- -----------
(1,223,891) (4,212,949) (5,406,043) 3,565,064
----------- ----------- ----------- -----------
Less treasury stock, at cost; 25,000 Series B Convertible
Preferred shares at January 28, 1996, 9,892 common shares
and 25,000 Series B Convertible Preferred shares at
January 26, 1997, 13,189 common shares and 25,000
Series B Convertible Preferred shares at October 26, 1997
(actual), and 21,432 common shares at October 26, 1997
(pro forma) (note 7) (50,000) (65,000) (70,000) (70,000)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (1,273,891) (4,277,949) (5,476,043) 3,495,064
Commitments, contingencies and subsequent events
(notes 9, 11 and 12)
----------- ----------- ----------- -----------
$ 5,248,590 6,473,695 7,036,763 6,487,870
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
PAWNMART, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended January 28, 1996 and January 26, 1997 and the Nine
Months Ended October 27, 1996 and October 26, 1997
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Nine Months
January 28, January 26 Ended October Ended October
1996 1997 27, 1996 26, 1997
---- ---- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Merchandise sales $ 3,051,678 5,522,731 3,887,577 4,981,240
Pawn service charges 1,337,618 2,291,104 1,622,310 2,106,525
Other 34,206 89,567 8,050 67,320
----------- ----------- ----------- -----------
Total revenues 4,423,502 7,903,402 5,517,937 7,155,085
Cost of sales 1,941,489 3,527,670 2,540,902 3,458,769
----------- ----------- ----------- -----------
2,482,013 4,375,732 2,977,035 3,696,316
----------- ----------- ----------- -----------
Expenses:
Operating 2,625,716 3,863,843 2,553,588 2,788,950
Interest (note 5) 720,301 1,360,511 947,015 1,355,951
Depreciation 315,028 435,131 344,559 332,099
Amortization 59,995 59,994 44,995 44,995
Administrative (note 7) 1,588,600 1,712,568 1,343,400 1,518,913
----------- ----------- ----------- -----------
Total expenses 5,309,640 7,432,047 5,233,557 6,040,908
----------- ----------- ----------- -----------
Net loss $(2,827,627) (3,056,315) (2,256,522) (2,344,592)
=========== =========== =========== ===========
Pro forma
loss per common
share (note 2(o)) $ (0.34) $ (0.19)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
PAWNMART, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended January 28, 1996 and January 26, 1997 and the Nine Months Ended
October 26, 1997
<TABLE>
<CAPTION>
$.50 Series A Series B Series C
Convertible Convertible Convertible
Common stock Preferred stock Preferred stock Preferred Stock
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 29, 1995 1,604,766 $ 16,048 2,000,000 $ 20,000 448,139 $ 4,481 -- $ --
Issuance of common
stock (note 7) 154,305 1,543 -- -- -- -- -- --
Issuance of preferred
stock, net of $96,365 issue
costs (notes 7 and 10) -- -- -- -- 626,487 6,265 -- --
Acquisition of 25,000 shares
of Series B Convertible
Preferred stock (note 7) -- -- -- -- -- -- -- --
Capital contribution
for services (note 7) -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at
January 28, 1996 1,759,071 17,591 2,000,000 20,000 1,074,626 10,746 -- --
Issuance of common
stock (note 7) 85,927 859 -- -- -- -- -- --
Issuance of preferred stock
(notes 7 and 10) -- -- -- -- 14,394 144 -- --
Acquisition of 9,892 shares
of common stock (note 7) -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at
January 26, 1997 1,844,998 18,450 2,000,000 20,000 1,089,020 10,890 -- --
Issuance of common stock
(Unaudited) 105,426 1,054 -- -- -- -- -- --
Acquisition of 3,297 shares of
common stock (Unaudited) -- -- -- -- -- -- -- --
Issuance of preferred stock
(Unaudited) -- -- -- -- 2,838 28 26,842 269
Dividends paid (Unaudited) -- -- -- -- -- -- -- --
Net loss (Unaudited) -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at October 26, 1997
(Unaudited) 1,950,424 $ 19,504 2,000,000 $ 20,000 1,091,858 $ 10,918 26,842 $ 269
========== ========== ========== ========== ========== ========== ========== ==========
(continued)
</TABLE>
F-6
<PAGE> 51
<TABLE>
<CAPTION>
Series D Total
Convertible Additional stockholders'
Preferred Stock paid-in Accumulated Treasury equity
Shares Amount capital deficit stock (deficit)
------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 29, 1995 -- $ -- 2,036,072 (1,654,154) -- 422,447
Issuance of common
stock (note 7) -- -- 3,137 -- -- 4,680
Issuance of preferred
stock, net of $96,365 issue
costs (notes 7 and 10) -- -- 1,150,344 -- -- 1,156,609
Acquisition of 25,000 shares
of Series B Convertible
Preferred stock (note 7) -- -- -- -- (50,000) (50,000)
Capital contribution
for services (note 7) -- -- 20,000 -- -- 20,000
Net loss -- -- -- (2,827,627) -- (2,827,627)
---------- ---------- ---------- ---------- ---------- ----------
Balance at
January 28, 1996 -- -- 3,209,553 (4,481,781) (50,000) (1,273,891)
Issuance of common
stock (note 7) -- -- 30,413 -- -- 31,272
Issuance of preferred stock
(notes 7 and 10) -- -- 35,841 -- -- 35,985
Acquisition of 9,892 shares
of common stock (note 7) -- -- -- -- (15,000) (15,000)
Net loss -- -- -- (3,056,315) -- (3,056,315)
---------- ---------- ---------- ---------- ---------- ----------
Balance at
January 26, 1997 -- -- 3,275,807 (7,538,096) (65,000) (4,277,949)
Issuance of common stock (Unaudited) -- -- 29,996 -- -- 31,050
Acquisition of 3,297 shares of
common stock (Unaudited) -- -- -- -- (5,000) (5,000)
Issuance of preferred stock (Unaudited) 542,500 5,425 1,147,785 -- -- 1,153,507
Dividends paid (Unaudited) -- -- -- (33,059) -- (33,059)
Net loss (Unaudited) -- -- -- (2,344,592) -- (2,344,592)
---------- ---------- ---------- ---------- ---------- ----------
Balance at October 26, 1997
(Unaudited) 542,500 $ 5,425 4,453,588 (9,915,747) (70,000) (5,476,043)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 52
PAWNMART, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended January 28, 1996 and January 26, 1997 and the Nine
Months Ended October 27, 1996 and October 26, 1997
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Nine Months
January 28 January 26, Ended October Ended October
1996 1997 27, 1996 26, 1997
---- ---- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,827,627) (3,056,315) (2,256,522) (2,344,592)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 375,023 495,125 389,554 377,094
Amortization of debt issuance costs 92,696 228,358 145,610 195,225
Capital contribution for services 20,000 -- -- --
Common and preferred stock issued for 4,180 31,272 31,272 29,275
services
Changes in operating assets and liabilities:
Accounts receivable 18,440 (12,496) (36,840) (15,338)
Pawn service charges receivable (131,793) (22,172) (15,943) (20,688)
Inventories (929,663) (481,212) (405,347) (257,041)
Prepaid expenses and other current (21,128) 29,113 (7,549) (158,962)
assets
Other assets (63,520) (10,432) (232) (46,505)
Accounts payable (124,474) 31,762 204,958 (167,920)
Accrued liabilities 233,096 410,083 54,551 (443,035)
----------- ----------- ----------- -----------
Net cash used in operating
activities (3,354,770) (2,356,914) (1,896,488) (2,852,487)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Net increase in pawn loans (875,426) (781,062) (721,035) (198,593)
Purchases of property and equipment (821,984) (279,167) (222,027) (162,076)
----------- ----------- ----------- -----------
Net cash used in investing
activities (1,697,410) (1,060,229) (943,062) (360,669)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 4,558,550 4,269,168 3,265,821 2,589,203
Principal payments on notes payable (226,581) (563,418) (97,571) (107,171)
Proceeds from issuance of common stock 500 -- -- 2,500
Purchases of treasury stock -- (15,000) -- (5,000)
Payment of debt issuance costs (438,915) (375,085) (317,878) (252,401)
Net proceeds from issuance of preferred stock 1,156,609 35,985 28,889 1,152,782
Preferred stock dividends -- -- -- (33,059)
Increase (decrease) in bank overdraft 9,410 81,568 (28,347) (109,915)
----------- ----------- ----------- -----------
Net cash provided by financing
activities 5,059,573 3,433,218 2,850,914 3,236,939
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 7,393 16,075 11,364 23,783
Cash and cash equivalents at beginning of period 119,525 126,918 126,918 142,993
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 126,918 142,993 138,282 166,776
=========== =========== =========== ===========
Supplemental disclosures of cash flow information -
Cash paid for interest $ 652,669 1,341,293
=========== ===========
Noncash activities - Acquisition of 25,000 shares of
Series B
Convertible Preferred stock in exchange for 14%
unsecured
Convertible Subordinated Debentures (note 7) $ 50,000 -
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 53
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Business
PawnMart, Inc. (the Company), formerly PCI Capital Corporation (note 12),
was incorporated in Delaware on January 13, 1994. The Company is
engaged in establishing, acquiring and operating pawnshops that lend
money on the security of pledged tangible personal property. In
addition to making short-term loans, the Company offers for resale
the personal property forfeited by individuals on loans, as well as
personal property purchased directly from customers. As of January
26, 1997, the Company owned and operated 19 stores located in Texas,
Georgia, North Carolina, and Alabama.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Fiscal Years
The consolidated financial statements include the financial
statements of the Company and its single purpose, wholly owned
subsidiaries PCI Finance 1994-I, Inc., PCI Finance 1995-I,
Inc., PCI Finance 1996-1, Inc., and PCI Finance 1996-2, Inc.
(Note 5). All significant intercompany balances and
transactions have been eliminated in consolidation.
Effective April 16, 1996, the Company retroactively changed
its year end to a fiscal year which ends on the last Sunday of
January. Accordingly, the fiscal years ended January 26, 1997
and January 28, 1996 consist of 52 weeks. Certain future
fiscal years will consist of 53 weeks.
(b) Cash and Cash Equivalents
The Company considers any highly liquid investments with original
maturities of three months or less to be cash equivalents.
(c) Loans and Income Recognition
Pawnloans (loans) are generally made on the pledge of tangible
personal property for a one month period, with an automatic
sixty day extension period. Pawn service charges on loans are
recognized on an accrual basis during the initial thirty day
loan period and applicable sixty day extension period, net of
an allowance for pawn service charges deemed uncollectible,
based on the Company's historical loan redemption rate. If a
loan is not repaid, the principal amount advanced on the loan,
exclusive of any uncollected pawn service charges, becomes the
carrying value of the forfeited collateral (inventory), which
is recovered through sale.
(Continued)
F-9
<PAGE> 54
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(d) Inventories
Inventories are recorded at cost and represent merchandise
acquired from forfeited loans, merchandise purchased directly
from the public and merchandise purchased from vendors.
Inventories from forfeited loans are recorded at the principal
amount advanced on the related collateral, exclusive of any
uncollected pawn service charges. The cost of inventories is
determined on the specific identification method. Inventories
are stated at the lower of cost or market. Interim payments
from customers on layaway sales are credited to deferred
revenue and subsequently recorded as income during the period
in which final payment is received. Deferred revenues totaling
$47,754 related to layaway sales are included in other accrued
expenses in the accompanying consolidated balance sheet at
January 26, 1997.
The Company provides an allowance for shrinkage and valuation
based on management's evaluation of the merchandise. The
allowance deducted from the carrying value of inventory
totaled $83,767 and $51,830 at January 26, 1997 and January
28, 1996, respectively.
(e) Property and Equipment
Property and equipment are recorded at cost. Depreciation is
determined on the straight-line method based on estimated
useful lives of three to five years for equipment. The costs
of improvements on leased stores are capitalized as leasehold
improvements and are amortized on the straight-line method
over the shorter of the lease term or their estimated useful
lives.
The cost of property retired or sold and the related
accumulated depreciation is removed from the accounts and any
resulting gain or loss is recorded in the results of
operations in the period retired.
(f) Goodwill
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, generally
five years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash
flows are not achieved.
(g) Intangible Assets
Intangible assets consisting of an amount applicable to a
noncompete agreement with a founding stockholder and the cost
of acquiring a trade name are being amortized over an
estimated useful life of five years.
(Continued)
F-10
<PAGE> 55
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(h) Income Taxes
The Company and its subsidiaries file a consolidated Federal
income tax return. Income taxes are accounted for under the
asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the fiscal years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
(i) Advertising Costs
Advertising costs are expensed the first time advertising
takes place. Advertising expense was approximately $104,000
and $161,000 for the fiscal years ended January 26, 1997 and
January 28, 1996, respectively.
(j) Net Losses and Management's Plans
The accompanying consolidated financial statements have been
prepared on a going concern basis. At January 26, 1997, the
Company's total stockholders' deficit totaled $4,277,949.
Additionally, the Company has incurred net losses of
$3,056,315 and $2,827,627 and used net cash from its operating
activities of $2,356,914 and $3,354,770 during the fiscal
years ended January 26, 1997 and January 28, 1996,
respectively. Subsequent to January 26, 1997, the Company has
incurred additional net losses (unaudited). These factors
raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
The Company has issued an additional $3,433,000 in long-term
financing and equity funding subsequent to January 26, 1997
(note 11). Management plans to pursue additional funds which
will be used to open additional stores and fund operating
needs through further equity funding, other long-term
financing plans and a potential initial public offering.
Management expects, although there can be no assurance, that
these funds will be sufficient for its operating needs through
July 31, 1998.
(Continued)
F-11
<PAGE> 56
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(k) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(l) New Accounting Standards
Effective January 29, 1996, the Company adopted the provisions of
the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of " (Statement No. 121). Statement No. 121
requires long-lived assets and certain identifiable
intangibles to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. When it is determined that an
asset's estimated future net cash flows will not be sufficient
to recover its carrying amount, an impairment loss must be
recorded to reduce the carrying amount to its estimated fair
value. The adoption of Statement No. 121 did not have a
material effect on the Company's consolidated financial
position or results of operations.
Effective January 29, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123), which
establishes financial accounting and reporting standards for
stock-based employee compensation plans. Statement No. 123
defines a fair value based method of accounting for an
employee stock option or similar equity instrument and
encourages the adoption of that method of accounting for all
employee stock option compensation plans. Statement No. 123
allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of
accounting as prescribed by the Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." The Company elected to remain with the accounting
method prescribed by APB No. 25. Pro forma disclosures
required by Statement No. 123 as if the fair value based
method of accounting had been adopted have not been presented
in the consolidated financial statements as the effect of such
adoption would not have been material.
(Continued)
F-12
<PAGE> 57
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(l) New Accounting Standards, Continued
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" (Statement No. 128), which is
required to be adopted for financial statements issued for
annual or interim periods after December 15, 1997. The
adoption of Statement No. 128 will require a change in the
presentation of earnings per share (EPS) to replace primary
and fully diluted EPS with a presentation of basic and diluted
EPS and to restate EPS for all periods presented. The adoption
of Statement No. 128 is not expected to have a material impact
on the Company's consolidated financial statements.
In February 1997, the FASB also issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" (Statement No. 129). Statement No. 129
establishes standards for disclosing information about
entity's capital structure and applies to all entities.
Statement No. 129 continues the previous requirements to
disclose certain information about an entity's capital
structure found in APB Opinions No. 10, "Ominibus Opinion -
1966", and 15, "Earnings per Share", and FASB Statements of
Financial Accounting Standards No. 47, "Disclosure of
Long-Term Obligations", for entities that were subject to the
requirements of APB Opinions 10 and 15 and Statement No. 47
and consolidates them for ease of retrieval and for greater
visibility to non-public entities. Statement No. 129 is
effective for financial statements for periods ending after
December 15, 1997. It is not expected that the Company will
experience any material revision in its disclosures when
Statement No. 129 is adopted.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130). Statement No. 130 establishes standards
for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full
set of general purpose financial statements. Statement No. 130
requires that all items that are required to be recognized
under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements. It
does not require a specific format for that financial
statement but requires that an entity display an amount
representing total comprehensive income for the period in that
financial statement. Statement No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for
comparative purposes is required. Statement No. 130 will have
no impact on the financial condition or results of operations
of the Company, but will require changes in the Company's
disclosure and presentation requirements.
(m) Reclassifications
Certain amounts in 1996 have been reclassified to conform with
the 1997 presentation.
(Continued)
F-13
<PAGE> 58
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(n) Interim Financial Data (Unaudited)
The accompanying consolidated balance sheet as of October 26,
1997, and the accompanying consolidated statements of
operations, and the accompanying consolidated statements of
stockholders' equity (deficit) for the nine months ended
October 26, 1997 and cash flows for the nine months ended
October 26, 1997 and October 27, 1996, have been prepared by
the Company without an audit. In the opinion of management,
all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation for
such periods have been made. Results for interim periods
should not be considered as indicative of results for a full
year.
Footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been omitted herein with respect to
the interim financial data.
(o) Pro Forma Balance Sheet (Unaudited) and Pro Forma Loss Per Share
The accompanying unaudited pro forma consolidated balance
sheet at October 26, 1997 gives effect to the planned
conversion of the Company's convertible subordinated
debentures and all classes of convertible preferred stock upon
completion of the Company's contemplated initial public
offering.
Transactions reflected in the pro forma adjustments to the balance
sheet include the following:
o The conversion of $9,520,000 in convertible subordinated
debentures, net of issuance costs totaling $548,893 at October
26, 1997 into 2,380,000 shares of common stock.
o Recognition of the value of the beneficial conversion features
totaling $3,203,297 related to amendments of the preferred
stock and convertible subordinated debenture agreements (see
note 12).
o The conversion of all outstanding preferred stock classes into
1,482,766 shares of common stock and the conversion of
preferred treasury stock into 8,243 shares of common stock.
Pro forma loss per common share is based on the weighted
average number of common and common equivalent shares
outstanding adjusted for the effect of the planned conversion
of the Company's convertible subordinated debentures and all
classes of convertible preferred stock and related warrants,
the retroactive effect of the reverse stock splits discussed
in note 12 and stock options issued.
(Continued)
F-14
<PAGE> 59
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(o) Pro Forma Balance Sheet (Unaudited) and Pro Forma Loss Per Share,
Continued
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock, warrants, convertible
securities and common stock options issued during the
twelve-month period prior to the initial filing of the
registration statement applicable to the contemplated initial
public offering, with issue or exercise prices below the
assumed initial public offering price, have been included in
the calculation of common share equivalents, using the
treasury stock method, as if they were outstanding for all
periods presented.
Pro forma net loss attributable to common stockholders used to
calculate the pro forma loss per common share excludes
$956,306 and $1,097,683 (unaudited) of interest expense and
amortization associated with debt issuance costs for the
fiscal year ended January 26, 1997 and the nine months ended
October 26, 1997, respectively. Pro forma net loss
attributable to common stockholders used to calculate the pro
forma loss per common share also excludes $33,059 (unaudited)
in Series D preferred stock dividends for the nine months
ended October 26, 1997. The pro forma weighted average number
of common and common equivalent shares outstanding was
6,145,847 and 6,398,644 (unaudited) for the fiscal year ended
January 26, 1997 and the nine months ended October 26, 1997,
respectively.
(3) Property and Equipment
Property and equipment consists of the following at January 26, 1997 and
January 28, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Automobiles $ 64,038 64,038
Furniture and equipment 1,183,742 1,020,357
Leasehold improvements 687,409 571,627
----------- -----------
1,935,189 1,656,022
Less accumulated depreciation and amortization (885,908) (450,777)
----------- -----------
$ 1,049,281 1,205,245
=========== ===========
</TABLE>
(Continued)
F-15
<PAGE> 60
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of the following at January
26, 1997 and January 28, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Goodwill $ 189,057 189,057
Noncompete agreement 60,000 60,000
Corporate trademark 50,000 50,000
--------- ---------
299,057 299,057
Less accumulated amortization (176,270) (116,276)
--------- ---------
$ 122,787 182,781
========= =========
</TABLE>
(5) Notes Payable
Notes payable consist of the following at January 26, 1997 and January
28, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unsecured convertible subordinated debentures to various
individuals, bearing interest at 14% payable monthly,
to mature on June 30, 1999 $4,865,000 3,075,150
Unsecured convertible subordinated debentures to various
individuals, bearing interest at 14% payable
monthly, 14% payable monthly, to mature on June 30, 2000 2,000,000 --
Unsecured convertible subordinated debentures to various
individuals, bearing interest at 14% payable monthly,
to mature on January 31, 2001 (note 11) 461,000 --
Notes payable issued by PCI Finance 1995-I, Inc. to various
individuals, principal due in monthly installments beginning
October 15, 1997, bearing interest at 15% payable monthly, to
mature on March 31, 1998, secured by pawn loans and associated
collateral 1,390,000 1,390,000
</TABLE>
(Continued)
F-16
<PAGE> 61
PCI CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Notes Payable, Continued
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Notes payable issued by PCI Finance 1996-2, Inc. to various
individuals, principal due in monthly installments beginning July
15, 2000, bearing interest at 15% payable monthly, to mature on
December 31, 2000, secured by
pawn loans and associated collateral (note 11) $ 220,000 --
Notes payable issued by PCI Finance 1996-1, Inc. to various
individuals, principal due in monthly installments beginning
October 15, 1999, bearing interest at 15% payable monthly, to
mature on March 31, 2000, secured by pawn loans and
associated collateral 278,000 --
Notes payable issued by PCI Finance 1994-I, Inc. to
various individuals, principal due in quarterly
installments beginning July 1, 1997, bearing interest
at 15% payable monthly, to mature on December 31,
1997, secured by pawn loans and associated collateral
(see below) -- 980,000
Note payable to a bank, principal and interest due on January 31,
1997, with interest at 8.75%, guaranteed by an officer of the
Company and secured by collateral of a
stockholder (see below) 80,000 90,000
Note payable to a stockholder of the Company pursuant to a $50,000
revolving line of credit, due on demand, with interest at 15%,
secured
by certain property and equipment 50,000 50,000
Other unsecured notes payable to stockholders -- 53,100
----------- -----------
9,344,000 5,638,250
Less current portion (1,056,667) (193,100)
----------- -----------
$ 8,287,333 5,445,150
=========== ===========
</TABLE>
The aggregate sinking fund requirements and maturities of notes payable
subsequent to January 26, 1997 are as follows: 1998, $1,056,667; 1999,
$463,333; 2000, $5,050,333, and 2001, $2,773,667.
(Continued)
F-17
<PAGE> 62
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Notes Payable, Continued
On June 13, 1995, the Company began marketing a private placement
offering for up to $6,000,000 in principal amount of 14% unsecured
Convertible Subordinated Debentures due June 30, 1999 (1999
Debentures). The 1999 Debentures are to be sold in minimum
denominations of $1,000 with a minimum subscription of $250,000 and a
maximum subscription of $6,000,000. Interest on the 1999 Debentures
is payable monthly commencing on August 15, 1995. At the option of
the holder, each 1999 Debenture is convertible at any time into
shares of common stock at a conversion price of $9.10, subject to
adjustments should the Company issue common stock dividends, initiate
stock splits, or issue common stock rights or warrants for the
purchase of common stock at below market prices. In the event that
the Company consummates a publicly registered offering of at least
$5,000,000, the 1999 Debentures will be automatically converted into
common stock at a conversion price equal to the lower of $9.10 in
principal amount per share or 80 percent of the contemplated initial
public offering price (note 12). The 1999 Debentures may be redeemed
at the option of the Company, subject to certain notification
requirements, prior to the maturity date at a stipulated redemption
price. At January 26, 1997 and January 28, 1996, the Company had
issued $4,865,000 and $3,075,150, respectively, in 1999 Debentures.
On June 21, 1996, the Company began marketing a private placement
offering for up to $2,000,000 in principal amount of 14% unsecured
Convertible Subordinated Debentures due June 30, 2000 (2000
Debentures). The 2000 Debentures are to be sold in minimum
denominations of $1,000 with a minimum subscription of $50,000 and a
maximum subscription of $2,000,000. Interest on the 2000 Debentures
is payable monthly commencing on August 15, 1996. At the option of
the holder, 2000 Debenture is convertible at any time into shares of
common stock at a conversion price of $9.10, subject to adjustments
should the Company issue common stock dividends, initiate stock
splits, or issue common stock rights or warrants for the purchase of
common stock at below market prices. In the event that the Company
consummates a publicly registered offering of at least $5,000,000,
the 2000 Debentures will be automatically converted into common stock
at a conversion price equal to the lower of $9.10 in principal amount
per share or 80 percent of the contemplated initial public offering
price (note 12). The 2000 Debentures may be redeemed, subject to
certain notification requirements, prior to the maturity date at a
stipulated redemption price. At January 26, 1997, $2,000,000 of 2000
Debentures had been issued.
(Continued)
F-18
<PAGE> 63
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Notes Payable, Continued
On December 13, 1996, the Company began marketing a private placement
offering for up to $2,500,000 in principal amount of 14% unsecured
Convertible Subordinated Debentures due January 31, 2001 (2001
Debentures). The 2001 Debentures are to be sold in minimum
denominations of $1,000 with a minimum subscription of $50,000 and a
maximum subscription of $2,500,000. Interest on the 2001 Debentures
is payable monthly commencing on February 15, 1997. At the option of
the holder, each 2001 Debenture is convertible at any time into
shares of common stock at a conversion price of $9.10, subject to
adjustments should the Company issue common stock dividends, initiate
stock splits, or issue common stock rights or warrants for the
purchase of common stock at below market prices. In the event that
the Company consummates a publicly registered offering of at least
$5,000,000 at an offering price of $5.00 per share, the 2001
Debentures will be automatically converted into common stock at a
conversion price equal to the lower of $9.10 in principal amount per
share or 80 percent of the contemplated initial public offering price
(note 12). The 2001 Debentures may be redeemed, subject to certain
notification requirements, prior to the maturity date at a stipulated
redemption price. At January 26, 1997, $461,000 of 2001 Debentures
had been issued.
In connection with the sale of the 1999 Debentures, the Company has
agreed to issue warrants to purchase up to 131,894 shares of the
Company's common stock to participating National Association of
Securities Dealers, Inc. broker-dealers (NASD Broker-Dealers). The
warrants have an exercise price of $5.50 per share and are
exercisable through January 2, 2002. At January 26, 1997, 97,280
warrants had been granted in connection with the sale of the 1999
Debentures.
In connection with the sale of the 2000 Debentures, the Company has
agreed to issue warrants to purchase up to 43,965 shares of the
Company's common stock to participating NASD Broker-Dealers. The
warrants have an exercise price of $5.50 per share and are
exercisable through January 2, 2002. At January 26, 1997, 38,601
warrants had been granted in connection with the sale of the 2000
Debentures.
In connection with the sale of the 2001 Debentures, the Company has
agreed to issue warrants to purchase up to 54,956 shares of the
Company's common stock to participating NASD Broker-Dealers. The
warrants have an exercise price of $5.50 per share and are
exercisable through January 2, 2002. At January 26, 1997, 6,287
warrants had been granted in connection with the sale of the 2001
Debentures.
At January 26, 1997, debt issuance costs totaling $885,100 have been
paid in connection with the sale of the 1999 Debentures, 2000
Debentures, 2001 Debentures, and notes payable issued by PCI Finance
1994-I, Inc., PCI Finance 1995-I, Inc., PCI Finance 1996-1, Inc., and
PCI Finance 1996-2, Inc. Such amounts are being amortized on a
straight-line basis through the respective maturity date of each
debenture or notes payable. Amortization expense related to debt
issuance costs was $228,358 and $92,696 for the fiscal years ended
January 26, 1997 and January 28, 1996, respectively, and is included
in interest expense in the accompanying consolidated statements of
operations.
(Continued)
F-19
<PAGE> 64
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Notes Payable, Continued
During fiscal 1997, the Company repaid $411,000 in notes payable issued
by PCI Finance 1994-I, Inc. Additionally, $220,000, $249,000 and
$100,000 in notes payable issued by PCI Finance 1994-I, Inc. were
converted to PCI Finance 1996-2, Inc. notes payable, 2001 Debentures
and 2000 Debentures, respectively.
On February 11, 1997, the $80,000 note payable to a bank was paid in
full.
(6) Income Taxes
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 26, 1997 and January 28, 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,780,817 1,652,322
Intangible assets 43,531 28,722
----------- -----------
Total gross deferred tax assets 2,824,348 1,681,044
Less valuation allowance (2,699,808) (1,585,258)
----------- -----------
Net deferred tax assets 124,540 95,786
----------- -----------
Deferred tax liabilities:
Property and equipment 124,540 95,786
----------- -----------
Total deferred tax liabilities 124,540 95,786
----------- -----------
Net deferred tax assets (liabilities) $ -- --
=========== ===========
</TABLE>
At January 26, 1997, the Company has net operating loss carryforwards
for tax purposes of approximately $7,500,000 which are available to
offset future federal taxable income, if any, through 2012. Deferred
tax valuation allowances of $2,699,808 and $1,585,258 offset deferred
tax assets at January 26, 1997 and January 28, 1996, respectively,
based on management's determination that it is more likely than not
that such amounts may not be subsequently realized.
(7) Equity Transactions
On July 22, 1994, the Company's Board of Directors authorized 1,925,000
shares of Series B Convertible Preferred stock to be issued through a
private placement offering to accredited investors in units of 25,000
shares at $2.00 per share with a minimum subscription of $300,000 and
a maximum subscription of $3,500,000. At January 26, 1997 and January
28, 1996, 1,046,000 shares had been issued with net proceeds received
by the Company under this offering totaling $1,749,042.
(Continued)
F-20
<PAGE> 65
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Equity Transactions, Continued
During the fiscal years ended January 26, 1997 and January 28, 1996, the
Company issued 14,394 and 24,237 shares, respectively, of Series B
Convertible Preferred stock in connection with the Company's employee
stock purchase plan (note 10).
During the fiscal year ended January 28, 1996, the Company acquired
25,000 shares of Series B Convertible Preferred stock in exchange for
the issuance of $50,000 in 14% unsecured Convertible Subordinated
Debentures due June 30, 1999.
During the fiscal year ended January 26, 1997, the Company acquired 9,892
shares of common stock from a former officer of the Company at a
price of $1.52 per share.
During the fiscal years ended January 26, 1997 and January 28, 1996, the
Company issued 85,927 and 137,818 shares, respectively, of the
Company's common stock to certain officers, employees and other
individuals in exchange for various services rendered on behalf of
the Company. The Company has recorded administrative expenses related
to the issuance of such shares of $31,272 and $4,180 during the
fiscal years ended January 26, 1997 and January 28, 1996,
respectively.
During the fiscal year ended January 28, 1996, three stockholders
performed services for the Company without receiving compensation.
The Company has recorded $20,000 in administrative expenses during
the fiscal year ended January 28, 1996 which represents the estimated
value of the services contributed by the stockholders with a
corresponding increase to additional paid-in capital.
In January 1994, the Board of Directors authorized the issuance of a
warrant to purchase 32,973 shares of the Company's common stock at an
exercise price of $.03 per share to a former director. On December
29, 1995, the former director exercised the warrant to purchase
16,487 shares of the Company's common stock. The remaining warrants
expired on January 20, 1996.
During fiscal 1995, the Company granted nonqualified stock options to
purchase an aggregate of 21,433 shares of the Company's common stock,
at a price of $.76 per share, to two former directors and
nonqualified stock options to purchase an aggregate of 8,243 shares
of the Company's common stock, at a price of $6.07 per share, to a
former director. The options were exercisable over a period
commencing with the date of the agreement and ending April 19, 1997,
at which time all such options expired unexercised.
(Continued)
F-21
<PAGE> 66
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Preferred Stock
Each share of $.50 Series A Convertible Preferred stock (Series A) has a
liquidation preference of $.50 per share. Holders of Series A are not
entitled to receive any cash dividends. The Company is restricted
from the declaration of dividends to holders of common stock or any
other class of stock of the Company ranking junior to Series A as
long as Series A is outstanding. At the option of the holder, each
share of Series A is convertible at any time into 0.33 shares of
common stock, subject to adjustment should the Company pay common
stock dividends or initiate stock splits or similar changes to its
common stock. Shares of Series A are automatically convertible into
0.33 shares of common stock immediately upon the earlier of (i) the
date specified by the vote or written consent or agreement of holders
of at least a majority of Series A or (ii) the closing of the sale of
the Company's securities in an underwritten public offering, the
aggregate proceeds of which equal or exceed $5,000,000 (note 12). At
the option of the Company, shares of Series A can be redeemed at
$1.00 per share. Holders have the option of converting such shares
into common stock in lieu of redemption, pursuant to certain
requirements.
Each share of the Series B Convertible Preferred stock (Series B) has a
liquidation preference of $2.00 per share after considering the
liquidation preference for Series A. At the option of the holder,
each share of Series B is convertible at any time into 0.33 shares of
common stock, subject to adjustments should the Company pay common
stock dividends or initiate stock splits or similar changes to its
common stock. Each share of Series B shall automatically be converted
into shares of common stock immediately upon the earlier of (i) the
date specified by agreement of the holders of a majority of the
shares of such series or (ii) the closing of the sale of the
Company's common stock in a public offering where the aggregate
proceeds exceed $5,000,000 at a conversion price equal to the lower
of $6.07 or 80 percent of the contemplated initial public offering
price (note 12). At the option of the Company, subject to certain
notice requirements, shares of Series B can be redeemed at $4.00 per
share. Holders have the option of converting such shares into common
stock in lieu of redemption, pursuant to certain requirements.
In connection with the Series B offering, the Company has agreed to
issue Series B stock purchase warrants to participating NASD
Broker-Dealers to purchase up to 10 percent of the Series B shares
sold by the NASD Broker-Dealers. The warrants have an exercise price
of $2.40 per share and are exercisable for four years commencing July
22, 1995. At January 26, 1997, 80,850 warrants had been granted. Upon
completion of the closing of a sale of the Company's common stock in
a public offering where the aggregate proceeds exceed $5,000,000, the
Series B stock purchase warrants will convert to 26,659 common stock
purchase warrants with an exercise price of $5.50 per share
exercisable through January 2, 2002 (note 12).
(Continued)
F-22
<PAGE> 67
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments and Contingencies
The Company is obligated under various long-term operating lease
agreements for store locations and office space. Total rent expense
for all operating leases, including leases with a related party, was
approximately $1,055,000 and $744,000 for the fiscal years ended
January 26, 1997 and January 28, 1996, respectively.
Future minimum lease payments under noncancelable operating leases as of
January 26, 1997 are:
<TABLE>
<CAPTION>
Fiscal years ending Related
January Party Other Total
------- ----- ----- -----
<S> <C> <C> <C> <C>
1998 $ 48,000 1,032,793 1,080,793
1999 48,000 1,026,329 1,074,329
2000 - 689,001 689,001
2001 - 376,153 376,153
2002 - 60,490 60,490
---------- ------------ ------------
Total minimum
lease payments $ 96,000 3,184,766 3,280,766
========== ============ ============
</TABLE>
The Company leases its Weatherford, Texas pawnshop from a joint venture
owned by certain stockholders of the Company. Rent expense related to
this lease totaled $48,000 during each of the fiscal years ended
January 26, 1997 and January 28, 1996.
The Company is involved in various claims and lawsuits arising in the
ordinary course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect
on the Company's consolidated financial statements.
(10) Employee Stock Purchase Plan
Effective October 1, 1994, the Company established an employee stock
purchase plan (Plan) covering substantially all employees. The Plan
allows participating employees to purchase, through payroll
deductions and Company matches approved by the Board of Directors,
shares of the Company's Series B Convertible Preferred stock at a
price of $2.50 per share. The Plan provides limitations for annual
offerings of the Company's Series B Convertible Preferred stock
subject to a cumulative limitation of 100,000 shares and provides for
no awards after December 31, 1997. The Company has issued 43,020
shares of its Series B Convertible Preferred stock under the Plan as
of January 26, 1997. The Company has recorded $10,282 and $13,871 in
compensation expense during the fiscal years ended January 26, 1997
and January 28, 1996, respectively, which represents the value of
Company matches approved by the Board of Directors.
(Continued)
F-23
<PAGE> 68
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Subsequent Events
Subsequent to January 26, 1997, the Company issued 34,533 shares of the
Company's common stock to certain officers, employees and other
individuals in exchange for various services rendered on behalf of
the Company. In connection with such issuances, the Company has
recorded administrative expenses totaling approximately $9,400 based
upon the Company's most recent independent valuation of common stock
of $0.27 per share at January 26, 1997.
On May 27, 1997, the Company began marketing a franchise offering
circular for the sale of single unit franchises for an initial per
unit franchise fee of $29,500 and a $10,000 software fee due upon
signing of the franchise agreement.
On June 20, 1997, the Company's Board of Directors authorized the
issuance of 500,000 shares of Series C Convertible Preferred stock
(Series C) with a par value of $.01 per share. Holders of Series C
are not entitled to receive any cash dividends. Each share of Series
C has a liquidation preference of $2.50 per share and has the same
ranking as Series A and Series B. At the option of the holder, each
share of Series C is convertible at any time into 0.33 shares of
common stock, subject to adjustments should the Company pay common
stock dividends or initiate stock splits or similar changes to its
common stock. Each share of Series C shall automatically be converted
into shares of common stock immediately upon the earlier of (i) the
date specified by agreement of the holders of a majority of the
shares of such series or (ii) the closing of the sale of the
Company's common stock in a public offering where the aggregate
proceeds exceed $5,000,000 at a conversion price equal to the lower
of $7.58 or 80 percent of the contemplated initial public offering
price (note 12). At the option of the Company, subject to certain
notice requirements, shares of Series C can be redeemed at $4.00 per
share. Holders have the option of converting such shares into common
stock in lieu of redemption, pursuant to certain requirements. As of
August 21, 1997, 26,592 Series C shares had been issued in connection
with the Company's employee stock purchase plan.
(Continued)
F-24
<PAGE> 69
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Subsequent Events
On July 10, 1997, the Company's Board of Directors authorized the
issuance of 1,000,000 shares of 12% Series D Convertible Exchangeable
Preferred stock (Series D) with a par value of $.01 per share.
Dividends on Series D are payable in arrears in monthly installments
when, and if, declared by the Board of Directors. Each share of
Series D has a liquidation preference of $2.00 per share and has the
same ranking as Series A, Series B, and Series C. At the option of
the holder, each share of Series D is convertible at any time into
0.33 shares of common stock, subject to adjustments should the
Company pay common stock dividends or initiate stock splits or
similar changes to its common stock. Each share of Series D shall
automatically be converted into shares of common stock immediately
upon the earlier of (i) the date specified by agreement of the
holders of a majority of the shares of such series or (ii) the
closing of the sale of the Company's common stock in a public
offering where the aggregate proceeds exceed $5,000,000 at a
conversion price equal to the lower of $6.07 or 80 percent of the
contemplated initial public offering price (note 12). At the option
of the Company, subject to certain notice requirements, shares of
Series D can be redeemed at $5.00 per share. Holders have the option
of converting such shares into common stock in lieu of redemption,
pursuant to certain requirements. As of August 21, 1997, 492,500
shares had been issued with net proceeds received by the Company
totaling $985,000.
As of August 21, 1997, the Company had issued $2,655,000 in 2001
Debentures. As of August 21, 1997, an additional 44,628 warrants to
purchase the Company's common stock had been granted to NASD
Broker-Dealers (note 5).
As of August 21, 1997, PCI Finance 1996-2, Inc. had issued $474,000 in
principal amount of 15% secured notes due December 31, 2000.
(12) Events Subsequent to Date of Independent Auditors' Report (Unaudited)
At the Company's October 16, 1997 "Annual Meeting of Stockholders," the
following were approved:
o The Company changed its name from PCI Capital Corporation to PawnMart,
Inc. This name change has been reflected throughout the consolidated
financial statements.
o The Company adopted a reverse stock split of its issued and
outstanding shares of common stock on a basis of one new share for
each two shares currently outstanding. The effect of the reverse
stock split has been accounted for retroactively to January 29, 1995
in the accompanying consolidated financial statements and,
accordingly, all applicable share and per share amounts have been
restated to reflect this reverse stock split (see below).
o The Company approved the 1997 Director Stock Option Plan and the 1997
Employee Stock Option Plan to reserve 263,788 and 494,602 shares,
respectively, of common stock for issuance thereunder.
(Continued)
F-25
<PAGE> 70
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Events Subsequent to Date of Independent Auditors' Report (Unaudited),
Continued
o The Company amended the conversion price related to the automatic
conversion of the convertible subordinated debentures in the event of
an initial public offering to be the lower of $9.10 principal amount
per share or 80 percent of the contemplated initial public offering
stock price. Such amendment was approved by the subordinated debt
holders on October 30, 1997. The Company will account for the value
of the resulting beneficial conversion feature as additional
financing costs by recording approximately $2,380,000 in debt
discount and additional paid-in-capital. Such amount will be
amortized into interest expense over the period from October 30, 1997
until the expected date of the contemplated initial public offering.
At the Company's January 23, 1998 "Special Meeting of Stockholders," the
following were approved.
o The Company adopted an additional reverse stock split of its issued
and outstanding shares of common stock on a basis of one new share
for each 1.5163715 shares currently outstanding. The effect of this
reverse stock split has been accounted for retroactively to January
29, 1995 in the accompanying consolidated financial statements and,
accordingly, all applicable share and per share amounts have been
restated to reflect this reverse stock split.
o The Company amended the Series A, Series B, Series C, and Series D
Preferred stock certificates of designations to change the conversion
price related to the automatic conversion of preferred stock in the
event of an initial public offering to be equal to the lower of the
conversion price in effect at the time of an initial public offering
or 80 percent of the contemplated initial public offering price. As a
result of such amendments, the Series A Preferred stock will
automatically convert into 659,469 shares of common stock and the
Series B, Series C, and Series D Preferred stock will convert into an
aggregate of 823,297 shares of common stock. Such amendments will
result in a beneficial conversion feature related to the conversion
of the Series B, Series C, and Series D Preferred stock.
Accordingly, the Company will account for the value of the resulting
beneficial conversion feature as a return to the preferred
shareholders by recording $823,297 in preferred stock discounts and
additional paid-in capital. Such amounts will be amortized as a
return to the preferred shareholders using the effective interest
method over the period from the date such amendments are approved
until the expected date of the contemplated initial public offering.
On January 2, 1998, the Company's Board of Directors adopted a
resolution changing the exercise price for existing common stock
purchase warrants to be $5.50 per share and extending the period at
which such warrants are exercisable through January 2, 2002.
During November 1997, the Company entered into an unsecured line of
credit agreement with a stockholder to borrow up to $200,000. The
line of credit bears interest at 12 percent and is due on demand. At
February 4, 1998, the Company had outstanding borrowings of $107,000
under this line of credit.
(Continued)
F-26
<PAGE> 71
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Events Subsequent to Date of Independent Auditors' Report (Unaudited),
Continued
During January 1998, the Company entered into a $65,000 unsecured
promissory note and a $125,000 unsecured promissory note with its
Chief Executive Officer. The notes, which bear interest at 12
percent, mature on February 27, 1998 and March 31, 1998,
respectively.
As of February 4, 1998, a total of 308,764 options to purchase common
stock at an exercise price of $3.79 had been granted under the 1997
Employee Stock Option Plan.
Subsequent to August 21, 1997, the Company issued 70,069 shares of the
Company's common stock to certain officers, employees and other
individuals in exchange for various services rendered on behalf of
the Company. In connection with such issuances, the Company has
recorded administrative expenses totaling approximately $18,900 based
upon the Company's most recent independent valuation of common stock
of $0.27 per share at January 26, 1997.
F-27
<PAGE> 72
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Financial Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 32
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . 33
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . 37
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
--------------------------------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
1,200,000 SHARES OF COMMON STOCK
1,200,000 REDEEMABLE CLASS A
COMMON STOCK PURCHASE WARRANTS
1,200,000 REDEEMABLE CLASS B
COMMON STOCK PURCHASE WARRANTS
PAWNMART, INC.
--------------------------------------------------
PROSPECTUS
--------------------------------------------------
FIRST LONDON SECURITIES CORPORATION
February , 1998
================================================================================
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") permits a
corporation to indemnify a person who was or is a director, officer, employee,
or agent of a corporation or who serves at the corporation's request as a
director, officer, partner, proprietor, trustee, employee, or agent of another
corporation, partnership, trust, joint venture, or other enterprise (an
"outside enterprise"), who was, is, or is threatened to be named a defendant in
a legal proceeding by virtue of such person's position in the corporation or in
an outside enterprise, but only if the person acted in good faith and
reasonably believed, in the case of conduct in the person's official capacity,
that the conduct was in or, in the case of all other conduct, that the conduct
was not opposed to the corporation's best interest, and, in the case of a
criminal proceeding, the person had no reasonable cause to believe the conduct
was unlawful. A person may be indemnified within the above limitations against
judgments, fines, settlements, and reasonable expenses actually incurred.
Generally, an officer, director, agent, or employee of a corporation or a
person who serves at the corporation's request as an officer, director, agent,
or employee of an outside enterprise may not be indemnified, however, against
judgments, fines, and settlements incurred in a proceeding in which the person
is found liable to the corporation or is found to have improperly received a
personal benefit and may not be indemnified for expenses unless, and only to
the extent that, in view of all the circumstances, the person is fairly and
reasonably entitled to indemnification for such expenses. A corporation must
indemnify a director, officer, employee, or agent against reasonable expenses
incurred in connection with a proceeding in which the person is a party because
of the person's corporate position, if the person was successful, on the merits
or otherwise, in the defense of the proceeding. Under certain circumstances, a
corporation may also advance expenses to such person.
Section 145 of the DGCL also permits a corporation to purchase and
maintain insurance or to make other arrangements on behalf of any of the above
persons against any liability asserted against and incurred by the person in
such capacity, or arising out of the person's status as such a person, whether
or not the corporation would have the powers to indemnify the person against
the liability under applicable law.
The Company's Restated Certificate of Incorporation provides that the
Company's directors will have no personal liability to the Company or its
stockholders for monetary damages for breach of, or an alleged breach of, a
director's fiduciary duty of care. This provision has no effect on director
liability for (i) a breach of the directors' duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith that constitute a
breach of duty of a director or involving intentional misconduct or knowing
violations of law, (iii) approval of any transaction from which a director
derives an improper personal benefit, or (iv) an act or omission for which the
liability of a director is expressly provided by an applicable statute. In
addition, the Company's Restated Certificate of Incorporation provides that any
additional liabilities permitted to be eliminated by subsequent legislation
will automatically be eliminated without further stockholder vote, unless
additional stockholder approval is required by such legislation. The Company
is generally required to indemnify its directors, officers, employees, and
agents against all judgments, fines, settlements, legal fees, and other
expenses incurred in connection with pending or threatened legal proceedings
because of the person's position with the Company or another entity that the
person serves at the Company's request, subject to certain conditions, and to
advance funds to enable them to defend against such proceedings. Article X of
the Company's Restated Certificate of Incorporation permits the Company to
enter into agreements with its directors, officers, employees and agents to
provide such indemnification as deemed appropriate. Article X also provides
that the Company may extend to its directors and executive officers such
indemnification and additional indemnification.
The Company has entered into an indemnification agreement with certain
of its directors and officers. The form of indemnity agreement provides
that each such person will be indemnified to the full extent permitted by
applicable law against all expenses (including attorneys' fees),
judgments, fines, penalties and amounts paid in settlement of any threatened,
pending or completed action, suit or proceeding, on account of his services as
a director and officer of the Company or any other company or enterprise in
which he is serving at the request of the Company, or as a guarantor of any
debt of the Company. To the extent the indemnification provided under the
agreement exceeds
II - 1
<PAGE> 74
that permitted by applicable law, indemnification may be unenforceable or may
be limited to the extent it is found by a court of competent jurisdiction to be
contrary to public policy.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be incurred in
connection with this Registration Statement, all of which will be borne by the
Company. All of such expenses are estimates, other than the filing fees
payable to the Securities and Exchange Commission and the National Association
of Securities Dealers, Inc.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,442.94
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500.00
**Boston Stock Exchange and
Nasdaq SmallCap Market Listing Fee . . . . . . . . . . . . . . . . . . . $ 30,000.00
**Agent's Non-accountable Expense Allowance . . . . . . . . . . . . . . . $186,750.00
**Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . $ 30,000.00
**Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . $125,000.00
**Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . $ 50,000.00
**Blue Sky Taxes, Fees and Expenses . . . . . . . . . . . . . . . . . . . $ 17,810.00
*Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 497.06
**TOTAL $450,000.00
===========
</TABLE>
- ----------------------------
*To be supplied by amendment.
**Estimated amount.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold the securities
listed below pursuant to exemptions under the Securities Act.
1. During the fiscal year ended January 29, 1995, the Company sold
1,160,000 shares of Series A Convertible Preferred Stock at a price of $.50 per
share resulting in net proceeds of $570,248 to the Company after deduction of
$9,752 in Offering costs. These issuances completed the Company's private
placement offering of up to 2,000,000 shares of such shares to accredited
investors.
2. On July 22, 1994, the Company's Board of Directors authorized
1,925,000 shares of Series B Convertible Preferred Stock ("Series B") to be
issued through a private placement offering to accredited investors. During
the fiscal years ended January 29, 1995 and January 28, 1996, the Company
issued 1,046,000 Series B at a price of $2.00 per share. In connection with
Series B issuances, the Company paid $342,958 in underwriting commissions and
has issued 80,850 Series B stock purchase warrants to participating National
Association of Securities Dealers, Inc. broker-dealers ("NASD Broker-Dealers").
The warrants have an exercise price of $2.40 per share and are exercisable for
four years commencing July 22, 1995. Upon the completion of the closing of a
sale of the Company's Common Stock in a public offering where the aggregate
proceeds exceed $5,000,000, the Series B stock purchase warrants will convert
to 26,659 Common Stock purchase warrants with an exercise price of $5.50 per
share exercisable through January 2, 2002.
II - 2
<PAGE> 75
3. From June 1995 through April 1996, the Company made a private
placement offering to accredited investors for up to $6,000,000 in principal
amount of 14% unsecured Convertible Subordinated Debentures due June 30, 1999
("1999 Debentures"). The total underwriting commissions associated with the
1999 Debentures were $437,600. As of January 26, 1997, the Company has sold
$4,865,000 in 1999 Debentures. In connection with the 1999 Debentures, the
Company has issued 97,280 Common Stock purchase warrants to participating NASD
Broker-Dealers. The warrants have an exercise price of $5.50 per share and are
exercisable through January 2, 2002.
4. From June 1996 through January 1997, the Company made a private
placement offering to accredited investors for up to $2,000,000 in principal
amount of 14% unsecured Convertible Subordinated Debentures due June 30, 2000
("2000 Debentures"). The total underwriting commissions associated with the
2000 Debentures were $161,600. As of January 26, 1997, the Company has sold
$2,000,000 in 2000 Debentures. In connection with the 2000 Debentures, the
Company has issued 38,601 Common Stock purchase warrants to participating NASD
Broker-Dealers. The warrants have an exercise price of $5.50 per share and are
exercisable through January 2, 2002.
5. From December 1996 through June 1997, the Company made a private
placement offering to accredited investors for up to $2,655,000 in principal
amount of 14% unsecured Convertible Subordinated Debentures due January 31,
2001 ("2001 Debentures"). The total underwriting commissions associated with
the 2001 Debentures were $231,600. As of October 20, 1997, the Company has
sold $2,655,000 in 2001 Debentures. In connection with the 2001 Debentures,
the Company has issued 50,915 Common Stock purchase warrants to participating
NASD Broker-Dealers. The warrants have an exercise price of $5.50 per share
and are exercisable through January 2, 2002.
6. In June 1997, the Company's Board of Directors authorized the
issuance of up to 500,000 shares of Series C Convertible Preferred Stock
("Series C") with a par value of $.01 per share to be issued to employees in
connection with the Company's employee stock purchase plan. The employee stock
purchase plan allows employees to purchase, through payroll deductions and
Company matches approved by the Board of Directors, shares of Series C at a
price of $2.50 per share. At June 23, 1997, the Company issued 26,592 Series C
shares and, on September 10, 1997, the Company issued 250 Series C shares with
total proceeds received by the Company from both issuances of $47,932.
7. In July 1997, the Company's Board of Directors authorized the
issuance of up to 1,000,000 shares of 12% Series D Convertible Exchangeable
Preferred Stock ("Series D") with a par value of $.01 per share to be issued to
accredited investors. From July 10, 1997 to October 26, 1997, the Company
issued 542,500 Series D shares with total proceeds received by the Company of
$1,085,000.
8. From January 13, 1994 through January 26, 1997, the Company issued
427,139 shares of Common Stock of which 44,514 shares were issued to certain
directors in exchange for Board of Director services, 232,597 shares were
issued to certain employees in exchange for employment services, pay reductions
and performance awards, and 150,028 were issued to certain attorneys and
consultants in exchange for legal and consulting services. From January 27,
1997 through to October 26, 1997, the Company issued 104,602 shares of Common
Stock of which 54,408 shares were issued to certain directors in exchange for
Board of Director services, 36,181 shares were issued to certain employees in
exchange for employment services, pay reductions and performance awards, 10,716
were issued to certain attorneys and consultants in exchange for legal and
consulting services, and 3,297 shares were issued to National Audio
Electronics, Inc. in exchange for merchandise. On May 8, 1997, the Company
issued 824 shares of Common Stock to an employee for $3.03 per share.
9. On December 29, 1995, a former director exercised a warrant to
purchase 16,487 shares of the Company's Common Stock at $.03 per share.
10. From October 1994 to March 1995, the Company issued $980,000 in
15% notes payable, to mature on December 31, 1997, to 14 non-accredited
investors and a class of accredited investors. From February 1995 to May 1995,
the Company issued $1,390,000 in 15% notes payable, to mature on March 31,
1998, to 20 non-accredited investors and a class of accredited investors. From
April 1996 to August 1996, the Company issued $278,000 in 15% notes payable, to
mature on March 31, 2000 to 5 non-accredited investors and a class of
accredited investors. From January 1997 to July 1997, the Company issued
$474,000 in 15% notes payable, to mature on December 31, 2000 to 11
non-accredited investors and a class of accredited investors.
II - 3
<PAGE> 76
11. From January 1995 through November 1996, the Company issued
43,358 Series B shares in connection with its employee stock purchase plan.
The employee stock purchase plan in effect during that time allowed employees
to purchase, through payroll deductions and Company matches approved by the
Board of Directors, shares of Series B at a price of $2.00 per share.
The sale of securities above were made in reliance upon Rule 701 which
provides for exemption for offers and sales of securities pursuant to
compensatory benefit plans and contracts relating to compensation and Section
4(2) and Regulation D of the Securities Act, which provide exemptions for
transactions not involving a public offering. The purchasers of securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the shares are not to be offered, sold or transferred
other than pursuant to an effective registration statement under the Securities
Act, or an exemption from such registration requirements.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
1.1 - Proposed form of Underwriting Agreement(4)
1.2 - Representative's Warrant Agreement(4)
3.1 - PawnMart, Inc.'s Restated and Amended
Certificate of Incorporation(2)
3.2 - PawnMart, Inc.'s Second Amended and Restated Bylaws(2)
4.1 - Specimen Common Stock Certificate(4)
4.2 - Specimen Series A Warrant Certificate(4)
4.3 - Specimen Series B Warrant Certificate(4)
4.4 - Form of Warrant Agreement(4)
4.5 - Form of National Association of Securities Dealers, Inc.
broker-dealer warrants(1)
5.1 - Opinion of Jordaan & Pennington, PLLC as to the validity
of the issuance of the Securities registered hereby(4)
10.1 - Form of Indemnity Agreement with Officers and Directors
of PawnMart, Inc.(4)
10.2 - 1997 PawnMart, Inc. Employee Stock Option Plan(2)
10.3 - 1997 PawnMart, Inc. Director Stock Option Plan(4)
11.1 - Statement regarding computation of per share
earnings(3)
21.1 - Subsidiaries of PawnMart Inc.(4)
23.1 - Consent of KPMG Peat Marwick LLP, independent certified
public accountants(4)
23.2 - Consent of Jordaan & Pennington, PLLC (included in
its opinion filed as Exhibit 5.1)
24.1 - Reference is made to the Signatures section of the Registration
Statement filed on October 23, 1997
27.1 - Financial Data Schedule for October 26, 1997
(Filed in EDGAR version only)(3)
27.2 - Financial Data Schedule for January 26, 1997
(Filed in EDGAR version only)(3)
</TABLE>
- ---------------------------
(1) To be filed by amendment.
(2) Filed on October 23, 1997.
(3) Filed on January 15, 1998.
(4) Filed herewith.
II - 4
<PAGE> 77
ITEM 28. UNDERTAKINGS
(a) The Company, a small business issuer, before the Offering had no duty
to file reports with the Commission under section 13(a) or 15(d) of
the Securities Exchange Act of 1934 is registering equity securities
for sale in an underwritten offering. Therefore, the small business
issuer will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(b) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act
shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) The Registrant hereby undertakes (1) to file, during any period in
which it offers or sells securities, a post-effective amendment to
this Registration Statement, to include any prospectus required by
section 10(a)(3) of the Act, to reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change
in the information in the Registration Statements, and to include any
additional or changed material information on the plan of
distribution; (2) that, for the purpose of determining any liability
under the Act, to treat each post-effective amendment as a new
Registration Statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and (3) to file a post-effective
amendment to remove from registration any of the securities being
registered which remain unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising from the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II - 5
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on February 9, 1998:
PAWNMART, INC.
(Registrant)
By: /s/ Carson R. Thompson By: /s/ Thomas W. White
----------------------------- -------------------------
Carson R. Thompson Thomas W. White
Chief Executive Officer Vice President - Finance and
(Principal Executive Officer) Accounting
(Principal Financial and
Accounting Officer)
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed below by the following persons on behalf
of the registrant and in the capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Carson R. Thompson Chief Executive Officer, Director and Chairman February 9, 1998
---------------------- of the Board
Carson R. Thompson
* President, Chief Operating Officer and February 9, 1998
----------------------------- Director
Robert Bourland, Jr.
* Vice President -- Finance and Accounting February 9, 1998
-----------------------------
Thomas W. White
* Vice President -- Information Services February 9, 1998
-----------------------------
Randy Haden
* Director February 9, 1998
-----------------------------
Robert E. Camp
* Director February 9, 1998
-----------------------------
James E. Berk
* Director February 9, 1998
-----------------------------
Monty R. Standifer
* Director February 9, 1998
-----------------------------
Mark E. Kane
</TABLE>
*By: /s/ Carson R. Thompson
-----------------------------
CARSON R. THOMPSON
ATTORNEY-IN-FACT
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
1.1 - Proposed form of Underwriting Agreement(4)
1.2 - Representative's Warrant Agreement(4)
3.1 - PawnMart, Inc.'s Restated and Amended
Certificate of Incorporation(2)
4.1 - Specimen Common Stock Certificate(4)
4.2 - Specimen Series A Warrant Certificate(4)
4.3 - Specimen Series B Warrant Certificate(4)
4.4 - Form of Warrant Agreement(4)
4.5 - Form of National Association of Securities Dealers, Inc.
broker-dealer warrants (1).
5.1 - Opinion of Jordaan & Pennington, PLLC as to the validity
of the issuance of the Securities registered hereby(4)
10.1 - Form of Indemnity Agreement with Officers and Directors
of PawnMart, Inc.(4)
10.2 - 1997 PawnMart, Inc. Employee Stock Option Plan(2)
10.3 - 1997 PawnMart, Inc. Director Stock Option Plan(4)
11.1 - Statement regarding computation of per share
earnings(3)
21.1 - Subsidiaries of PawnMart Inc.(4)
23.1 - Consent of KPMG Peat Marwick LLP, independent certified
public accountants(4)
23.2 - Consent of Jordaan & Pennington, PLLC (included in
its opinion filed as Exhibit 5.1)
24.1 - Reference is made to the Signatures section of the Registration
Statement filed on October 23, 1997
27.1 - Financial Data Schedule for October 26, 1997
(Filed in EDGAR version only)(3)
27.2 - Financial Data Schedule for January 26, 1997
(Filed in EDGAR version only)(3)
</TABLE>
- ---------------------------
(1) To be filed by amendment.
(2) Filed on October 23, 1997.
(3) Filed on January 15, 1998.
(4) Filed herewith.
<PAGE> 1
EXHIBIT 1.1
PAWNMART, INC.
1,200,000 SHARES OF COMMON STOCK
1,200,000 SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
1,200,000 SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(AND 2,400,000 SHARES OF COMMON STOCK ISSUABLE UNDER THE WARRANTS)
UNDERWRITING AGREEMENT
Dallas, Texas
_______________, 1998
First London Securities Corporation
As Representative of the Several
Underwriters named in Schedule A
2600 State Street
Dallas, Texas 75204
Gentlemen:
PawnMart, Inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby proposes to issue
and sell to such Underwriters as named in Schedule A (the "Underwriters") to
this Underwriting Agreement (the "Agreement"), for whom First London Securities
Corporation ("First London") is acting as the Representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,200,000 shares of Common Stock (the "Shares") at $5.00 per
Share, 1,200,000 Series A Redeemable Common Stock Purchase Warrants at $.125
per warrant (the "Series A Warrants") and 1,200,000 Series B Redeemable Common
Stock Purchase Warrants at $.0625 per warrant (the "Series B Warrants" and
together with the Series A Warrants, the "Warrants") (each such price the
"Initial Public Offering Price"). The Shares and the Warrants are collectively
referred to as the "Securities." Each Series A Warrant is exercisable to
purchase one share of Common Stock (the "Common Stock") at 120% of the Initial
Public Offering Price per Share at any time during the period between
_______________, 1998 and _______________, 2003 and each Series B Warrant is
exercisable to purchase one share of Common Stock at 120% of the Initial Public
Offering Price per Share at any time during the period between _______________,
1998 and ______________, 2004. The date upon which the Securities and Exchange
Commission ("Commission") shall declare the registration statement of the
Company effective shall be the "Effective Date." The Warrants are subject to
redemption under certain circumstances. In addition, the Company proposes to
grant to the Underwriters (or, at the option of the Representative, to the
Representative, individually) the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 180,000 additional
<PAGE> 2
Shares, 180,000 additional Series A Warrants and/or 180,000 additional Series B
Warrants (the "Option Securities").
You have advised the Company that you and the other Underwriters
desire to purchase, severally, the Securities, and that you have been
authorized by the Underwriters to execute this Agreement on their behalf. The
Company confirms the agreements made by it with respect to the purchase of the
Securities by the several Underwriters on whose behalf you are signing this
Agreement, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the date of this
Agreement, the Closing Date (as hereinafter defined) and the Option Closing
Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-38597) on Form SB-2
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration
statement, including a final form of Prospectus, copies of which shall be
delivered to you. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to the Rules and Regulations under the Act prior to the Effective
Date. The registration statement (including all financial schedules and
exhibits) as amended at the time it becomes effective and the final prospectus
included therein are respectively referred to as the "Registration Statement"
and the "Prospectus," except that (i) if the prospectus first filed by the
Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from
said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b), and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up
to the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or any selected dealers: (i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and the
Rules and Regulations; and (ii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
statements therein, in light of the circumstances under which they are made,
not misleading; provided, however, that the Company makes no representations,
warranties or agreement as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by the
2
<PAGE> 3
Underwriters specifically for use in the preparation thereof. It is understood
that the statements set forth in the Prospectus with respect to stabilization,
under the heading "Underwriting" and regarding the identity of counsel to the
Underwriters under the heading "Legal Matters" constitute the only information
furnished in writing by the Underwriters for inclusion in the Prospectus.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in
all other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding securities of the
Company as of the date of the Prospectus is as set forth in the Prospectus
under "Capitalization;" all of the issued and outstanding securities of the
Company has been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances
and sales of all such securities complied in all material respects with
applicable federal and state securities laws; the holders thereof have no
rights of rescission against the Company with respect thereto, and are not
subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for
or relating to the registration of any securities of the Company, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreements pursuant to which such Warrants are to be
issued (the "Warrant Agreements"), which will be substantially in the form
filed as exhibits to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance and when
issued in accordance with the terms of the Warrants and Warrant Agreements,
will be duly and validly authorized, validly issued, fully paid and
non-assessable, free of preemptive rights and no personal liability will attach
to the ownership thereof. The Warrant exercise periods and the Warrant
exercise prices may not be changed or revised by the Company without the prior
written consent of First London. The Warrant Agreements have been
3
<PAGE> 4
duly authorized and, when executed and delivered pursuant to this Agreement
will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms.
Each of the Common Stock Representative Warrants, the Series A Warrant
Representative Warrants, the Series B Warrant Representative Warrants and the
Underlying Warrants (each of which is defined in the Representative's Warrant
Agreements described in Section 12 herein and all of which shall be
collectively referred to as the "Representative's Warrants"), has been duly
authorized and, when issued, delivered and paid for pursuant to the
Representative's Warrant Agreements, will have been duly authorized, issued and
delivered and will constitute valid and legally binding instruments of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the Representative's Warrant Agreements. The shares of Common
Stock issuable upon exercise of each of the Common Stock Representative
Warrants and the Underlying Warrants have been reserved for issuance and when
issued in accordance with the terms of the Common Stock Representative Warrants
and the Underlying Warrants, will be duly and validly authorized, validly
issued, fully paid and non-assessable, free of preemptive rights and no
personal liability will attach to the ownership thereof. The exercise period
and the exercise price for each of the Common Stock Representative Warrants,
the Series A Warrant Representative Warrants, the Series B Warrant
Representative Warrants and the Underlying Warrants may not be changed or
revised by the Company without the prior written consent of First London.
(f) This Agreement, the Warrant Agreements and the
Representative's Warrant Agreements have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution of this
Agreement by the other party hereto, constitute valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally. The Company has full power and
lawful authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any third party or any governmental
authority is required in connection with such authorization, execution and
delivery or with the authorization, issuance and sale of the Securities or the
securities to be issued pursuant to the Representative's Warrant Agreements,
except such as may be required under the Act or state securities laws, or as
otherwise have been obtained.
(g) Except as described in the Prospectus, the Company is not in
material violation, breach of or default under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach of, or constitute a
material default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of the Company or any
of the terms or provisions of any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or
by which the Company may be bound or to which any of the property or assets of
the Company is subject, nor will such action result in any material violation
of the provisions of the certificate of incorporation or bylaws as amended of
the Company, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental body
having jurisdiction over the Company .
4
<PAGE> 5
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by each of them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone, adverse to rights of the
Company as lessor, sublessor, lessee, or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus;
and the Company owns or leases all such properties described in the Prospectus
as are necessary to its operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(i) KPMG Peat Marwick LLP, which has examined the financial
statements, together with the related schedules and notes, for the Company and
any subsidiary of it for the periods therein stated, which have been filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are with respect to the Company independent accountants within
the meaning of the Act and the Rules and Regulations.
(j) The financial statements, together with the related notes and
schedules forming a part of the Registration Statement and the Prospectus,
fairly present the financial position and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply; and all audited financial statements, together with the related notes
and schedules, and the unaudited financial information of the Company have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement. The Company's internal
accounting controls and procedures are sufficient to cause the Company to
prepare financial statements which comply in all material respects with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. During the preceding five year period, nothing
has been brought to the attention of the Company's management that would result
in any reportable condition relating to the Company's internal accounting
procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and the Prospectus and to and including
the Option Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) the Company has not incurred and
will not have incurred any material liabilities or obligations, direct or
contingent, and has not entered into and will not have entered into any
material transactions other than in the ordinary course of business and/or as
contemplated in the Registration Statement and the Prospectus; (ii) the Company
has not and will not have paid or declared any dividends or have
5
<PAGE> 6
made any other distribution on its capital stock; (iii) there has not been any
change in the capital stock of, or any incurrence of long-term debt by, the
Company; (iv) the Company has not issued any options, warrants or other rights
to purchase the capital stock of the Company; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company, or in the book value of the
assets of the Company, arising for any reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened, any material action, suit,
proceeding, inquiry, arbitration or investigation against the Company, or any
of the officers or directors of the Company, or any material action, suit,
proceeding, inquiry, arbitration, or investigation, which might result in any
material adverse change in the condition (financial or other), business
prospects, net worth, or properties of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state and foreign income and franchise tax returns and
has paid all taxes shown as due thereon; and there is no tax deficiency which
has been or to the knowledge of the Company might be asserted against the
Company that has not been provided for in the financial statements.
(n) Except as set forth in the Prospectus, the Company has
material licenses, permits and other governmental authorizations currently
required for the conduct of its business or the ownership of its property as
described in the Prospectus and is in all material respects in compliance
therewith and owns or possesses adequate right to use all material patents,
patent applications, trademarks, service marks, trade-names, trademark
registrations, service mark registrations, copyrights, and licenses necessary
for the conduct of such business and has not received any notice of conflict,
with the asserted rights of others in respect thereof. To the best of the
Company's knowledge, none of the activities or business of the Company are in
violation of, or cause the Company to violate, any law, rule, regulation or
order of the United States, any state, county or locality, or of any agency or
body of the United States or of any state, county or locality, the violation of
which would have a material adverse impact upon the condition (financial or
otherwise), business, property, prospective results of operations, or net worth
of the Company.
(o) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for political office, or failed to
disclose fully any such contribution, in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other
taxes (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction), if any, that are required to be paid in
connection with the sale and transfer of the Securities to the several
Underwriters will have been fully paid or provided for by the Company and all
laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
6
<PAGE> 7
(r) Except as described in the Registration Statement and
Prospectus, no holders of Common Stock or of any other securities of the
Company have the right to include such Common Stock or other securities in the
Registration Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, the Company has no any material contingent
liabilities.
(t) The Company has no equity interest in any corporation, limited
liability company, partnership, joint venture, trust or other entity and has
not entered into any binding agreements to obtain any such equity interest.
(u) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus with respect to the offer and
sale of the Securities and each Preliminary Prospectus, as of its date, has
conformed fully in all material respects with the requirements of the Act and
the Rules and Regulations and did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
(v) The Company, nor, to the Company's knowledge, any of its
officers, directors, employees or Stockholders, has taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims,
damages or liabilities, joint or several, which shall include, but not be
limited to, all costs to defend against any such claim, so long as such claim
arises out of agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or 5% or greater stockholder of the Company has any direct
or indirect affiliation or association with any member of the National
Association of Securities Dealers, Inc. ("NASD"), except as disclosed to the
Representative in writing, and no beneficial owner of the Company's
unregistered securities has any direct or indirect affiliation or association
with any NASD member except as disclosed to the Representative in writing. The
Company will advise the Representative and the NASD if any 5% or greater
stockholder of the Company is or becomes an affiliate or associated person of
an NASD member participating in the distribution.
(z) The Company is in compliance in all material respects with all
federal, state and local laws and regulations respecting the employment of its
employees and employment practices, terms
7
<PAGE> 8
and conditions of employment and wages and hours relating thereto. There are no
pending investigations involving the Company by the U.S. Department of Labor,
or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or to the knowledge of the Company, threatened against or
involving the Company, any predecessor entity. No question concerning
representation exists respecting the employees of the Company and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company.
(aa) The Company does not maintain, sponsor or contribute to, nor
is it required to contribute to, any program or arrangement that is an
"employee pension benefit plan" an "employee benefit plan," or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(3) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company has not maintained or
contributed to a "defined benefit plan," as defined in Section 3(35) of ERISA.
(bb) Based upon written representations received from the officers
and directors of the Company, except as disclosed in the Prospectus, during the
past five years, none of the officers or directors of the Company have been:
(i) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or against them,
or by a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which any of
them was a general partner at or within two years before the time of
such filing, or any corporation or business association of which any
of them was an executive officer at or within two years before the
time of such filing;
(ii) Convicted in a criminal proceeding or a named subject
of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(iii) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining any of them from,
or otherwise limiting, any of the following activities:
(A) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any conduct
or practice in connection with any such activity;
(B) engaging in any type of business practice; or
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<PAGE> 9
(C) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of federal or state securities
law or federal commodity laws.
(iv) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than 60
days either of their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
(v) Found by any court of competent jurisdiction in a
civil action or by the Commission to have violated any federal or
state securities law, and the judgment in such civil action or finding
by the Commission has not been subsequently reversed, suspended or
vacated; or
(vi) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(cc) Based upon written representations received from the officers
and directors of the Company, each of the officers and directors of the Company
has reviewed the sections in the Prospectus relating to their biographical data
and equity ownership position in the Company, and all information contained
therein is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,200,000 Shares at $4.50 per Share, 1,200,000 Series A Warrants at $.1125 per
warrant and 1,200,000 Series B Warrants at $.0562 per warrant, (the Initial
Public Offering Price less 10%), at the place and time hereinafter specified,
in accordance with the number of Shares and/or Warrants set forth opposite the
names of the Underwriters in Schedule A attached hereto plus any additional
Securities which such Underwriters may become obligated to purchase pursuant to
the provisions of Section 9 hereof. The Securities shall consist of 1,200,000
Shares, 1,200,000 Series A Warrants and 1,200,000 Series B Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $5.00 per Share, $.125 per Series A
Warrant and $.0625 per Series B Warrant.
Delivery of the Securities against payment therefor shall take place
at the offices of First London Securities Corporation, 2600 State Street,
Dallas, Texas 75204 (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the Effective
Date as the Representative shall designate, but not later than ten business
days (holidays excepted) following the first date that any of the Securities
are released to you, such time and date of payment and delivery for the
Securities being herein called the "Closing Date."
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<PAGE> 10
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants the "Option" to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
to purchase all or any part of an aggregate of an additional 180,000 Shares,
180,000 Series A Warrants and/or 180,000 Series B Warrants at the same price
per Share and Warrant as the Underwriters shall pay for the Securities being
sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Securities being referred to herein as the "Option Securities").
This Option may be exercised within 45 days after the Effective Date upon
notice by the Underwriters (or the Representative, individually) to the Company
advising as to the amount of Option Securities as to which the Option is being
exercised, the names and denominations in which the certificates for such
Option Securities are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined by
the Underwriters (or the Representative, individually) but shall not be later
than ten full business days after the exercise of the Option, nor in any event
prior to the Closing Date, and such time and date is referred to herein as the
"Option Closing Date." Delivery of the Option Securities against payment
therefor shall take place at the offices of First London Securities
Corporation. The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of the Securities referred to
in subsection (a) above. In the event the Company declares or pays a dividend
or distribution on its Common Stock, whether in the form of cash, shares of
Common Stock or any other consideration, prior to the Option Closing Date, such
dividend or distribution shall also be paid on the Option Securities on the
Option Closing Date.
(c) The Company will make the certificates for the Securities to
be sold hereunder available to you for inspection at least two full business
days prior to the Closing Date and the Option Closing Date, respectively, at
the offices of First London, and such certificates shall be registered in such
names and denominations as you may request. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of First London Securities Corporation, or by wire
transfer, at the time and date of delivery of such Securities as required by
the provisions of subsection (b) above, against receipt of the certificates for
such Securities by the Representative for the respective accounts of the
several Underwriters registered in such names and in such denominations as the
Representative may request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to
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<PAGE> 11
this Section 2 on behalf of any Underwriters whose check or checks shall not
have been received by the Representative at the time of delivery of the
Securities to be purchased by such Underwriter or Underwriters. Any such
payment by the Representative shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder. It is also
understood that the Representative individually, rather than all of the
Underwriters, may (but shall not be obligated to) purchase the Option
Securities referred to in subsection (b) of this Section 2, but only to cover
over-allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement is declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees
with the several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to
the later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the
Company will prepare and file with the Commission, promptly upon your request,
any amendments or supplements to the Registration Statement or Prospectus which
may be necessary or advisable in connection with the distribution of the
Securities and as mutually agreed to by the Company and the Representative.
After the Effective Date and as soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of the
receipt of any comments of the Commission, of the effectiveness of any post-
effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop order or
other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such
purposes, and will use its best efforts to prevent the issuance of any such
order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and the selected dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriters the use thereof is required to
comply with the applicable provisions of the Act and the Rules and Regulations.
In case of the happening, at any time within such period
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<PAGE> 12
as a Prospectus is required under the Act to be delivered in connection with
sales by the Underwriters or the selected dealers, of any event of which the
Company has knowledge and which materially affects the Company or the
Securities, or which in the opinion of counsel for the Company or counsel for
the Underwriters, should be set forth in an amendment to the Registration
Statement or a supplement to the Prospectus, in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Securities, or
in case it shall be necessary to amend or supplement the Prospectus to comply
with law or with the Act and the Rules and Regulations, the Company will notify
you promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which
they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will qualify to register the Securities for sale
under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8 hereof, and the out-of-pocket
expenses up to $35,000 of the Representative and expenses up to $35,000 of the
counsel to the Representative, if the offering for any reason is terminated.
For the purposes of this sub-paragraph, the Representative shall be deemed to
have assumed such expenses when they are billed or incurred, regardless of
whether such expenses have been paid. The Representative shall not be
responsible for any expenses of the Company or others, or for any charges or
claims relative to the proposed public offering whether or not consummated.
(d) The Company will deliver to you at or before the Closing Date
two signed copies of the Registration Statement, including all financial
statements and exhibits filed therewith, and of each amendment or supplement
thereto. The Company will deliver to or upon the order of the several
Underwriters, from time to time until the Effective Date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date of the Registration Statement as the
Underwriters may reasonably request. The Company will
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<PAGE> 13
deliver to the Underwriters on the Effective Date of the Registration Statement
and thereafter for so long as a Prospectus is required to be delivered under
the Act, from time to time, as many copies of the Prospectus, in final form, or
as thereafter amended or supplemented as the several Underwriters may from time
to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representative during the period ending five years from the Effective Date,
(i) as soon as practicable after the end of each fiscal year, a balance sheet
of the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and
any subsidiaries for such fiscal year, all in reasonable detail and accompanied
by a copy of the certificate or report thereon of independent accountants; (ii)
as soon as they are available, a copy of all reports (financial or other)
mailed to security holders; (iii) as soon as they are available, a copy of all
non-confidential documents, including annual reports, periodic reports and
financial statements, furnished to or filed with the Commission under the Act
and the 1934 Act; (iv) copies of each press release, news item and article with
respect to the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
Stockholders generally.
(g) The Company will make generally available to its Stockholders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the
necessary action to become a reporting company under Section 12 of the 1934
Act, and the Company will make all filings required to, and will have obtained
approval for, the listing of the Shares and Warrants on The Nasdaq SmallCap
Market, the Boston Stock Exchange or a listing on a national market, and will
use its best efforts to maintain such listing for at least five years from the
date of this Agreement.
(i) For such period as the Securities are registered under the
1934 Act, the Company will hold an annual meeting of Stockholders for the
election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's Stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file
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<PAGE> 14
such reports with the Commission with respect to the sale of the Securities and
the application of the proceeds therefrom as may be required by Sections 12, 13
and/or 15 of the 1934 Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriters and the Company
may be reasonably necessary or advisable in connection with the distribution of
the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(l) On the Closing Date the Company shall execute and deliver to
you the Representative's Warrant Agreements. The Representative's Warrant
Agreements and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreements and Warrant Certificates filed as an
exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the warrants issuable pursuant to the Representative's Warrant
Agreements outstanding from time to time.
(n) Each beneficial owner of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Representative and
Nasdaq, not to sell, transfer or otherwise dispose of any of such securities or
underlying securities (except in a transaction other than on the open market
with a transferee who agrees to be bound by this provision) during the period
of time, commencing on the Effective Date, stated for each such beneficial
owner on Schedule B (the "lock-up period"), or any longer period required by
any state or required by Nasdaq as a condition to listing on The Nasdaq
SmallCap Market, without the prior written consent of First London and Nasdaq.
Without the prior written consent of Nasdaq, the Company shall not, directly or
indirectly, release any individual from his lock-up agreement or effect the
transfer on its books of any shares sold in contravention of a lock-up
agreement. Any of such securities that are originally registered in a name of
a original beneficial owner and are subsequently registered under a different
name will be subject to such original beneficial owner's lock-up period. Sales
of the Company's securities by officers and/or directors of the Company prior
to the expiration of their respective lock-up periods shall be effected through
the Representative.
(o) The Company shall pay to the Representative upon the exercise
or redemption of the Warrants a fee equal to 5% of the gross proceeds received
by the Company from the exercise of the Warrants and 5% of the aggregate
redemption price for the Warrants redeemed. Such fee will be paid to the
Representative or their designees no sooner than 12 months after the Effective
Date. Additionally, the Representative or its designees must be designated in
writing by the Warrant holder as having solicited the Warrant in order to
receive the fee and such fee shall not be paid with respect to Warrants held in
a discretionary account without the prior written approval of such exercise by
the discretionary account holder.
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(p) Prior to the Closing Date, the Company shall at its own
expense, undertake to list the Securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and
such other manuals as the Representative may designate, such listings to
contain the information required by such manuals and the Uniform Securities
Act. The Company hereby agrees to use its best efforts to maintain such listing
for a period of not less than five years unless the Securities otherwise
qualify for a secondary market trading exemption. The Company shall take such
action as may be reasonably requested by the Representative to obtain a
secondary market trading exemption in such states as may be reasonably
requested by the Representative.
(q) During the one year period commencing on the Effective Date,
the Company will not, without the prior written consent of First London, offer,
sell, contract to sell, grant options or warrants to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock except for securities issued in
connection with an acquisition or merger by the Company or upon the issuance of
Common Stock upon the exercise of the Warrants.
(r) Prior to the Closing Date, the Company will not issue,
directly or indirectly, without the prior consent of First London, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(s) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the
financial statements to be included in any registration statement or similar
disclosure document to be filed by the Company hereunder, or any amendment or
supplement thereto. For a period of five years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report and the filing of quarterly financial information to
Stockholders.
(t) The Company shall retain Continental Stock Transfer & Trust
Company as the transfer agent for the securities of the Company, or such other
transfer agent as First London may agree to in writing. In addition, the
Company shall direct such transfer agent to furnish the Representative with
daily transfer sheets as to each of the Company's securities as prepared by the
Company's transfer agent and copies of lists of Stockholders and warrantholders
as reasonably requested by the Representative, for a five year period
commencing from the Closing Date.
(u) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Representative on a daily and weekly basis at the
expense of the Company, for a five year period from the Effective Date.
(v) Following the Effective Date, the Company shall, at its sole
cost and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Representative shall designate and the Company may
reasonably agree.
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(w) On the Effective Date and for a period of three years
thereafter, the Company's Board of Directors shall consist of a minimum of five
persons, two of whom shall be independent and not otherwise affiliated with the
Company or associated with any of the Company's affiliates.
(x) For such period as any Warrants are outstanding, the Company
shall use its best efforts to cause post- effective amendments to the
Registration Statement or a new Registration Statement to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of any such post-effective amendments and cause a copy of each Prospectus, as
then amended, to be delivered to each holder of record of a Warrant and to
furnish to each of the Underwriters and each dealer as many copies of each such
Prospectus as such Underwriter or such dealer may reasonably request. Such
post-effective amendments or new Registration Statements shall also register
the Representative's Warrant and all the securities underlying the
Representative's Warrant. The Company shall not call for redemption of any of
the Warrants unless a Registration Statement covering the securities underlying
the Warrants or Representative's Warrant has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
In addition, the Warrants or Representative's Warrant shall not be redeemable
during the first year after the Effective Date without the written consent of
First London.
(y) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange, Nasdaq National Market or the
American Stock Exchange, the Company shall engage the Company's legal counsel
to deliver to the Representative a written opinion detailing those states in
which the Shares and Warrants of the Company may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Opinion"). The initial Secondary Market Trading opinion shall be
delivered to the Representative on the Effective Date, and the Company shall
continue to update such opinion and deliver same to the Representative on a
timely basis, but in any event at the beginning of each fiscal year, for a five
year period, if requested.
4. Conditions of Underwriters, Obligations. The obligations of
the several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date
hereof and as of the Closing Date and the Option Closing Date, as the case may
be, to the continuing accuracy of, and compliance with, the representations and
warranties of the Company herein, to the accuracy of statements of officers of
the Company made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become
effective not later than 5:00 p.m., Eastern Time, on the date of this
Agreement, or at such later time or on such later date as you may agree to in
writing; (ii) at or prior to the Closing Date or Option Closing Date, as the
case may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceeding for that
purpose shall have been initiated or pending, or shall be threatened, or to the
knowledge of the Company, contemplated by the Commission; (iii) no stop order
suspending the effectiveness of the qualification or registration of the
Securities under the securities or "blue sky" laws of any jurisdiction (whether
or not a jurisdiction which you shall have specified) shall be threatened or to
the knowledge of the Company contemplated by the authorities of any such
jurisdiction or shall have been issued and in effect; (iv) any request for
additional
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<PAGE> 17
information on the part of the Commission or any such authorities shall have
been complied with to the satisfaction of the Commission and any such
authorities, and to the satisfaction of counsel to the Underwriters; and (v)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Underwriters and the Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any material adverse change in the long-term debt
of the Company except as set forth in or contemplated by the Registration
Statement, (ii) there shall not have been any material adverse change in the
general affairs, business, properties, condition (financial or otherwise),
management, or results of operations of the Company, whether or not arising
from transactions in the ordinary course of business, in each case other than
as set forth in or contemplated by the Registration Statement or Prospectus;
(iii) the Company shall not have sustained any material interference with its
business or properties from fire, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened, any material action, suit,
proceeding, inquiry, arbitration or investigation against the Company, or any
of the officers or directors of the Company, or any material action, suit,
proceeding, inquiry, arbitration, or investigation, which might result in any
material adverse change in the condition (financial or other), business
prospects, net worth, or properties of the Company.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and Option Closing Date shall have been duly performed, fulfilled
or complied with.
(e) At each Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several
Underwriters, dated as of each Closing Date, from Jordaan & Pennington, P. L.
L. C., counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority
to own its properties and conduct its business as described in the
Registration Statement and Prospectus and is duly qualified or
licensed to do business
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as a foreign corporation and is in good standing in each other
jurisdiction in which the ownership or leasing of its properties or
conduct of its business requires such qualification except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company as a whole;
(ii) the authorized capitalization of the Company is as
set forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized, validly issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock of the Company and
other securities have not been issued in violation of the preemptive
rights of any stockholder and the stockholders of the Company do not
have any preemptive rights or, to such counsel's knowledge, other
rights to subscribe for or to purchase securities of the Company, nor,
to such counsel's knowledge, are there any restrictions upon the
voting or transfer of any of the securities of the Company, except as
disclosed in the Prospectus; the Common Stock, the Shares, the
Warrants, and the securities contained in the Representative's Warrant
Agreements conform to the respective descriptions thereof contained in
the Prospectus; the Common Stock, the Shares, the Warrants, the
Representative's Warrants, the shares of Common Stock to be issued
upon exercise of the Warrants, the Common Stock Representative
Warrants and the Underlying Warrants, have been duly authorized and,
when issued, delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of preemptive rights and no
personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been made in
compliance with or under an exemption from registration under the Act
and applicable state securities laws and no stockholders of the
Company have any rescission rights against the Company with respect to
the Company's securities; a sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the Warrants,
the Common Stock Representative Warrants and the Underlying Warrants,
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any registration rights
or other rights, other than those which have been waived or satisfied
or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant
Agreements and the Warrant Agreements have been duly and validly
authorized, executed and delivered by the Company and, assuming the
due authorization, execution and delivery of this Agreement by the
Representative, are the valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except (a) as
such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to
time in effect which effect creditors, rights generally; and (b) no
opinion is expressed as to the enforceability of the indemnity
provisions or the contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding
securities of the Company, the Shares, the Common Stock, the Warrants
and the Representative's Warrants are in valid and proper legal form;
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(v) to the best of such counsel's knowledge, except as
set forth in the Prospectus, there is not pending or threatened, any
material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any of the officers or directors
of the Company, nor any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth, or properties of the Company;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreements, and the Warrant Agreements, and
the incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated, will
not result in a violation of, or constitute a default under (a) the
Certificate of Incorporation or Bylaws of the Company; (b) to the best
of such counsel's knowledge, any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company is a party or by which it or any of its properties
is bound; or (c) to the best of such counsel's knowledge, any material
order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or
foreign;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(viii) no authorization, approval, consent, or license of
any governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company, in connection with the
execution, delivery and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Representative's Warrants or the securities
underlying the Representative's Warrants, other than registrations or
qualifications of the securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act; and
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Representative or counsel for the
Representative shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law, upon
opinions of counsel satisfactory to you and counsel to the Underwriters. The
opinion of such counsel to the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon.
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<PAGE> 20
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which
they are made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial Officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
(i) No order suspending the effectiveness of the
Registration Statement or stop order regarding the sale of the
Securities is in effect and no proceedings for such purpose are
pending or are, to their knowledge, threatened by the Commission;
(ii) To their knowledge there is no litigation instituted
or threatened against the Company, or any officer or director of the
Company of a character required to be disclosed in the Registration
Statement which is not disclosed therein; to their knowledge there are
no contracts which are required to be summarized in the Prospectus
which are not so summarized; and to their knowledge there are no
material contracts required to be filed as exhibits to the
Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any
amendment or supplement to either of the foregoing contains an untrue
statement of any material fact or omits to state any material fact
required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they are made, not
misleading; and since the Effective Date, to the best of their
knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company,
financial or otherwise, or in the results of its operations, except as
reflected in or contemplated by the Registration Statement and the
Prospectus and except as so reflected or contemplated since such date,
there has not been any material transaction entered into by the
Company;
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<PAGE> 21
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the
Company has complied with all of its agreements herein contained;
(vi) The Company is not delinquent in the filing of any
federal, state and municipal tax return or the payment of any federal,
state or municipal taxes; they know of no proposed re-determination or
reassessment of taxes, adverse to the Company, and the Company has
paid or provided by adequate reserves for all known tax liabilities
except such delinquency that will not have a material adverse affect
on the Company;
(vii) They know of no material obligation or liability of
the Company, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant
Agreements and the Warrant Agreements, the consummation of the
transactions herein or therein contemplated, and the fulfillment of
the terms hereof or thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, its
Certificate of Incorporation or Bylaws, any indenture, mortgage,
lease, deed of trust, bank loan or credit agreement or any other
material agreement or undertaking of the Company including, by way of
specification but not by way of limitation, any agreement or
instrument to which the Company is now a party or pursuant to which
the Company has acquired any right and/or obligations by succession or
otherwise;
(ix) The financial statements, together with the related
notes and schedules forming a part of the Registration Statement and
the Prospectus, fairly present the financial position and the results
of operations of the Company at the respective dates and for the
respective periods to which they apply; and all audited financial
statements, together with the related notes and schedules, and the
unaudited financial consolidated financial information of the Company
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except
as may be otherwise stated therein. The selected and summary financial
and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein.
Since the respective dates of such financial statements, there have
been no material adverse change in the condition or general affairs of
the Company, financial or otherwise, other than as referred to in the
Prospectus;
(x) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
except as may otherwise be indicated therein, the Company has not,
prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent,
for borrowed money, or (ii) entered into any material transaction
other than in the ordinary course of business. The Company has not
declared, paid or made any dividend or distribution of any kind on its
capital stock;
(xi) Based upon written representation from the officers
and directors of the Company they have reviewed the sections in the
Prospectus relating to their biographical
21
<PAGE> 22
data and equity ownership position in the Company, and all information
contained therein is true and accurate; and
(xii) Based upon written representation from the officers
and directors of the Company except as disclosed in the Prospectus,
during the past five years, the officers and directors of the Company
have not been:
(A) Subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
(B) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(C) The subject of any order, judgment, or decree
not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily
enjoining either of them from, or otherwise limiting, any of
the following activities:
(1) acting as a futures commission
merchant, introducing broker, commodity trading
advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person
regulated by the Commodity Futures Trading
Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated
person, director or employee of any investment
company, bank, savings and loan association or
insurance company, or engaging in or continuing any
conduct or practice in connection with any such
activity;
(2) engaging in any type of business
practice; or
(3) engaging in any activity in
connection with the purchase or sale of any security
or commodity or in connection with any violation of
federal or state securities law or federal commodity
laws.
(D) The subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated of any federal
or state authority barring, suspending or otherwise limiting
for more than 60 days any of their right to engage in any
activity described in paragraph (3) (i) above, or be
associated with persons engaged in any such activity;
(E) Found by any court of competent jurisdiction
in a civil action or by the Commission to have violated any
federal or state securities law, and the
22
<PAGE> 23
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(F) Found by a court of competent jurisdiction in
a civil action or by the Commodity Futures Trading Commission
to have violated any federal commodities law, and the judgment
in such civil action or finding by the Commodity Futures
Trading Commission has not been subsequently reversed,
suspended or vacated.
(g) The Underwriters shall have received from KPMG Peat Marwick
LLP, independent auditors to the Company, certificates or letters, one dated
and delivered on the date hereof and one dated and delivered on the Closing
Date, in form and substance satisfactory to the Underwriters, stating, that:
(i) They are independent certified public accountants
with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) The financial statements and the schedules included
in the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) On the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
stockholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
causes them to believe that:
(A) During the period from (and including) the
date of the financial statements in the Registration Statement
and the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current assets, net assets, stockholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriters
may request advice, in each case as compared with amounts
shown in the balance sheet as of the date of the financial
statement in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(B) During the period from (and including) the
date of the financial statements in the Registration Statement
and the Prospectus to such specified date
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<PAGE> 24
there was any material decrease in revenues or in the total or
per share amounts of income or loss before extraordinary items
or net income or loss, or any other material change in such
other items appearing in the Company's financial statements as
to which the Underwriters may request advice, in each case as
compared with the corresponding period in the preceding year,
except in each case for increases, changes or decreases which
the Prospectus discloses have occurred or will occur;
(iv) They have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted
auditing standards) set forth in the letter and found them to be in
agreement.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the Option provided for in Section 2(b)
hereof, the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for
that purpose shall have been instituted or shall be pending, or, to
the knowledge of the Company, shall be contemplated by the Commission,
and any reasonable request on the part of the Commission for
additional information shall have been complied with to the
satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Jordaan & Pennington,
P.L.L.C., counsel for the Company, dated as of the Option Closing
Date, in form and substance satisfactory to counsel to the
Underwriters, which opinion shall be substantially the same in scope
and substance as the opinion furnished to you at the Closing Date
pursuant to Section 4 (e) hereof, except that such opinion, where
appropriate, shall cover the Option Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to counsel to the Underwriters,
substantially the same in scope and substance as the certificate
furnished to you at the Closing Date pursuant to Section 4(f) hereof.
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<PAGE> 25
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from KPMG Peat Marwick LLP., independent auditors to the Company,
dated the Option Closing Date and addressed to the several
Underwriters confirming the information in their letter referred to in
Section 4(g) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option
Securities shall be satisfactory in form and substance to the
Underwriters, and the Underwriters and counsel to the Underwriters
shall have been furnished with all such documents, certificates, and
opinions as you may request in connection with this transaction in
order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Securities and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the several
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall advise the Representative of any NASD affiliations of any of its
officers, directors, or Stockholders or their affiliates in accordance with
paragraph 1(y) of this Agreement.
(j) At the date of this Agreement, you shall have received from
counsel to the Company, dated as of the date hereof, in form and substance
satisfactory to counsel for the Underwriter, a written Secondary Market Trading
Opinion detailing those states in which the Shares and Warrants may be traded
in non-issuer transactions under the Blue Sky laws of the 50 states after the
Effective Date, in accordance with Section 3(y) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this subparagraph.
(l) Prior to the Effective Date, the Representative shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters
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<PAGE> 26
under this Agreement may be canceled at, or at any time prior to, the Closing
Date and/or the Option Closing Date by the Representative and/or the
Underwriters notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the several Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation
of the Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become
effective not later than 5:00 p.m., Eastern Time, on the date of this
Agreement, or on such later time or date as the Company and the
Representative may agree in writing; and
(ii) At the Closing Date and the Option Closing Date, no
stop orders suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefore
initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled
after the Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of the
Option provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds
harmless each Underwriter and each person, if any, who controls the Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the Underwriter or such
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in (i) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(ii) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the Company and filed in any state or other jurisdiction in order to qualify
any or all of the Securities under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such cases to the extent, but only to the extent, that any
such losses, claim, damages or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such Preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. Notwithstanding the
foregoing, the Company shall have no liability under this Section if such
untrue statement or omission made in a Preliminary Prospectus is cured in the
Prospectus and the Prospectus is delivered within the time required by the Act
to the
26
<PAGE> 27
person or persons alleging the liability upon which indemnification is being
sought. This indemnity will be in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees)
to which the Company or any such director, nominee, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statements or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you specifically for use in the preparation thereof.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Section if such untrue statement or omission made in a Preliminary
Prospectus is cured in the Prospectus and the Prospectus is not delivered to
the person or persons alleging the liability upon which indemnification is
being sought through no fault of the Underwriter. This indemnity will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the
27
<PAGE> 28
indemnifying party or (ii) the named parties to any such action (including any
impleaded parties) include both the Underwriter or such controlling person and
the indemnifying party and in the reasonable judgment of the Representative, it
is advisable for the Representative or such Underwriters or controlling persons
to be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
all such Underwriters and controlling persons, which firm shall be designated
in writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes
claim for indemnification pursuant to Section 6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any Underwriter, then the Company and each person who
controls the Company, in the aggregate, and any such Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and
all reasonable attorneys, fees) in either such case (after contribution from
others) in such proportions that all such Underwriters are responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount per Share
appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company, or
the Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims,
damages or liabilities for which the Underwriters are responsible. No person
ultimately determined to be guilty of a
28
<PAGE> 29
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not ultimately
determined to be guilty of such fraudulent misrepresentation. As used in this
paragraph, the term "Underwriter" includes any officer, director, or other
person who controls the Underwriter within the meaning of Section 15 of the
Act, and the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this Section is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
the counsel to the Company or of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and
the Prospectus, as amended or supplemented; the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and
legal fees of counsel to the Company who shall serve as Blue Sky counsel to the
Company in connection with the filing of applications to register the
Securities under the state securities or blue sky laws; the cost of printing
and furnishing to the several Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selected Dealers Agreement, the Agreement Among Underwriters, Underwriters
Questionnaire, Underwriters Power of Attorney and the Blue Sky Memorandum; the
cost of printing the certificates evidencing the securities comprising the
Securities; the cost of preparing and delivering to the Underwriters and its
counsel of their bound volumes containing copies of all documents and
appropriate correspondence filed with or received from the Commission and the
NASD and all closing documents; and the fees and disbursements of the transfer
agent for the Company's securities. The Company shall pay any and all taxes
(including any original issue, transfer, franchise, capital stock or other tax
imposed by any jurisdiction) on sales to the Underwriters hereunder. The
Company will also pay all costs and expenses incident to the furnishing of any
amended Prospectus or of any supplement to be attached to the Prospectus. The
Company shall also engage the Company's counsel to provide the Representative
with a written Secondary Market Trading Opinion in accordance with paragraphs
3(y) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at
the Closing Date pay to the Representative a non-accountable expense allowance
equal to 3% of the gross proceeds received from the sale of the Securities, of
which an advance of $__________ has been paid to date. In the event the
over-allotment option is exercised, the Company shall pay to the Representative
at the Option Closing Date an additional amount equal to 3% of the gross
proceeds received upon exercise of the over-allotment option.
29
<PAGE> 30
(c) Other than as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Representative or from any other person for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Representative and the other Underwriters
against any losses, claims, damages or liabilities, joint or several which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys, fees, to which the
Representative or such other Underwriter may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon the claim of any person (other than an employee of the
party claiming indemnity) or entity that he or it is entitled to a finder's fee
in connection with the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters
shall for any reason not permitted hereunder cancel their obligations to
purchase the Securities hereunder, or shall fail to take up and pay for the
number of Securities set forth opposite their respective names in Schedule A
hereto upon tender of such Securities in accordance with the terms hereof,
then:
(a) If the aggregate number of Securities which such Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Securities, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
Securities which such defaulting Underwriter or Underwriters agreed but failed
to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Securities with respect to which such default or defaults occurs is
more than 10% of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be
agreed upon among them) the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the Closing Date, take up and pay for the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Securities shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including non-business hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four period, the time of
delivery of the Securities may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary; and (ii) the respective numbers of Securities to
be purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
30
<PAGE> 31
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another
Underwriter or Underwriters as aforesaid, and the Company shall not find or
shall not elect to seek another Underwriter or Underwriters for such Securities
as aforesaid, then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any non-defaulting
Underwriter to the Company, provided that the provisions of this Section 9
shall not in any event affect the liability of any defaulting Underwriter to
the Company arising out of such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the
Effective Date of the Registration Statement, or at such earlier time after the
Effective Date of the Registration Statement as you in your discretion shall
first commence the public offering by the Underwriters of any of the
Securities. The time of the public offering shall mean the time after the
effectiveness of the Registration Statement when the Securities are first
generally offered by you to the other Underwriters and the selected dealers.
This Agreement may be terminated by you at any time before it becomes effective
as provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and
18 shall remain in effect notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6,
7, 8, 13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to
the Closing Date, and the Option referred to in Section 2(b) hereof, if
exercised, may be canceled at any time prior to the Option Closing Date, by you
if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriters for the resale of the Securities agreed to
be purchased hereunder by reason of: (i) the Company having sustained a
material adverse loss, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or court or
government action, order or decree; (ii) trading in securities on the New York
Stock Exchange or the American Stock Exchange having been suspended or limited;
(iii) material governmental restrictions having been imposed on trading in
securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by federal or New York or Texas state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred which is reasonably believed
likely by the Representative to have a material adverse
31
<PAGE> 32
impact on the business, financial condition or financial statements of the
Company or the market for the securities offered hereby; (vi) the passage by
the Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive; (vii) any material adverse change in
the financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement; (viii) a pending or threatened legal
or governmental proceeding or action relating generally to the Company's
business, or a notification having been received by the Company of the threat
of any such proceeding or action, which could, in the reasonable judgment of
the Representative, materially adversely affect the Company; (ix) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (x) the Company shall not have complied in all material respects with any
term, condition or provisions on its part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section, the Company shall
be promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreements. At the Closing Date, the
Company will issue to the Representative and/or persons related to the
Representative, for an aggregate purchase price of $100, and upon the terms and
conditions set forth in the form of Representative's Warrant Agreements annexed
as an exhibit to the Registration Statement, Representative's Warrants to
purchase up to an aggregate of 120,000 Shares, 120,000 Series A Warrants and
120,000 Series B Warrants, in such denominations as the Representative shall
designate. In the event of conflict in the terms of this Agreement and the
Representative's Warrant Agreements, the language of the form of
Representative's Warrant Agreements shall control.
13. Representations, Warranties and Agreements to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company and its principal officers, where
appropriate, and the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment
for the Securities and the termination of this Agreement.
14. Notice. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telegraphed and confirmed:
If to the Underwriters: First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Attention: Douglas R. Nichols
Copy to: Richard F. Dahlson
Jackson Walker L.L.P.
32
<PAGE> 33
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
If to the Company: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
Copy to: Jakes Jordaan
Jordaan & Pennington
300 Crescent Court, Suite 1670
Dallas, Texas 75201
15. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the several Underwriters, the Company and, to the
extent expressed, any person controlling the Company or any of the
Underwriters, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser
of the Securities, as such purchaser, from the several Underwriters. All of
the obligations of the Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Texas applicable to
contracts made and to be performed entirely within the State of Texas. The
parties agree that any action brought by any party against another party in
connection with any rights or obligations arising out of this Agreement shall
be instituted properly in a federal or state court of competent jurisdiction
with venue only in the State District Court of Dallas, County, Texas or the
United States District Court for the Northern District of Texas. A party to
this Agreement named as a Defendant in any action brought in connection with
this Agreement in any court outside of the above named designated county or
district shall have the right to have the venue of said action changed to the
above designated county or district or, if necessary, have the case dismissed,
requiring the other party to re- file such action in an appropriate court in
the above designated county or federal district.
17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counter-parts shall together constitute but one and
the same instrument.
18. Entire Agreement. This Agreement and the agreements referred
to within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the
Representative acts as the sole Underwriter in connection with the underwriting
of the securities being offered pursuant to the Registration Statement, all
references to the Representative in this Agreement shall be replaced by
reference to the "Underwriters," and (i) any consents required to be obtained
from the Representative shall be required to be obtained solely from the
Underwriters; (ii) all compensation
33
<PAGE> 34
to be received by the Representative shall instead be received by the
Underwriters; and (iii) the provisions of Section 9 of this Agreement shall not
apply.
34
<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
PAWNMART, INC.
BY:
--------------------------------
Carson R. Thompson, Chief
Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
FIRST LONDON SECURITIES CORPORATION
BY:
-------------------------------
Douglas R. Nichols, President
35
<PAGE> 36
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
UNDERWRITER SHARES
----------- ------
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER WARRANTS
----------- --------
<S> <C>
First London Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 37
SCHEDULE B
TO THE UNDERWRITING AGREEMENT
LOCK-UP PERIODS
<PAGE> 38
PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
First London Securities Corporation
2600 State Street
Dallas Texas 75204
Gentlemen:
The undersigned understands that PawnMart, Inc., a Delaware
corporation (the "Company"), has filed a registration statement on Form SB-2
(the "Registration Statement") with the Securities and Exchange Commission for
the registration of shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), and redeemable common stock purchase warrants to be
sold to the public in an underwritten public offering (the "Public Offering").
In as much as the undersigned wishes to induce you to continue your
efforts in connection with the Public Offering, the undersigned hereby agrees
and represents to you that the undersigned will not, directly or indirectly,
offer to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of in any manner any interest in
any shares of Common Stock or securities of the Company convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of the Common Stock of the Company owned of record or
beneficially by the undersigned on the date hereof (collectively, the
"Securities"), including pursuant to Rule 144 under the Securities Act of 1933,
as amended, from the date hereof until one (1) year after the closing of the
Public Offering.
The undersigned acknowledges and agrees that the Company and the
underwriters of the IPO are relying on the representation and agreement of the
undersigned contained herein in filing the Registration Statement and in
consummating the IPO.
Very truly yours,
By:
----------------------
Name:
Date:
--------------------
No. of Securities held -
<PAGE> 1
EXHIBIT 1.2
REPRESENTATIVE'S WARRANT AGREEMENT
Representative's WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of January 15, 1998, between PAWNMART,
INC. (the "Company"), and FIRST LONDON SECURITIES CORPORATION (the
"Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to that certain
underwriting agreement dated as of the date hereof by and between the Company
and the Representative (the "Underwriting Agreement"), to act as the
representative of the Underwriters in connection with the Company's proposed
public offering (the "Public Offering") of 1,200,000 shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), at $5.00 per share
(the "Common Stock IPO Price") and 1,200,000 Series A Redeemable Common Stock
Purchase Warrants (the "Series A Warrants") and 1,200,000 Series B Redeemable
Common Stock Purchase Warrants (the "Series B Warrants") at $.125 and $.0625,
respectively (the "Warrant IPO Price"); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder"), 120,000 warrants ("Common Stock
Representative's Warrants") to purchase 120,000 shares of Common Stock (the
"Shares") and 120,000 warrants ("Series A Warrant Representative's Warrants")
exercisable to purchase 120,000 Series A Warrants (the "Series A Underlying
Warrants") and 120,000 warrants (the "Series B Warrant Representative
Warrants") exercisable to purchase 120,000 Series B Warrants (the "Series B
Underlying Warrants"). The Series A Underlying Warrant and Series B Underlying
Warrants are exercisable to purchase in the aggregate 240,000 shares of Common
Stock (the "Underlying Warrant Shares"). The "Common Stock Representative's
Warrants," the "Series A Warrant Representative's Warrants" and the "Series B
Warrant Representatives Warrants" are collectively referred to as the
"Warrants." The "Shares," the "Series A Underlying Warrants," the "Series B
Underlying Warrant and the "Underlying Warrant Shares" are collectively
referred to as the "Warrant Securities;" and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the holders ("Holders") in consideration for, and
as part of the compensation in connection with, the Representative acting as
representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED DOLLARS AND NO CENTS ($100.00),
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
1. Grant and Period.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 333-38597) (the "Registration Statement") and declared
effective by the Securities and Exchange Commission (the "SEC" or "Commission")
on _______________, 1998 (the "Effective Date"). This Agreement, relating to
the purchase of the Warrants, is entered into pursuant to the Underwriting
Agreement between the Company and the Representative, as representative of the
Underwriters, in connection with the Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the four year period commencing
December 31, 1998 (one year from the Effective Date) (the "Purchase Date") and
expiring at 5:00 New York time on _______________, 2003, (four years after the
Purchase Date) (the "Expiration Time"), up to 120,000 Shares at an initial
exercise price (subject to adjustment as provided in Article 8) of $6.00 per
share (120% of the Common Stock IPO Price) (the "Share Exercise Price"), up to
240,000 Underlying Warrants consisting of 120,000 Series A Warrants at an
initial exercise price (subject to adjustment as provided in Article 8) of $.15
per warrant (120% of the Warrant IPO Price) and 120,000 Series B Warrants at an
initial exercise price (subject to adjustment as provided in Article 8) of
$.075 per Warrant (120% of the Warrant IPO Price) (collectively, the
"Underlying Warrant Exercise Price"), subject to the terms and conditions of
this Agreement. Each Underlying Warrant is exercisable to purchase one
Underlying Warrant Share at (subject to adjustment as provided in Article 8) at
the IPO Warrant Price (the "Underlying Warrant Share Exercise Price") during
the four year period commencing on the Purchase Date and ending on the
Expiration Time.
Except as specifically otherwise provided herein, the Shares, the
Underlying Warrants and the Underlying Warrant Shares constituting the Warrant
Securities shall bear the same terms and conditions as such securities
described under the caption "Description of Securities" in the Registration
Statement, and as designated in the Company's Certificate of Incorporation and
any amendments thereto, and the Underlying Warrants shall be governed by the
terms of the Warrant Agreement executed in connection with the Public Offering
(the "Warrant Agreement"), except as provided herein, and the Holders shall
have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Shares, the Underlying Warrants, and the Underlying Warrant
Shares, as more fully described in paragraph Article 7 of this Representative's
Warrant Agreement. In the event of any extension of the expiration date or
reduction of the exercise price of the Public Warrants, the same such changes
to the Underlying Warrants shall be simultaneously effected, except that the
Underlying Warrants shall expire no later than five years from the Effective
Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
2
<PAGE> 3
3. Exercise of Warrant.
3.1 Full Exercise.
(a) A Holder may effect a cash exercise of any of the Common Stock
Representative's Warrants or the Warrant Representative's Warrants and the
Underlying Warrants by surrendering the Warrant Certificate, together with a
Subscription in the form of Exhibit 1 attached thereto, duly executed by such
Holder to the Company, at any time prior to the Expiration Time, at the
Company's principal office, accompanied by payment in cash or by certified or
official bank check payable to the order of the Company in the amount of the
aggregate purchase price of such Warrant Securities, subject to any adjustments
provided for in this Agreement. The aggregate purchase price hereunder for
each Holder shall be equal to the exercise price for such Warrant Securities as
set forth in Article 6 multiplied by the number of Underlying Warrants,
Underlying Warrant Shares or Shares, as applicable, that are the subject of
each Holder's Warrant (as adjusted as hereinafter provided).
(b) In lieu of the payment of the Share Exercise Price or the
Underlying Warrant Share Exercise Price, as the case may be, in the manner
required by Section 3.1(a), the Holder shall have the right to pay such
exercise price for the shares of Common Stock being so purchased by the
surrender to the Company of any exercisable but unexercised portion of such
Holder's Common Stock Representative's Warrants or Underlying Warrants, as the
case may be, having a then Value (as defined below) equal to such exercise
price multiplied by the number of shares of Common Stock being purchased upon
such exercise ("Cashless Exercise Right"). The sum of (i) the number of shares
of Common Stock being purchased upon exercise of the non-surrendered portion of
the Common Stock Representative's Warrants or the Underlying Warrants, as the
case may be, pursuant to this Cashless Exercise Right and (ii) the number of
shares of Common Stock underlying the portion of the warrants being so
surrendered, shall not in any event be greater than the total number of shares
of Common Stock purchasable upon the complete exercise of the warrants being so
surrendered, if the Share Exercise Price or the Underlying Warrant Share
Exercise Price, as the case may be, were paid in cash. The Value of the
portion of the Common Stock Representative's Warrants or Underlying Warrants,
as the case may be, being surrendered shall equal the remainder derived from
subtracting (1) the Share Exercise Price or the Underlying Share Exercise
Price, as the case may be, multiplied by the number of shares of Common Stock
underlying the portion of the warrants being so surrendered from (2) the Market
Value (as defined below) of a share of Common Stock multiplied by the number of
shares of Common Stock underlying the portion of the warrants being so
surrendered. The Market Value shall be determined on a per share basis as of
the close of the business day preceding the exercise, which determination shall
be made as follows: (x) if the Common Stock is listed for trading on a national
or regional stock exchange or is included on the Nasdaq National Market or
SmallCap Market, the average closing sale price quoted on such exchange or the
Nasdaq National Market or SmallCap Market that is published in The Wall Street
Journal for the ten trading days immediately preceding the date of exercise, or
if no trade of the Common Stock shall have been reported during such period,
the last sale price so quoted for the next day prior thereto on which a trade
in the Common Stock was so reported; or (y) if the Common Stock is not so
listed, admitted to trading or included, the average of the closing highest
reported bid and lowest reported
3
<PAGE> 4
ask price as quoted on the National Association of Securities Dealer's OTC
Bulletin Board or in the "pink sheets" published by the National Daily
Quotation Bureau for the first day immediately preceding the date of exercise
on which the Common Stock is traded. The Cashless Exercise Right may be
exercised by the Holder by delivering the Warrant Certificate to the Company
together with a Subscription in the form of Exhibit 2 attached thereto, duly
executed by such Holder, in which case no payment of cash will be required.
3.2 Partial Exercise.
The Warrant Securities referred to in Section 3.1 above also may be
exercised from time to time in part by surrendering the Warrant Certificate in
the manner specified in Section 3.1, except that with respect to a cash
exercise, the purchase price payable with respect to such exercise shall be
equal to the number of Warrant Securities being purchased hereunder multiplied
by the exercise price for such Warrant Security, subject to any adjustments
provided for in this Agreement. Upon any such partial exercise, the Company,
at its expense, will forthwith issue to the Holder hereof a new Warrant
Certificate or Warrants of like tenor calling in the aggregate for the number
of securities (as constituted as of the date hereof) for which the Warrant
Certificate shall not have been exercised, issued in the name of the Holder
hereof or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock or other securities, as
applicable, shall be made forthwith (and in any event within three business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof,
and such certificates shall (subject to the provisions of Articles 5 and 7) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock or other securities, as applicable, shall be executed on behalf
of the Company by the manual or facsimile signature of the then present
Chairman or Vice Chairman of the Board of Directors or Chairman or Vice
Chairman of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the
date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
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5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, except (a) to
officers of the Representative or to officers and partners of the other
Underwriters or Selected Dealers participating in the Public Offering; (b) by
will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial Share Exercise Price of each Common Stock Representative's
Warrant shall be $6.00 per share (120% of the Common Stock IPO Price) . The
initial Underlying Warrant Exercise Price of each Warrant Representative's
Warrant shall be $.153 and $.075 per Series A Warrants and Series B Warrants,
respectively, that make up the Underlying Warrants (120% of the Warrant IPO
Price). The initial Underlying Warrant Share Exercise Price of each Underlying
Warrant shall be the Warrant IPO Price. The adjusted exercise price of any
Warrant Security shall be the price which shall result from time to time from
any and all adjustments of the initial exercise price in accordance with the
provisions of Article 8. The Warrant Representative's Warrants and the
Underlying Warrants are exercisable during the four year period commencing on
the Purchase Date.
6.2 Exercise Price.
The term "exercise price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Shares, the Underlying Warrants and the Underlying Warrants Shares
(collectively the "Registrable Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or in
whole, of the Warrants, certificates representing the Shares, the Underlying
Warrants or the Underlying Warrants Shares, as the case may be, shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
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The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Securities Act of 1933, as amended (the "Act"), (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an opinion of
counsel, if such opinion shall be reasonably satisfactory to counsel
to the issuer, that an exemption from registration under such Act and
applicable state securities laws is available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the Public
Offering and expiring seven (7) years thereafter, the Company prepares and
files a post-effective amendment to the Registration Statement, or a new
registration statement, under the Act, or files a Notification on Form 1-A or
otherwise registers securities under the Act, or files a similar disclosure
document with the Commission (collectively the "Registration Documents") as to
any of its securities under the Act (other than under a registration statement
pursuant to Form S-8 or Form S-4 or small business issue equivalent), it will
give written notice by registered mail, at least 30 days prior to the filing of
each such Registration Document, to the Representative and to all other Holders
of the Registrable Securities of its intention to do so. If the Representative
or other Holders of the Registrable Securities notify the Company within 20
days after receipt of any such notice of its or their desire to include any
such Registrable Securities in such proposed Registration Documents, the
Company shall afford the Representative and such Holders of such Registrable
Securities the opportunity to have any Registrable Securities registered under
such Registration Documents or any other available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of
any such securities shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one year after the Effective Date of
the Public Offering, and expiring four years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which is in addition to the registration
rights under Section 7.2), exercisable by written notice to the Company, to
have the Company prepare and file with the Commission at the sole expense of
the Company, on one occasion, a registration statement and/or such other
documents, including a prospectus, and/or any other appropriate disclosure
document as may be reasonably necessary in the opinion of both counsel for the
Company and counsel for the Representative and Holders, in order to comply with
the provisions of the Act, so as to permit a public offering and sale of their
respective Registrable Securities for nine consecutive months (or such longer
period of time as permitted by the Act) by such Holders and any
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<PAGE> 7
other Holders of any of the Registrable Securities who notify the Company
within ten days after being given notice from the Company of such request (a
"Demand Registration"). A Demand Registration shall not be counted as a Demand
Registration hereunder until such Demand Registration has been declared
effective by the SEC and maintained continuously effective for a period of at
least nine months, subject to reasonable "black-out" periods in which event
such nine months shall be extended by a number of days equal to the duration
and the "black-out" periods, or such shorter period when all Registrable
Securities included therein have been sold in accordance with such Demand
Registration, provided that a Demand Registration shall be counted as a Demand
Registration hereunder if the Company ceases its efforts in respect of such
Demand Registration at the request of the majority Holders making the demand
for a reason other than a material and adverse change in the business, assets,
prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one year after the
Effective Date of the Public Offering, and expiring four years thereafter, the
Holders of any Registrable Securities representing more than 50% of such
securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement or any other appropriate disclosure document so as to
permit a public offering and sale for nine consecutive months (or such longer
period of time as permitted by the Act) by any such Holder of Registrable
Securities; provided, however, that the provisions of Section 7.4(b) shall not
apply to any such registration request and registration and all costs incident
thereto shall be at the expense of the Holder or Holders participating in the
offering pro-rata.
(d) Any written request by the Holders made pursuant to this
Section 7.3 shall:
(i) Specify the number of Registrable Securities which
the Holders intend to offer and sell and the minimum price at which
the Holders intend to offer and sell such securities;
(ii) State the intention of the Holders to offer such
securities for sale;
(iii) Describe the intended method of distribution of such
securities; and
(iv) Contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
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<PAGE> 8
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for
such offering, the Company shall, as soon as practicable, effect such
registration as would permit or facilitate the sale and distribution of the
Registrable Securities as are specified in the request. All expenses incurred
in connection with a registration requested pursuant to this Subsection (e)
shall be borne by the Company. Registrations effected pursuant to this
Subsection (e) shall not be counted as registrations pursuant to Sections 7.3
(a) and 7.3 (c).
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within 45 days of receipt of any demand pursuant to Section 7.3, and
shall use its best efforts to have any such registration statement declared
effective at the earliest practicable time. The Company will promptly notify
each seller of such Registrable Securities, and confirm such advice in writing,
(i) when such registration statement becomes effective, (ii) when any
post-effective amendment to such registration statement becomes effective, and
(iii) of any request by the SEC for any amendment or supplement to such
registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including each preliminary
prospectus and summary prospectus) in conformity with the requirements of the
Act, and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, and fees and reasonable expenses of Holder's counsel (such costs of
counsel not to exceed $10,000)), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) including,
without limitation, the Company's legal and accounting fees, printing expenses,
blue sky fees and expenses. If the Company shall fail to comply with the
provisions of Section 7.3(a), the Company shall, in addition to any other
equitable or other relief available to the Holder, be liable for any or all
special and consequential damages sustained by the Holder requesting
registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be reasonably necessary to keep such
registration statement effective for at least nine months, and to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance with
the intended methods of disposition by the seller or sellers of Registrable
Securities set forth in such registration statement. If at any time the SEC
should
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<PAGE> 9
institute or threaten to institute any proceedings for the purpose of issuing a
stop order suspending the effectiveness of any such registration statement, the
Company will promptly notify each seller of such Registrable Securities and
will use all reasonable efforts to prevent the issuance of any such stop order
or to obtain the withdrawal thereof as soon as possible. The Company will use
its good faith reasonable efforts and take all reasonably necessary action
which may be required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are required by the seller of
such Registrable Securities, provided that the Company shall not be obligated
to execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
The Company shall use its good faith reasonable efforts to cause such
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities of the
United States or any state thereof as may be reasonably necessary to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities.
(d) The Company shall indemnify the Holder of the Registrable
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement but
only to the same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Representative as contained in
the Underwriting Agreement.
(e) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each of the Holders
of the Registrable Securities to be sold pursuant to a registration statement,
and their successors and assigns, shall severally, and not jointly, indemnify
the Company, its officers and directors and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from written information
furnished by such Holder, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with the same
effect as the provisions contained in the Underwriting Agreement pursuant to
which the Representative have agreed to indemnify the Company, except that the
maximum amount which may be recovered from each Holder pursuant to this
paragraph or otherwise shall be limited to the amount of net proceeds received
by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Warrants or Underlying Warrants prior
to the filing of any registration statement or the effectiveness thereof.
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<PAGE> 10
(g) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to Section 7.3 without the prior written consent of
the Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the Underwriting Agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the Underwriting Agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss
the business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times and as often as any such
Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to
Section 7.3, the Company, if requested, shall enter into an Underwriting
Agreement with the managing underwriter, reasonably satisfactory to the
Company, selected for such underwriting by Holders holding a majority of the
Registrable Securities requested to be included in such underwriting. Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders, if required by the underwriter to be parties to any underwriting
agreement relating to an underwritten sale of their Registrable Securities,
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
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(k) Notwithstanding the provisions of Section 7.2 or Section 7.3
of this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to Section 7.2 or Section 7.3
if and to the extent that, within 30 days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holders may otherwise be sold, in the manner proposed by such Holder, without
registration under the Securities Act, or (ii) the SEC shall have issued a
no-action position, in form and substance reasonably satisfactory to counsel
for the Holder requesting registration of such Registrable Securities, to the
effect that the entire number of Registrable Securities proposed to be sold by
such Holder may be sold by it, in the manner proposed by such Holder, without
registration under the Securities Act.
(l) After completion of the Public Offering, the Company shall
not, directly or indirectly, enter into any merger, business combination or
consolidation in which (i) the Company shall not be the surviving corporation
and (ii) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would
be entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within
the definition of "Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassification.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into
a greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the Share Exercise Price, the Underlying Warrant Exercise Price and
the number of Warrants in effect immediately prior to such action shall be
adjusted so that the Holder thereafter upon the exercise hereof shall be
entitled to receive the number and kind of shares of the Company which such
Holder would have owned immediately following such action had this warrant been
exercised immediately prior thereto. An adjustment made pursuant to this
Section shall become effective immediately after the record date in the case of
a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this Section, the Holder
shall become entitled to receive shares of two
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or more classes of capital stock of the Company, the Board of Directors of the
Company (whose determination shall be conclusive) shall determine the
allocation of the adjusted Share Exercise Price and Underlying Warrant Exercise
Price between or among shares of such class of capital stock.
Immediately upon any adjustment of the exercise price of any Warrant
pursuant to this Section, the Company shall send written notice thereof to the
Holder of Warrant Certificates (by first class mail, postage prepaid), which
notice shall state the exercise price of such Warrant resulting from such
adjustment, and any increase or decrease in the number of Warrant Securities to
be acquired upon exercise of the Warrants, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such Warrant might
have been exercised immediately prior to such reorganization, consolidation,
merger, conveyance, sale or transfer. Such supplemental Warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8.1 and such registration rights and other rights as
provided in this Agreement. The Company shall not effect any such
consolidation, merger, or similar transaction as contemplated by this Section
8.2, unless prior to or simultaneously with the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing, receiving, or leasing
such assets or other appropriate corporation or entity shall assume, by written
instrument executed and delivered to the Holders, the obligation to deliver to
the Holders, such shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase, and to
perform the other obligations of the Company under this Agreement. The above
provision of this Subsection shall similarly apply to successive consolidations
or successively whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company
or by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other
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securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such distribution as if the Warrants had
been exercised immediately prior to such distribution. At the time of any such
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this subsection or an adjustment to the
exercise price of such Warrants, which shall be effective as of the day
following the record date for such distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the exercise price of Warrants pursuant to the
provisions of this Article 8, the number of securities issuable upon the
exercise of each Warrant and Underlying Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the exercise price in
effect immediately prior to such adjustment by the number of securities
issuable upon exercise of the Warrants and the Underlying Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
exercise price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the exercise price of any Warrant shall be made if
the amount of said adjustment would be less than $.05 per security; provided,
however, that in any such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least $.05 per security.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Share Exercise
Price, Underlying Warrant Exercise Price or the number of any securities
issuable upon exercise of the Warrants or the Underlying Warrants, the Company,
at its expense, shall cause independent certified public accountants of
recognized standing selected by the Company (who may be the independent
certified public accountants then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to any Holder of the
Warrants or the Underlying Warrants, as the case may be, at the Holder's
address as shown on the Company's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based including, but not limited to, a statement
of (i) the Share Exercise Price or the Underlying Warrant Share Exercise Price
at the time in effect, and (ii) the number of additional securities and the
type and amount, if any, of other property which at the time would be received
upon exercise of the Warrants or Underlying Warrants, as the case may be.
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8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
Share Exercise Price and the number of Underlying Warrant Shares shall be
automatically adjusted in accordance with the Warrant Agreement between the
Company and the Company's transfer agent, upon occurrence of any of the events
relating to adjustments described therein. Thereafter, the Underlying Warrants
shall be exercisable at such adjusted Underlying Warrant Share Exercise Price
for such adjusted number of Underlying Warrant Shares or other securities,
properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding
any fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable
upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants or the Underlying Warrants, and payment of the
exercise price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long
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as the Warrants and Underlying Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants and the Underlying Warrants to be listed and quoted
(subject to official notice of issuance) on all securities exchanges and
systems on which the Common Stock and/or the Public Warrants may then be listed
and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants or the Underlying Warrants the right to vote
or to consent or to receive notice as a stockholder in respect of any meetings
of stockholders, for the election of directors or any other matter, or as
having any rights whatsoever as a stockholder of the Company. If, however, at
any time prior to the expiration of the Warrants and the Underlying Warrants
and their exercise, any of the following events shall occur:
(a) The Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) A dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least 15 days prior to the date fixed as a record date of the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notices shall specify such record date
or the date of closing the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken in connection with the declaration or payment of any such dividend, or
the issuance of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution, liquidation, winding
up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of
the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in the exhibits to the
15
<PAGE> 16
Warrant Agreement. Subject to the terms of this Agreement, one Underlying
Warrant shall evidence the right to initially purchase one fully paid and
nonassessable share of Common Stock at the Warrant IPO Price during the four
year period commencing on the Purchase Date and ending at the Effective Time,
at which time the Underlying Warrants Share shall expire. The Underlying
Warrant Share Exercise Price and the number of Underlying Warrant Shares
issuable upon the exercise of the Underlying Warrants are subject to
adjustment, whether or not the Warrants have been exercised and the Underlying
Warrants have been issued, in the manner and upon the occurrence of the events
set forth in the Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein.
Subject to the provisions of this Agreement and upon issuance of the Underlying
Warrants, each registered holder of such Underlying Warrant shall have the
right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and nonassessable shares of
Common Stock (subject to adjustment as provided in the Warrant Agreement) set
forth in such Warrant Certificate, free and clear of all preemptive rights of
stockholders, provided that such registered Holder complies with the terms
governing exercise of the Underlying Warrant set forth in the Warrant
Agreement, and pays the applicable Underlying Warrant Share Exercise Price,
determined in accordance with the terms of the Warrant Agreement. Upon
exercise of the Underlying Warrants, the Company shall forthwith issue to the
registered holder of any such Underlying Warrant in his name or in such name as
may be directed by him, certificates for the number of shares of Common Stock
so purchased. Except as otherwise provided herein and in this Agreement, the
Underlying Warrants shall be governed in all respects by the terms of the
Warrant Agreement. The Underlying Warrants shall be transferable in the manner
provided in the Warrant Agreement, and upon any such transfer, a new Underlying
Warrant certificate shall be issued promptly to the transferee. The Company
covenants to send to each Holder, irrespective of whether or not the Warrants
have been exercised, any and all notices required by the Warrant Agreement to
be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the Company;
or
(b) If to the Company, to the address set forth below or to such
other address as the Company may designate by notice to the Holders.
PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
Attention: President
16
<PAGE> 17
With a copy to: Jordaan & Pennington
300 Crescent Court, Suite 1670
Dallas, Texas 75201
Attention: Jakes Jordaan
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement
to the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at 5:00 New York time on
_______________, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Texas and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the State District court in Dallas, County,
Texas or the United States District Court for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 14 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim.
17
<PAGE> 18
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder of the Warrant Certificates or Registrable
Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
PAWNMART, INC.
By:
------------------------------------
Carson R. Thompson, Chief Executive
Officer
Attest:
- ------------------------------
, Secretary
FIRST LONDON SECURITIES CORPORATION
By:
------------------------------------
Douglas R. Nichols, President
18
<PAGE> 19
EXHIBIT A
<PAGE> 20
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M, NEW YORK TIME ON DECEMBER 31, 2002
NO. W-______ Series A Underlying
---------- Warrants
Common Stock Series B Warrant
---------- Representative's ---------- Representatives
Warrants Warrants
Series A Warrant Series B Underlying
---------- Representative's ---------- Warrants
Warrants
This Warrant Certificate certifies that ___________________________, or
registered assigns, is the registered holder (the "Holder") of
______________________________ Common Stock Representative's Warrant, __________
Series A Warrant Representative's Warrants, __________ Series A Underlying
Warrants, __________ Series B Warrant Representative's Warrants and __________
Series B Underlying Warrants of Pawn Mart, Inc. (the "Company"). Each Common
Stock Representative's Warrant permits the Holder to purchase initially, at any
time from _______________, 1999 (the "Purchase Date") until 5:00 p.m. New York
Time on _______________, 2003 (the "Expiration Time"), one share of the
Company's Common Stock at the initial exercise price, subject to adjustment in
certain events (the "Share Exercise Price"), of $6.00 per share (120% of the
Common Stock IPO Price). Each Series A Warrant Representative's Warrant permits
the Holder to purchase initially, at any time from the Purchase Date until the
Expiration Time, one Series A Underlying Warrant at the initial exercise price,
subject to adjustment in certain events, of $.15 per Series A Underlying Warrant
(120% of the Warrant IPO Price). Each Series B Warrant Representative Warrant
permits the Holder to purchase initially, at any time from the Purchase Date
<PAGE> 21
until the Expiration Time, one Series B Underlying Warrant at the initial
exercise price, subject to adjustments in certain events, of $.075 per Series B
Underlying Warrant (120% of the Warrant IPO Purchase Price). Each Series A
Underlying Warrant permits the Holder thereof to purchase, at any time from the
Purchase Date until the Expiration Time, one share of the Company's Common
Stock at the initial exercise price, subject to adjustment in certain events,
of $6.00 per share. Each Series B Underlying Warrant permits the Holder
thereof to purchase, at any time from the Purchase Date until the Exercise
Time, one share of the Company Common Stock at the initial exercise price,
subject to adjustment in certain event, of $8.00 per share.
Any exercise of Common Stock Representative's Warrants, Warrant
Representative's Warrants, Series A Underlying Warrants or Series B Underlying
Warrants shall be effected by surrender of this Warrant Certificate and payment
of the exercise price thereof at an office or agency of the Company, but
subject to the conditions set forth herein and in the Representative's Warrant
Agreement dated as of _______________, 1998, between the Company and First
London Securities Corporation (the "Representative's Warrant Agreement").
Payment of the exercise price shall be made by certified check or official bank
check in New York Clearing House funds payable to the order of the Company in
the event there is no cashless exercise pursuant to Section 3.1(b) of the
Representative's Warrant Agreement. The Common Stock Representative's
Warrants, the Warrant Representative's Warrants, and the Series A Underlying
Warrants and Series B Underlying Warrants are collectively referred to as
"Warrants".
No Warrant may be exercised after the Expiration Time, at which time
all Warrants evidenced hereby, unless exercised prior thereto, hereby shall
thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the exercise price, the type and the number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the exercise price
and the number or type of securities, as the case may be, issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Representative's
Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferees in exchange
2
<PAGE> 22
for this Warrant Certificate, subject to the limitations provided herein and in
the Representative's Warrant Agreement, without any charge except for any tax
or other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holder, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _______________, 1998
800 TRAVEL SYSTEMS, INC.
By:
------------------------------------
Carson R. Thompson, Chief Executive
Officer
Attest:
- ------------------------------
, Secretary
3
<PAGE> 23
EXHIBIT 1
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Common Stock Representative's Warrants,
__________ Warrant Representative's Warrants, _______________ Series A
Underlying Warrants and __________ Series B Underlying of PawnMart, Inc. (the
"Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _____________ Shares,
_____________ Series A Underlying Warrants, __________ Series B Underlying
Warrants, and herewith makes payment of $____________ therefor, and requests
that the certificates for such securities be issued in the name of, and
delivered to, ____________ _____________________________ whose address is
____________________________________, all in accordance with the
Representative's Warrant Agreement and the Warrant Certificate.
Dated:
-------------------------
---------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant Certificate)
---------------------------------------
---------------------------------------
(Address)
4
<PAGE> 24
EXHIBIT 2
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ___________ Common Stock Representative's Warrants
_________________ Series A Underlying Warrants and __________ Series B
Underlying Warrants of PawnMart, Inc. (the "Company"), which Warrant is being
delivered herewith, hereby irrevocably elects the cashless exercise of the
purchase right provided by the Representative's Warrant Agreement and the
Warrant Certificate for, and to purchase thereunder, shares of the Company
Common Stock in accordance with the formula provided at Article 3 of the
Representative's Warrant Agreement. The undersigned requests that the
certificates for such shares be issued in the name of, and delivered to,
_______________________________________________________________________________
whose address is, _____________________________________________________________
all in accordance with the Warrant Certificate.
Dated:-------------------------
---------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant Certificate)
---------------------------------------
---------------------------------------
(Address)
5
<PAGE> 25
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
-------------------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
fact of the Warrant Certificate)
---------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
6
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
[C ] PAWNMART, INC. [SHARES]
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $0.01
CUSIP ________
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF
PAWNMART, INC.
(the "Corporation") transferable on the books of the Corporation, in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all of the
provisions of the Certificate of Incorporation of the Corporation and of the amendments thereto, to all of which the holder, by
acceptance hereof, assents. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the
registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
[PAWNMART, INC. CORPORATE SEAL]
By: By:
--------------------- ---------------------
Carson R. Thompson Rick Isbell
Chief Executive Officer Secretary
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, A NEW YORK CORPORATION
Transfer Agent and Registrar
By
Authorized Signature
</TABLE>
<PAGE> 2
The Corporation is authorized to issue more than one class of stock and
more than one series of preferred stock. The Corporation will furnish, upon
request and without charge, a full statement of the designations and the
powers, preferences and rights, and the qualifications, limitations or
restrictions of the shares of each class of stock authorized to be issued by
it, and the variations in the relative rights and preferences between the
shares of each series of any preferred class so far as the same have been fixed
and determined, and the authority of the Board of Directors to fix and
determine the relative rights and preferences of subsequent series of any
preferred class. Such request may be made to the Secretary of the Corporation,
or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
the certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
UNIF GIFT UNIF TRNFR
TEN COM -- as tenants in common MIN ACT -- ________ Custodian __________ MIN ACT -- ________ Custodian ________
TEN ENT -- as tenants by the entireties (Cust) (Minor) (Cust) (Minor)
JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors Under Uniform Transfers to Minors
survivorship and not as tenants Act _________________________ Act _____________________________
in common (State) (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ] ________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated _________________________
X _______________________________________
(SIGNATURE)
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
_______________________________________
(SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
<PAGE> 1
EXHIBIT 4.2
NO. W _____________ VOID AFTER _______________, 2004
_________ WARRANTS
SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
PAWNMART, INC.
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or
registered assigns (the "Registered Holder") is the owner of the number of
Series A Redeemable Common Stock Purchase Warrants (the "Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.01 par value, of PawnMart, Inc., a Delaware
corporation (the "Company"), at any time between _______________, 1999 (the
"Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Election to Purchase on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, a New York corporation,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $6.00 subject to adjustment (the "Purchase Price"), in lawful money
of the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE> 2
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________, 2003. If such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 p.m. (New York time) the next following day which in the State
of New York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate of Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date notice of redemption is mailed equals or exceeds $9.00 per share
(150% of the initial offering price to the public) subject to adjustment under
certain circumstances and provided there is then a current registration
statement under the Securities Act of 1933, as amended, with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
<PAGE> 3
Under certain circumstances, the Representatives (as that term is
defined in the Warrant Agreement) or their designees collectively shall be
entitled upon the exercise or redemption of the Warrants to receive a fee equal
to 5% of the gross proceed received by the Company from the exercise of the
Warrants and 5% of the aggregate redemption for the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________, 1998
PAWNMART, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 4
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
as Warrant Agent
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 5
ELECTION TO PURCHASE
(To be signed only upon exercise of Warrant)
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Series A Warrant Certificate Number
____ (the "Warrant"), representing ______________ Series A Warrants of
PawnMart, Inc. (the "Company"), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to exercise the purchase right provided by
the Warrant Certificate for, and to purchase thereunder, _____________ shares
of Common Stock of the Company, and herewith makes payment of $____________
therefor, and requests that the certificates for such securities be issued in
the name of, and delivered to, _______________________________ whose address is
______________________________, all in accordance with the Warrant Agreement and
the Warrant Certificate.
Dated:
----------------------------
--------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
--------------------------------------
--------------------------------------
(Address)
<PAGE> 6
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if
such holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
- ----------------------- -----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
-----------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
<PAGE> 1
Exhibit 4.3
NO. W __________ VOID AFTER _______________, 2003
_________ WARRANTS
SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
PAWNMART, INC.
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or
registered assigns (the "Registered Holder") is the owner of the number of
Series B Redeemable Common Stock Purchase Warrants (the "Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.01 par value, of PawnMart, Inc., a Delaware
corporation (the "Company"), at any time between _______________, 1999 (the
"Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Election to Purchase on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, a New York corporation,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $8.00 subject to adjustment (the "Purchase Price"), in lawful money
of the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE> 2
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________, 2004. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 p.m. (New York time) the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate of Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date notice of redemption is mailed equals or exceeds $11.00 per share
(150% of the initial offering price to the public) subject to adjustment under
certain circumstances and provided there is then a current registration
statement under the Securities Act of 1933, as amended, with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
<PAGE> 3
Under certain circumstances, the Representatives (as that term is
defined in the Warrant Agreement) or their designees collectively shall be
entitled upon the exercise or redemption of the Warrants to receive a fee equal
to 5% of the gross proceed received by the Company from the exercise of the
Warrants and 5% of the aggregate redemption for the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: , 1998
---------------
PAWNMART, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 4
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
as Warrant Agent
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE> 5
ELECTION TO PURCHASE
(To be signed only upon exercise of Warrant)
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Series B Warrant Certificate Number
____ (the "Warrant"), representing ______________ Series B Warrants of
PawnMart, Inc. (the "Company"), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to exercise the purchase right provided by
the Warrant Certificate for, and to purchase thereunder, _____________ shares
of Common Stock of the Company, and herewith makes payment of $____________
therefor, and requests that the certificates for such securities be issued in
the name of, and delivered to, ________________________________________________
whose address is ____________________________________________, all in accordance
with the Warrant Agreement and the Warrant Certificate.
Dated:
---------------------
----------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
----------------------------------------
----------------------------------------
(Address)
<PAGE> 6
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
____________________ Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, and full power of substitution.
Dated: Signature:
- ----------------------- ----------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
----------------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is made and entered into as of
the 13th day of __________, 1998, by and between PawnMart, Inc., a Delaware
corporation ("Company"), and Continental Stock Transfer & Trust Company, a New
York corporation, as warrant agent ("Warrant Agent").
WHEREAS, the Company proposes to offer and sell a maximum of 1,380,000
shares of common stock ("Common Stock"), $.01 par value per share, (which
includes 180,000 shares of Common Stock pursuant to the Underwriters'
over-allotment option) at a purchase price of $5.00 per share, 1,380,000 Series
A Redeemable Common Stock Purchase Warrants ("Series A Warrants") (which
includes 180,000 Series A Warrants pursuant to the Underwriters' over-allotment
option) at a purchase price of $.125 per Series A Warrant and 180,000 Series B
Redeemable Common Stock Purchase Warrants ("Series B Warrants") (which includes
180,000 Series B Warrants pursuant to the Underwriters' over-allotment option)
at a purchase price of $.0625 per Series B Warrant pursuant to a Registration
Statement on Form SB-2 (the "Prospectus"), File Number 333-38597, filed with
the Securities and Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, exchange and exercise of the
Series A Warrants and Series B Warrants (collectively, the "Warrants");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrants. The text and the terms of the Warrants, and the
form of election to purchase shares of Common Stock appearing on the reverse
side thereof shall be substantially as set forth in Exhibit A attached hereto
and made a part hereof. The Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the Chairman, Vice Chairman of the
Company or President or Chief Executive Officer and by the manual or facsimile
signature of the secretary or assistant secretary of the Company under its
corporate seal, affixed or in facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial
date of issuance thereof, and upon transfer or exchange, the Warrant shall be
dated as of such subsequent issuance date.
<PAGE> 2
The Warrants shall expire at 5:00 p.m. (New York time) on
_______________, 2004. If such date shall, in the State of New York, be a
holiday or a day in which banks are authorized to close, then the Warrants
shall expire the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
3. Registration and Countersignature. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. Upon the initial
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective registered holders, and upon subsequent
issuance, such Warrants shall be registered in the names of the respective
succeeding registered holders. The Warrants shall be countersigned by the
Warrant Agent (or by any successor to the Warrant Agent then acting as warrant
agent under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may be so countersigned, however, by the Warrant Agent
(or by its successor as warrant agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signature appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery. Until a Warrant is
transferred on the books of the Warrant Agent, the Company and the Warrant
Agent may treat any registered holder of Warrants as the absolute owner thereof
for all purposes, notwithstanding any notice to the contrary.
4. Registration of Transfers and Exchanges. The Warrant Agent shall
transfer any outstanding Warrants on the books to be maintained by the Warrant
Agent for that purpose, upon surrender thereof for transfer, properly endorsed
or accompanied by appropriate instructions for transfer with proper documentary
stamps affixed thereto, if requested. Upon any such transfer, a new Warrant
shall be issued to the transferee, and the surrendered Warrant shall be
canceled by the Warrant Agent. Warrants so canceled shall be delivered by the
Warrant Agent to the Company from time to time. Warrants may be exchanged at
the option of the holder thereof when surrendered at the office of the Warrant
Agent, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of shares of Common Stock. The Warrant Agent is hereby irrevocably
authorized to countersign and deliver the Warrants in accordance with the
provisions of this Paragraph 4, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrants duly executed on
behalf of the Company for such purpose.
5. Exercise of Warrants. Subject this Agreement, each registered holder
of Warrants shall have the right, which right may be exercised as in such
Warrants as expressed, to purchase from the Company, and the Company shall
issue and sell to such registered holder of Warrants, the number of fully paid
and nonassessable shares of Common Stock specified in such Warrants, upon
surrender to the Company at the office of the Warrant Agent, with the form of
election to purchase on the reverse side thereof duly completed and signed, and
upon payment to the Warrant Agent for the account of the Company of the
Exercise Price for the number of shares of Common Stock in respect of which
such Warrants are then exercised. Payment of such Exercise Price may be made in
cash or by certified check, bank draft, or postal or express money order,
payable in United States dollars, to the order of the Company. Subject to the
provisions of
2
<PAGE> 3
Paragraph 8 hereof, upon such surrender of Warrants and payment of the Exercise
Price as aforesaid, the Company, acting through the Warrant Agent, shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the registered holder of such Warrants and in such name or names as
such registered holder may designate, a certificate or certificates for the
number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificates shall be deemed to have been issued, and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Common Stock, as of the date of surrender of such Warrants and
payment of the Exercise Price, as aforesaid; provided, however, that if, at the
date of surrender of such Warrants and the payment of such Exercise Price, the
transfer books for the Common Stock purchasable upon the exercise of such
Warrants shall be closed, the certificates for the Common Stock in respect of
which such Warrants are then exercised shall be issuable as of the date on
which such books shall next be opened, and until such date the Company shall be
under no duty to deliver any certificate for such shares; provided further,
however, that the transfer books aforesaid, unless otherwise required by law,
shall not be closed at any one time for a period longer than 20 days. The right
of purchase represented by the Warrants shall be exercisable, at the election
of the registered holders thereof, either as an entirety or, from time to time,
for only part of the Common Stock specified therein, and in the event that any
Warrant is exercised in respect of less than all of the Common Stock specified
therein at any time prior to the date of expiration of the Warrants, a new
Warrant or Warrants will be issued for the remaining number of Common Stock
specified in the Warrant so surrendered, and the Warrant Agent is hereby
irrevocably authorized to countersign and to deliver the required new Warrants
pursuant to the provisions of this Paragraph 5 and of Paragraph 3 of this
Agreement, and the Company, whenever required by the Warrant Agent, will supply
the Warrant Agent with Warrants duly executed on behalf of the Company for such
purposes.
Notwithstanding anything contained herein to the contrary, no Warrant
may be exercised if the issuance of Common Stock in connection therewith would
constitute a violation of the registration provisions of federal or state
securities laws.
Upon 30 days prior written notice to all holders of the Warrants, the
Company shall have the right to reduce the exercise price and/or extend the
term of the Warrants in compliance with the requirements of Rule 13e-4 to the
extent applicable.
The "Exercise Price" of the Warrants shall mean the exercise price
specified in the Warrants until the occurrence of a recapitalization or
reclassification that, pursuant to the provisions hereof, shall require an
increase or decrease in the exercise price of the Warrants, and thereafter
shall mean said price as adjusted from time to time in accordance with the
provisions hereof. No such adjustment shall be made unless such adjustment
would change the then purchase price per share by ten cents ($.10) or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the then purchase price per share by
ten cents ($.10) or more. No adjustment made pursuant to any provision hereof
shall have the effect of increasing the total consideration payable upon
exercise of any of the Warrants.
3
<PAGE> 4
6. Adjustments in Certain Cases. In case the Company shall at any time
prior to the exercise or termination of any of the Warrants effect a
recapitalization or reclassification of such character that its Common Stock
shall be changed into or become exchangeable for a larger or smaller number of
shares, then, upon the effective date thereof, the number of shares of Common
Stock that the holders of the Warrants shall be entitled to purchase upon
exercise thereof shall be increased or decreased, as the case may be, in direct
proportion to the increase or decrease in such number of shares of Common Stock
by reason of such recapitalization or reclassification, and the purchase price
per share of such recapitalized or reclassified Common Stock shall, in the case
of an increase in the number of shares, be proportionately decreased and, in
the case of a decrease in the number of shares, be proportionately increased.
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to holders of its Common Stock
cash, evidences of indebtedness, or other securities or assets, other than as
dividends or distributions payable out of current or accumulated earnings,
then, in any such case, the holders of the Warrants shall be entitled to
receive, upon exercise thereof, with respect to each share of Common Stock
issuable upon such exercise, the amount of cash or evidences of indebtedness or
other securities or assets that such holder would have been entitled to receive
with respect to the Common Stock as a result of the happening of such event,
had the Warrants been exercised immediately prior to the record date or other
date fixing shareholders to be affected by such event (without giving effect to
any restriction upon such exercise).
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants consolidate or merge with any other
corporation or transfer all or substantially all of its assets to any other
corporation preparatory to a dissolution, then the Company shall, as a
condition precedent to such transaction, cause effective provision to be made
so that the holders of the Warrants, upon the exercise thereof after the
effective date of such transaction, shall be entitled to receive the kind and
amount of shares, evidences of indebtedness, and/or other property receivable
on such transaction by a holder of the number of shares of Common Stock as to
which the Warrants were exercisable immediately prior to such transaction
(without giving effect to any restriction upon such exercise); and, in any such
case, appropriate provision shall be made with respect to the rights and
interests of the holders thereof to the effect that the provisions of the
Warrants shall thereafter be applicable (as nearly as may be practicable) with
respect to any shares, evidences of indebtedness, or other securities or assets
thereafter deliverable upon exercise of the Warrants.
Whenever the number of shares of Common Stock or other types of
securities or assets purchasable upon exercise of any of the Warrants shall be
adjusted as provided herein, the Company shall forthwith obtain and file with
its corporate records a certificate or letter from a firm of independent public
accountants of recognized standing setting forth the computation and the
adjusted number of shares of Common Stock or other securities or assets
purchasable hereunder resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to each of the registered holders of the
Warrants. Any such certificate or letter shall be conclusive evidence as to
4
<PAGE> 5
the correctness of the adjustment or adjustments referred to therein and shall
be available for inspection by the holders of the Warrants on any day during
normal business hours.
In the event that at any time as a result of an adjustment made
pursuant hereto the holders of the Warrants shall become entitled to purchase
upon exercise thereof shares, evidences of indebtedness, or other securities or
assets (other than Common Stock), then, wherever appropriate, all references
herein to Common Stock shall be deemed to refer to and include such shares,
evidences of indebtedness, or other securities or assets, and thereafter the
number of such shares, evidences of indebtedness, or other securities or assets
shall be subject to adjustment from time to time in a manner and upon terms as
nearly equivalent as practicable to the provisions hereof.
7. Redemption. The Series A Warrants and Series B Warrants may be
redeemed at the option of the Company, at a redemption price of $.05 per
Warrant, upon not less than 30 days nor more than 60 days prior written notice,
if the closing price of the Common Stock, as reported by the principal exchange
on which the Common Stock is traded, the Nasdaq SmallCap Market or the National
Quotation Bureau, Incorporated, as the case may be, for seven days during any
10 consecutive trading day period ending not more than 15 days prior to the
date the notice of redemption is mailed equals or exceeds $9.00 and $11.00 per
share, respectively, subject to adjustment under certain circumstances and
provided there is a current registration statement under the Securities Act of
1933, as amended, with respect to the issuance and sale of Common Stock upon
the exercise of the Warrants. Any redemption of the Warrants during the
one-year period commencing on _______________, 1999 shall require the written
consent of First London Securities Corporation, a representative of the
Underwriters. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to the Warrants except to receive the $.05
per Warrant upon surrender of this Warrant Certificate.
8. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of securities upon the exercise of
the Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issuance or delivery of any securities in a name other than that of the
registered holder of Warrants in respect of which such securities are issued
and, in such case, neither the Company nor the Warrant Agent shall be required
to issue or deliver any certificate representing such securities or any Warrant
until the person requesting the same has paid to the Company or the Warrant
Agent the amount of such tax or has established to the Company's satisfaction
that such tax has been paid.
9. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Warrant Agent may countersign and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Warrant Agent
of such loss, theft or destruction of such Warrants and indemnity, if
requested, also satisfactory to them. Applicants for such substitute
5
<PAGE> 6
Warrants shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company or the Warrant Agent may prescribe.
10. Reservation of Common Stock. Prior to the issuance of any
Warrants, there shall have been reserved, and the Company shall at all times
keep reserved out of the authorized and unissued Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the Warrants, and the transfer agent for the Common
Stock and every subsequent transfer agent for any of the Company's Common Stock
issuable upon the exercise of any of the rights of purchase aforesaid are
hereby irrevocably authorized and directed at all times to reserve such number
of authorized and unissued Common Stock as shall be requisite for such purpose.
The Company agrees that all Common Stock issued upon exercise of the Warrants
shall be, at the time of delivery of the certificates representing such Common
Stock, validly issued and outstanding, fully paid and non-assessable. The
Company will keep a copy of this Agreement on file with the transfer agent for
the Common Stock and with every subsequent transfer agent for the Company's
Common Stock issuable upon the exercise of the right of purchase represented by
the Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such transfer agent stock certificates required to honor
outstanding Warrants that have been exercised. The Company will supply such
transfer agent with duly executed stock certificates for such purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
canceled by the Warrant Agent and shall thereafter be delivered to the Company,
and such canceled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock that have been issued upon the exercise of such
Warrants. All Warrants surrendered for transfer, exchange or partial exercise
shall be canceled by the Warrant Agent and delivered to the Company. Promptly
after the date of expiration of the Warrants, the Warrant Agent shall certify
to the Company the total aggregate amount of Warrants then outstanding and,
thereafter, no Common Stock shall be subject to reservation in respect of such
Warrants.
11. Disposition of Proceeds on Exercise of Warrants. Unless otherwise
instructed by the Company in writing, the Warrant Agent shall account promptly
to the Company with respect to Warrants exercised and shall promptly deposit in
an account for the benefit of the Company, in a bank designated by the Company,
all moneys received by the Warrant Agent for the purchase of Common Stock
through the exercise of such Warrants.
12. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company that may succeed to the business of the Warrant Agent by
merger or consolidation or otherwise to which the Warrant Agent shall be a
party, or any corporation or company or otherwise succeeding to the business of
the Warrant Agent shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation would be eligible
for appointment as a successor Warrant Agent under the provisions of Paragraph
14 of this Agreement. In case at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement or in case at any time
the name of the Warrant Agent shall be changed, and any of the Warrants shall
have been countersigned but not delivered, any such successor to the Warrant
Agent may adopt the
6
<PAGE> 7
countersignature of the original Warrant Agent and deliver such Warrants so
countersigned; and in case at the time any of the Warrants shall not have been
countersigned, the successor to the Warrant Agent may countersign such
Warrants, either in the name of the predecessor Warrant Agent or in the name of
the successor Warrant Agent; and in all such cases, such Warrants shall have
the full force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so countersigned; and if at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name; and in all such
cases, such Warrants shall have the full force provided in the Warrants and
this Agreement.
13. Duties of the Warrant Agent.
(a) The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company shall be bound:
(i) The statements contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same, except such
as describe the Warrant Agent or action or actions taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants, except as herein otherwise provided.
(ii) The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the covenants contained in
this Agreement or in the Warrants to be complied with by the Company.
(iii) The Warrant Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty hereunder,
either itself, or by or through its attorneys, agents or employees.
(iv) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company), and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or advice of
such counsel, provided the Warrant Agent shall have exercised reasonable care
in the selection and continued employment of such counsel.
(v) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by it to
have been signed, sent or presented by the proper party or parties.
7
<PAGE> 8
(vi) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement; to reimburse the Warrant Agent for all expenses,
taxes, governmental charges and other charges of any kind and nature incurred
by the Warrant Agent in the execution of this Agreement; and to indemnify the
Warrant Agent and save it harmless from and against any and all liabilities,
including judgments, costs and reasonable attorneys' fees for anything done or
omitted by the Warrant Agent in the execution of this Agreement, except as a
result of the Warrant Agent's negligence or bad faith.
(vii) The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding, or to take any other action
likely to involve expense, unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity. All rights of action under this Agreement or under any of the
Warrants or in the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any recovery of
judgment shall be for the benefit of the registered holders of the Warrants, as
their respective rights or interests may appear.
(viii) The Warrant Agent and any shareholder,
director, officer, partner or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(ix) The Warrant Agent shall act hereunder solely as
agent, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything that it may do or refrain from
doing in connection with this Agreement, except for liabilities that arise out
of its negligence or bad faith.
(x) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of the Warrants during normal
business hours at its principal office in New York.
14. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving notice in writing to
the Company and by giving notice by mailing to holders of the Warrants at their
addresses as such addresses appear on the Warrant register of such resignation,
specifying a date when such resignation shall take effect, which date shall not
be less than 30 days after the mailing of said notice. The Warrant Agent may be
removed at the discretion of the Company by like notice to the Warrant Agent
from the Company and by like mailing of notice to the holders of the Warrants.
If the Warrant Agent shall resign or be removed or otherwise become incapable
of acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal, or after it has been notified in writing of such resignation or
incapacity by the resigning or
8
<PAGE> 9
incapacitated Warrant Agent or by the registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company),
then the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. After
appointment, any successor Warrant Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed, but the former Warrant Agent shall
deliver and transfer to the successor Warrant Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance
act or deed necessary for the purpose. Not later than the effective date of any
such appointment, the Company shall give notice thereof to the predecessor
Warrant Agent and each transfer agent for the Common Stock, and shall forthwith
give notice to the holders of the Warrants in the manner prescribed in this
section. Failure to file or mail any notice provided for in this Section 14,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of any
successor Warrant Agent, as the case may be.
15. Identity of Transfer Agent. Forthwith upon the appointment of any
transfer agent other than the Warrant Agent for the Common Stock of the Company
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
16. Notices. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or by the registered holder of any Warrant to the Company
shall be deemed to have been sufficiently given or made if sent by certified
mail, return receipt requested, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as follows:
To the Company: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
Attention: President
To the Warrant Agent: Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Attention: ____________________________
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be deemed to
have been sufficiently given or made if sent by certified mail, return receipt
requested, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as set
forth above.
17. Standard of Conduct. Notwithstanding any implication to the
contrary elsewhere herein, whenever the Company or the Warrant Agent are
required or permitted to make any
9
<PAGE> 10
judgment or to take any action, no such judgment or action shall be made or
taken in bad faith or in any arbitrary or capricious fashion.
18. Supplements and Amendments. The Company and the Warrant Agent may,
from time to time, supplement or amend this Agreement without the approval of
any of the holders of the Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein that may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder that the Company and the
Warrant Agent may deem necessary or desirable, that shall not be inconsistent
with the provisions of the Warrants, and that shall not materially adversely
affect the rights of the holders of the Warrants.
19. Successors. All of the covenants and provisions hereof by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
20. Merger or Consolidation of the Company. The Company will not merge
or consolidate with or into any other corporation, unless the corporation
resulting from such merger or consolidation (if not the Company) shall
expressly assume, by supplemental agreement satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said state.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation, other than the Company, the
Warrant Agent and the registered holders of the Warrants, any legal or
equitable right, remedy or claim under this Agreement, but this Agreement shall
be for the sole and exclusive benefit of the Company and the Warrant Agent and
their respective successors and of the holders of the Warrant Certificates.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
PAWNMART, INC.
By:
--------------------------------------
Its:
-------------------------------------
ATTEST:
- ---------------------------
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:
--------------------------------------
Its:
-------------------------------------
ATTEST:
- ---------------------------
11
<PAGE> 12
EXHIBIT A
<PAGE> 13
NO. W _____________ VOID AFTER _______________, 2004
_________ WARRANTS
SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
PAWNMART, INC.
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or
registered assigns (the "Registered Holder") is the owner of the number of
Series A Redeemable Common Stock Purchase Warrants (the "Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.01 par value, of PawnMart, Inc., a Delaware
corporation (the "Company"), at any time between _______________, 1999 (the
"Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Election to Purchase on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, a New York corporation,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $6.00 subject to adjustment (the "Purchase Price"), in lawful money
of the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
13
<PAGE> 14
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________, 2003. If such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 p.m. (New York time) the next following day which in the State
of New York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate of Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date notice of redemption is mailed equals or exceeds $9.00 per share
(150% of the initial offering price to the public) subject to adjustment under
certain circumstances and provided there is then a current registration
statement under the Securities Act of 1933, as amended, with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
14
<PAGE> 15
Under certain circumstances, the Representatives (as that term is
defined in the Warrant Agreement) or their designees collectively shall be
entitled upon the exercise or redemption of the Warrants to receive a fee equal
to 5% of the gross proceed received by the Company from the exercise of the
Warrants and 5% of the aggregate redemption for the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: , 1998
---------------
PAWNMART, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
15
<PAGE> 16
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
as Warrant Agent
By:
------------------------
Name:
----------------------
Title:
---------------------
16
<PAGE> 17
ELECTION TO PURCHASE
(To be signed only upon exercise of Warrant)
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Series A Warrant Certificate Number____
(the "Warrant"), representing ______________ Series A Warrants of PawnMart,
Inc. (the "Company"), which Warrant Certificate is being delivered herewith,
hereby irrevocably elects to exercise the purchase right provided by the
Warrant Certificate for, and to purchase thereunder, _____________ shares of
Common Stock of the Company, and herewith makes payment of $____________
therefor, and requests that the certificates for such securities be issued in
the name of, and delivered to, _____________ whose address is __________, all
in accordance with the Warrant Agreement and the Warrant Certificate.
Dated:
----------------------------
-----------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------------------
-----------------------------------
(Address)
17
<PAGE> 18
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint______________________________
__________________ Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, and full power of substitution.
Dated: Signature:
- ----------------------- -----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
-----------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
18
<PAGE> 19
NO. W _____________ VOID AFTER _______________, 2003
_________ WARRANTS
SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
PAWNMART, INC.
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or
registered assigns (the "Registered Holder") is the owner of the number of
Series B Redeemable Common Stock Purchase Warrants (the "Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.01 par value, of PawnMart, Inc., a Delaware
corporation (the "Company"), at any time between _______________, 1999 (the
"Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Election to Purchase on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, a New York corporation,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $8.00 subject to adjustment (the "Purchase Price"), in lawful money
of the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
19
<PAGE> 20
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________, 2004. If such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 p.m. (New York time) the next following day which in the State
of New York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate of Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date notice of redemption is mailed equals or exceeds $11.00 per share
(150% of the initial offering price to the public) subject to adjustment under
certain circumstances and provided there is then a current registration
statement under the Securities Act of 1933, as amended, with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
20
<PAGE> 21
Under certain circumstances, the Representatives (as that term is
defined in the Warrant Agreement) or their designees collectively shall be
entitled upon the exercise or redemption of the Warrants to receive a fee equal
to 5% of the gross proceed received by the Company from the exercise of the
Warrants and 5% of the aggregate redemption for the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: , 1998
---------------
PAWNMART, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
By:
---------------------------
Name:
-------------------------
Title:
------------------------
21
<PAGE> 22
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
as Warrant Agent
By:
------------------------
Name:
----------------------
Title:
---------------------
22
<PAGE> 23
ELECTION TO PURCHASE
(To be signed only upon exercise of Warrant)
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Series B Warrant Certificate Number ____
(the "Warrant"), representing ______________ Series B Warrants of PawnMart, Inc.
(the "Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _____________ shares of Common
Stock of the Company, and herewith makes payment of $____________ therefor, and
requests that the certificates for such securities be issued in the name of, and
delivered to _______________, whose address is____________, all in accordance
with the Warrant Agreement and the Warrant Certificate.
Dated:
----------------------------
-----------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------------------
-----------------------------------
(Address)
23
<PAGE> 24
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
___________________ Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, and full power of substitution.
Dated: Signature:
- ----------------------- -----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
-----------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
24
<PAGE> 1
EXHIBIT 5.1
__________________________, 1998
PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
Re: PawnMart, Inc.
Registration Statement on Form SB-2
Registration Number 333-38597
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form SB-2
(the "Registration Statement") filed under the Securities Act of 1933, as
amended (the "1933 Act"), by PawnMart, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission, relating to a proposed
public offering by the Company of up to 1,200,000 shares (the "Shares") of its
Common Stock, par value $.01 per share (the "Common Stock"), 1,200,000 Series A
Redeemable Common Stock Purchase Warrants (the "Series A Warrants") and
1,200,000 Series B Redeemable Common Stock Purchase Warrants (the "Series B
Warrants")(the Series A Warrants and the Series B Warrants, collectively, the
"Warrants") , 1,200,000 shares of Common Stock issuable under the Series A
Warrants (the "Series A Warrant Shares") and 1,200,000 shares of Common Stock
issuable under the Series B Warrants (the "Series B Warrant Shares")(the Series
A Warrant Shares and the Series B Warrant Shares, collectively, the "Warrant
Shares").
Terms used herein that are defined in the Registration Statement and
not otherwise defined herein shall have the meanings ascribed to them in the
Registration Statement.
We have examined the originals or photocopies or certified copies of
such records of the Company, certificates of officers of the Company and public
officials, and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures (except for those of representatives
of the Company), the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
certified copies or photocopies and the authenticity of the originals of such
latter documents.
Based on our examination mentioned above and such other investigation
as we have deemed necessary, we are of the opinion that the Shares and the
Warrants to be sold by the Company (and the Warrant Shares issuable under the
Warrants), each of which is to be sold pursuant to the Registration Statement
and in accordance with the terms of the Underwriting Agreement filed as an
exhibit to the Registration Statement (and, in the case of the Warrant Shares,
which will be issued upon exercise as set forth in the Warrant Agreement filed
as an exhibit to the Registration Statement),
<PAGE> 2
will, upon issuance, assuming payment of the purchase price or exercise price
therefor, as the case may be, and effectiveness of the Registration Statement
(and, in the case of the Warrant Shares, assuming exercise as provided in the
Warrant Agreement), be duly authorized, legally and validly issued, fully-paid
and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the references to our firm under "Legal Matters"
in the related Prospectus. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
JORDAAN & PENNINGTON, PLLC
By:
--------------------------
Jakes Jordaan
<PAGE> 1
INDEMNITY AGREEMENT
AGREEMENT, dated effective as of _________, 199_ by and between
PawnMart, Inc., a Delaware corporation (and with any affiliated entity to which
indemnitee is named, appointed or elected a director, officer or fiduciary, the
"CORPORATION"), and the undersigned ______________________, (collectively with
______________________'s estate, heirs, executors, administrators and other
personal representatives, the "INDEMNITEE").
Indemnitee is a director on the Board of Directors (the "Board") or
officer of the Corporation and in such capacity is performing a valuable
service for Corporation. The stockholders of the Corporation have adopted the
Second Amended and Restated By-laws (the "By-laws") providing for the
indemnification of a director or officer of the Corporation to the maximum
extent authorized by Section 145 of the General Corporation Law of the State of
Delaware (the "State Statute"). Such By-laws and the State Statute
specifically provide that they are not exclusive, and thereby contemplate that
contracts may be entered into between the Corporation and the directors or
officers with respect to indemnification of such directors or officers.
In accordance with the authorization provided by the State Statute,
the Corporation has purchased and presently maintains a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its directors and officers in the
performance of their services for the Corporation. Recent developments with
respect to the terms and availability of D & O Insurance and with respect to
the application, amendment and enforcement of statutory and bylaw
indemnification provisions generally have raised questions concerning the
adequacy and reliability of the protection afforded to directors and officers
thereby.
In order to resolve such questions and thereby induce Indemnitee to
continue to serve as a director or officer of the Corporation, the Corporation
has determined and agreed to enter into this contract with Indemnitee.
In view of the substantial increase in directors' and officers'
litigation costs and risks and the limitations on the availability and coverage
of liability insurance, and in view of the mutual desire of the parties that
the Indemnitee render valuable services to the Corporation as a director or
officer, this Agreement is entered into in order to provide assurance to the
Indemnitee that the Corporation will indemnify the Indemnitee against such
costs and risks to the full extent permitted by the laws of the State of
Delaware. In consideration of Indemnitee's continued service as a director or
officer after the date hereof the parties hereto agree as follows:
1. INDEMNIFICATION
(a) To the full extent permitted by the laws of the State of
Delaware as from time to time in effect, the Corporation, which for
purposes of this Agreement shall mean PawnMart, Inc. and any
affiliated entity to which Indemnitee is named, appointed or elected a
director or officer, whether or not such entity executes this
Agreement or
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<PAGE> 2
an agreement equivalent to this Agreement, the naming, appointing or
electing of Indemnitee as director or officer being deemed equivalent
to execution of this Agreement by such entity, jointly and severally
shall indemnify the Indemnitee against any judgments, penalties,
fines, amounts paid in settlement and Expenses (as hereinafter
defined) incurred in connection with any actual or threatened
Proceeding (as hereinafter defined) to which Indemnitee is a party by
reason of the fact that the Indemnitee then is or was a director or
officer of the Corporation or then serves or has served any other
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity at the request of the Corporation
to the fullest extent permitted by the Corporation's Amended and
Restated Certificate of Incorporation (the "Certificate of
Incorporation"), By-laws and applicable law in effect on the date
hereof and to such greater extent as applicable law may hereafter from
time to time permit and to advance to Indemnitee Expenses incurred in
connection therewith.
(b) "EXPENSES" means all attorneys' fees and expenses, retainers,
court costs, transcript costs, duplicating costs, printing and binding
costs, telephone charges, postage and delivery fees, service fees, all
other costs and expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating or being or preparing to be a witness in a
Proceeding, and per diem payments to Indemnitee in an amount equal to
the last annual base salary amount payable under any employment
agreement between the Corporation and Indemnitee divided by 365 for
each day spent by Indemnitee in connection with prosecuting,
defending, preparing to prosecute or defend, investigating or being or
preparing to be a witness in a Proceeding.
(c) "PROCEEDING" includes, without limitation, any action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other actual, threatened or completed
proceeding, whether civil, criminal, administrative or investigative,
whether by a third party, by or in the right of the Corporation or by
Indemnitee to enforce any rights under this Agreement or otherwise
against the Corporation or its affiliates.
2. MAINTENANCE OF INSURANCE AND SELF INSURANCE
(a) Corporation represents that it presently has in force and
effect policies of D & O Insurance in insurance companies and amounts
as follows (the "Insurance Policies"):
Insurer Policy No. Amount Deductible
------- ---------- ------ ----------
Wm. Rigg Co. 4865860 $1,000,000 limit $150,000
750 N. St. Paul S #1900
Dallas, Texas 75201
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<PAGE> 3
Subject only to the provisions of Section 2(b) hereof,
Corporation hereby agrees that, so long as Indemnitee shall continue
to serve as a director or officer of the Corporation (or shall
continue at the request of the Corporation to serve as a director or
officer of another corporation, partnership, joint venture, trust or
other enterprise) and thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal or investigative
by reason of the fact that Indemnitee was a director or officer of the
Corporation (or served in any said other capacities), the Corporation
will purchase and maintain in effect for the benefit of Indemnitee one
or more valid, binding and enforceable policy or policies of D & O
Insurance providing, in all respects, coverage at least comparable to
that presently provided pursuant to the Insurance Policies.
(b) Corporation shall not be required to maintain said policy or
policies of D & O Insurance in effect if said insurance is not
reasonably available or if, in the reasonable business judgment of the
then directors of Corporation, either (i) the premium cost for such
insurance is substantially disproportionate to the amount of coverage
or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
(c) In the event Corporation does not purchase and maintain in
effect said policy or policies of D & O Insurance pursuant to the
provisions of Section 2(b) hereof, Corporation agrees to hold harmless
and indemnify Indemnitee to the full extent of the coverage which
would otherwise have been provided for the benefit of Indemnitee
pursuant to the Insurance Policies.
3. ADDITIONAL INDEMNITY
Subject only to the exclusions set forth in Section 4 hereof, the
Corporation hereby further agrees to hold harmless and indemnify the
Indemnitee:
(a) Against any and all expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or
in the right of the Corporation) to which Indemnitee is, was or at any
time becomes a party, or is threatened to be made a party, by reason
of the fact that Indemnitee is, was or at any time becomes a director
or officer of Corporation, or is or was serving or at any time serves
at the request of Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise;
and
(b) Otherwise to the fullest extent as may be provided to
Indemnitee by Corporation under the non-exclusivity provisions of
Article X of the Corporation's Certificate of Incorporation and the
State Statute.
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4. LIMITATIONS ON ADDITIONAL INDEMNITY
No indemnity pursuant to Section 3 hereof shall be paid by
Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceed the sum of $1,000 plus the amount of such losses for
which the Indemnitee is indemnified either pursuant to Sections 1 or 2
hereof or pursuant to any D & O Insurance purchased and maintained by
the Corporation;
(b) in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of Corporation pursuant to the provisions
of Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal, state or local statutory
law;
(d) on account of Indemnitee's conduct which is finally adjudged
to have been knowingly fraudulent, deliberately dishonest or willful
misconduct;
(e) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
5. CONTINUATION OF INDEMNITY
All agreements and obligations of Corporation contained herein shall
continue during the period Indemnitee if the director or officer of the
Corporation (or is or was serving at the request of Corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason or the fact
that Indemnitee was a director or Corporation or serving in any other capacity
referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM
Promptly after receipt by Indemnitee of notice of commencement of any
action, suit or proceeding, Indemnitee will, if a claim in respect thereof is
to be made against Corporation under this Agreement, notify Corporation of the
commencement thereof; but the omission so to notify Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as
to which Indemnitee notifies Corporation of the commencement thereof:
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<PAGE> 5
(a) Corporation will be entitled to participate therein at its own
expense; and,
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
satisfactory to Indemnitee. After notice from Corporation to
Indemnitee of its election so to assume the defense thereof,
Corporation will not be liable to Indemnitee under this Agreement for
any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have
the right to employ its counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from
Corporation of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been authorized by Corporation; (ii) Indemnitee shall
have reasonably concluded that there may be a conflict of interest
between Corporation and Indemnitee in the conduct of the defense of
such action or (iii) Corporation shall not in fact have employed
counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel shall be at the expense of the
Corporation. Corporation shall not be entitled to assume the defense
of such action, suit or proceeding brought by or on behalf of
Corporation or as to which Indemnitee shall have made the conclusion
provided from in (ii) above.
(c) Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent. Corporation shall not
settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written
consent. Neither Corporation nor Indemnitee will unreasonably
withhold their consent to any proposed settlement.
7. AUTHORIZATION OF INDEMNIFICATION
(a) Any indemnification under Sections 1, 2 and 3 hereof (unless
ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination (the
"Determination") that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable
standard or conduct set forth in the State Statute. Subject to
Sections 8(e), 8(f) and 10 of this Agreement, the Determination shall
be made (i) by the Board by a majority vote or consent of a quorum
consisting of directors who are not, at the time of the Determination,
parties to the action, suit or proceeding for which indemnification is
sought (the "Proceeding"), or (ii) whether such a quorum is or is not
obtainable, if a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by vote or
consent of the holders of a majority of the outstanding shares of the
Corporation that are entitled to vote generally for the election of
directors and are represented in person or by proxy at a meeting
called for such
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<PAGE> 6
purpose, or (iv) if a quorum cannot be obtained under subdivision (i),
by majority vote or consent of a committee duly designated by the
Board (in which designation directors who are parties may
participate), consisting solely of two or more directors who are not,
at the time of the Determination, parties to the Proceeding.
(b) For purposes of any Determination hereunder, the Indemnitee
shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of
the Corporation, or, with respect to any criminal action or
proceeding, to have had reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of
the Corporation or another enterprise, including financial statements,
or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice
of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or
another enterprise by an independent certified public accountant or by
an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as
used in Section 7(b) shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which the Indemnitee is or was serving at the request of
the Corporation as a director or officer. The provisions of this
Section 7(b) shall not be deemed to be exclusive or to limit in any
way the other circumstances in which the Indemnitee may be deemed to
have met the applicable standard of conduct set forth in the State
Statute.
(c) For purposes of any Determination hereunder, the termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the Indemnitee did not act
in good faith and in a manner which he reasonably believed to be in or
not opposed to be in the best interests of the Corporation , and with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(d) For purposes of any Determination hereunder, the Indemnitee's
conduct with respect to an employee benefit plan for a purpose he
reasonably believed to be in the best interests of the participants in
and beneficiaries of the plan shall be deemed to be conduct that the
Indemnitee reasonably believed to be not opposed to the best interest
of the Corporation.
(e) Notwithstanding any other provision of this Agreement, to the
extent that the Indemnitee has been successful on the merits or
otherwise in defense of any action, suit or proceeding described in
this Agreement, or in defense of any claim, issue or matter herein, he
shall be indemnified against expenses (including attorney's fees)
actually and reasonably incurred by him in connection therewith. For
purposes of this Section 7(e), the term "successful on the merits or
otherwise" shall include, but not
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<PAGE> 7
be limited to, (i) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against
the Indemnitee without any express finding of liability or guilt
against him, or (ii) the expiration of a reasonable period of time
after making any claim or threat of action, suit or proceeding without
the institution of the same and without any promise or payment made to
induce a settlement.
8. PROCEDURES FOR DETERMINATION OF WHETHER STANDARDS HAVE BEEN
SATISFIED
(a) All costs of making the Determination required by Section 7
hereof shall be borne solely by the Corporation, including, but not
limited to, the costs of legal counsel, proxy solicitations and
judicial determination. The Corporation shall also be solely
responsible for paying (i) all reasonable expenses incurred by the
Indemnitee to enforce this Agreement, including, but not limited to,
the costs incurred by the Indemnitee to obtain court-ordered
indemnification pursuant to Section 10 hereof, regardless of the
outcome of any such application or proceeding, and (ii) all costs of
defending any suits or proceedings challenging payments to the
Indemnitee under this Agreement.
(b) The Corporation shall use its best efforts to make the
Determination contemplated by Section 7 hereof promptly. In addition,
the Corporation agrees: (i) if the Determination is to be made by the
Board or a committee thereof, such Determination shall be made not
later than fifteen (15) days after a written request for a
Determination (a "Request") is delivered to the Corporation by the
Indemnitee; (ii) if the Determination is to be made by independent
legal counsel, such Determination shall be made not later than twenty
(20) days after a request is delivered to the Corporation by the
Indemnitee; and (iii) if the Determination is to be made by the
stockholders of the Corporation, such Determination shall be made not
later than ninety (90) days after a request is delivered to the
Corporation by the Indemnitee.
(c) The evaluation as to the reasonableness of expenses incurred
by the Indemnitee for purposes of this Agreement shall be made within
fifteen (15) days of the Indemnitee's delivery to the Corporation of a
Request that includes a reasonable accounting and documentation of
expenses incurred. All expenses shall be considered reasonable for
purposes of this Agreement if the finding contemplated by this Section
8(c) is not made within the prescribed time. Payment shall be made to
the Indemnitee immediately following the determination that the
expenses submitted are reasonable and properly documented.
(d) The Indemnitee and each other stockholder who is party to the
proceeding for which indemnification is sought shall be entitled to
vote on any Determination to be made by the Corporations's
stockholders, including a determination made pursuant to Section 8(e)
hereof. In addition, in connection with each meeting at which a
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<PAGE> 8
stockholder Determination will be made, the Corporation shall solicit
proxies that expressly include a proposal to indemnify the Indemnitee.
The Corporation proxy statement relating to the proposal to indemnify
the Indemnitee shall not include a recommendation against
indemnification.
(e) If a Determination is made by the Board or a committee thereof
that the Indemnitee did not meet the applicable standard of conduct
set forth in the State Statute, upon written request of the Indemnitee
and the Indemnitee's delivery of $500 to the Corporation, the
Corporation shall cause a new Determination to be made by the
Corporation's stockholders at the next regular or special meeting of
Stockholders. Subject or Section 10 hereof, such Determination by the
Corporation's stockholders shall be binding and conclusive for all
purposes of this Agreement.
(f) If, at any time subsequent to the date of this Agreement,
"Continuing Directors" do not constitute a majority of members of the
Board, or there is otherwise a change in control of the Corporation
[as contemplated by item 403(c) of Regulation S-K], then upon the
request of Indemnitee, the Corporation shall cause the Determination
required by Section 7 hereof to be made by independent legal counsel.
The fees and expenses incurred by the independent counsel in making
the Determination shall be borne solely by the Corporation. If such
legal counsel is unwilling and/or unable to make the Determination,
then the Corporation shall cause the Determination to be made by a
majority vote or consent of a Board committee consisting solely of
Continuing Directors. For purposes of this Agreement, a "Continuing
Director" means either a member of the Board at the date of this
Agreement or a person nominated to serve as a member of the Board by a
majority of the then Continuing Directors.
(g) The Corporation shall afford to the Indemnitee and his
representative ample opportunity to present evidence of the facts upon
which the Indemnitee relies for indemnification, together with other
information relating to any requested Determination. The Corporation
shall also afford the Indemnitee the reasonable opportunity to include
such evidence and information in any Corporation proxy statement
relating to a stockholder Determination.
9. PAYMENT OF EXPENSES
(a) Expenses (including attorneys' fees) incurred by the
Indemnitee in defending any action, suit or proceeding described in
this Agreement shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding. The Corporation
shall promptly pay the amount of such expenses to the Indemnitee, but
in no event later than fifteen (15) days following the Indemnitee's
delivery to the Corporation of a written request for payment pursuant
to this Section 9, together with a reasonable accounting of such
expenses.
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<PAGE> 9
(b) Indemnitee agrees that Indemnitee will reimburse Corporation
for all reasonable expenses paid by the Corporation in defending any
civil or criminal action, suit or proceeding against Indemnitee in the
event and only to the extent that it shall be ultimately determined
that Indemnitee is not entitled to be indemnified by Corporation for
such expenses under the provisions of the State Statute, By-laws, this
Agreement or otherwise.
(c) The Corporation shall pay the expenses contemplated by this
Section 9 regardless of the Indemnitee's financial ability to make
repayment, and regardless whether indemnification of the Indemnitee by
the Corporation will ultimately be required. Any payments and
undertakings to repay pursuant to this Section 9 shall be unsecured
and interest-free.
10. COURT-ORDERED INDEMNIFICATION
Regardless whether the Indemnitee has met the standard of conduct set
forth herein, and notwithstanding the presence or absence of any Determination
whether such standards have been satisfied, the Indemnitee may apply for
indemnification to the court conducting any proceeding to which the Indemnitee
is a party or to any other court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification if it determines that Indemnitee is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances (including this Agreement).
11. ENFORCEMENT
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on
Corporation hereby in order to induce Indemnitee to continue as a
director or officer of Corporation, and acknowledges that Indemnitee
is relying upon this Agreement in continuing in such capacity. The
Corporation shall cooperate in good faith with the Indemnitee and use
its best efforts to insure that the Indemnitee is indemnified for
liabilities described herein to the fullest extent permitted by law.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is
successful in such action, Corporation shall reimburse Indemnitee for
all of Indemnitee's reasonable fees and expenses in bringing and
pursuing such action.
12. SEPARABILITY
Each of the provisions of this Agreement is a separate and distinct
agreement and independent of the others, so that if any provision hereof shall
be held to be invalid or unenforceable for any
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<PAGE> 10
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
13. NON-EXCLUSIVITY
The rights of indemnification and insurance provided in this Agreement
shall be in addition to any rights to which the Indemnitee may otherwise be
entitled by statute, bylaw, agreement, vote of stockholders or otherwise.
14. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnitee and upon
Corporation, its successors and assigns, and shall inure to the
benefit of Indemnitee, his heirs, personal representatives and assigns
and to the benefit of Corporation, its successors and assigns.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both
parties hereto.
15. EFFECTIVE DATE
The provisions of this Agreement shall cover claims, actions, sits and
proceedings whether now pending or hereafter commenced and shall be retroactive
to cover acts or omissions or alleged acts or omissions which heretofore have
taken place. By way of example but not of limitation, this Agreement shall
apply to all liabilities, known or unknown, contingent or otherwise, that
presently exist or arise in the future, regardless whether the liabilities
relate to activities of the Indemnitee and/or the Corporation preceding or
subsequent to the date of this Agreement.
16. VOLUNTARY PROCEEDINGS
Notwithstanding anything in this Agreement to the contrary, prior to a
Change in Control, the Indemnitee shall not be entitled to indemnification or
any advance pursuant to this Agreement in connection with any claim, action, or
proceeding initiated by the Indemnitee against the Corporation or any director
or officer of the Corporation except to enforce Indemnitee's rights under this
Agreement or any other written agreement between Indemnitee and the Corporation
unless the institution of such claim, action or proceeding was authorized prior
to its commencement by a majority vote of the Board of Directors or the
Indemnitee is successful, in whole or in part, on the merits in such claim,
action or proceeding.
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<PAGE> 11
17. SURVIVAL CLAUSE
The Corporation acknowledges that, in providing services to the
Corporation, the Indemnitee is relying on this Agreement. Accordingly, the
Corporation agrees that its obligations hereunder will survive (i) any actual
or purported termination of this Agreement by the Corporation or its successors
or assigns whether by operation or law or otherwise, (ii) any change in the
Corporation's Certificate of Incorporation or By-laws and (iii) termination of
the Indemnitee's services to the Corporation (whether such services were
terminated by the Corporation or the Indemnitee), whether or not a claim is
made or an action or proceeding is threatened or commenced before or after the
actual or purported termination of this Agreement, change in the certificate of
incorporation or by-laws or termination of the Indemnitee's services.
18. SUCCESSORS AND ASSIGNS OF THE CORPORATION
This Agreement shall be binding on the successors and assigns of the
Corporation whether by operation of law or otherwise.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
effective as of the date first above written.
PAWNMART, INC.
By:
-----------------------------------
Title:
--------------------------------
INDEMNITEE
By:
-----------------------------------
Name:
--------------------------------
11
<PAGE> 1
EXHIBIT 10.3
1997 PAWNMART, INC.
DIRECTOR STOCK OPTION PLAN
WHEREAS, effective October 16, 1997, the PCI Capital
Corporation 1997 Stock Option Plan for Directors ("Original Plan") was
approved by the Board of Directors and stockholders of PCI Capital
Corporation (the "Company");
WHEREAS, no options have been granted pursuant to the Original
Plan;
WHEREAS, PCI Capital Corporation has changed its name to
"PawnMart, Inc.";
WHEREAS, effective January 23, 1998, the stockholders of the
Company approved a 1-for-1.5163715 reverse stock split of the
Company's issued and outstanding shares of Common Stock on a basis of
one (1) new share for each 1.5163715 shares then outstanding; and
WHEREAS, the Administrative Committee (as defined in the
Original Plan) has amended and restated the Original Plan in its
entirety as follows:
1. Purpose of Plan. This 1997 PawnMart, Inc. Director Stock
Option Plan (the "Plan") is intended to encourage ownership of the common stock
of PawnMart, Inc. (the "Company") by Outside Directors (as hereinafter defined)
of the Company or any Subsidiary or Subsidiaries of the Company (as hereinafter
defined) in order to provide additional incentive for such persons to promote
the success and the business of the Company or its Subsidiaries and to
encourage them to become and remain an Outside Director of the Company or its
Subsidiaries by providing such persons an opportunity to benefit from any
appreciation of the common stock of the Company through the issuance of stock
options to such persons in accordance with the terms of the Plan. It is further
intended that options granted pursuant to this Plan shall constitute
nonqualified stock options (the "Options") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). As used herein the
term "Subsidiary" or "Subsidiaries" shall mean any corporation (other than the
employer corporation) in an unbroken chain of corporations beginning with the
employer corporation if, at the time of granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
2. Stock Subject to the Plan. Subject to adjustment as provided in
Section 9 hereof, there will be reserved for the use upon the exercise of
Options to be granted from time to time under the Plan, an aggregate of 263,788
shares of the common stock, $0.01 par value, of the Company (the "Common
Stock"), which shares in whole or in part shall be authorized, but unissued,
shares of the Common Stock or issued shares of Common Stock which shall have
been determined from time to time by the Board of Directors. To determine the
number of shares of Common Stock available at any time for the granting of
Options under the Plan there shall be deducted from the total number of reserved
shares of Common Stock, the number of shares of Common Stock with respect to
which Options have been granted pursuant to the Plan which remain outstanding
or which have been exercised. If and to the extent that any Option to purchase
reserved shares shall not be exercised by the optionee for any reason or if
such Option to purchase shall terminate as provided herein, such shares which
have not been so purchased hereunder shall again become available for the
purposes of the Plan unless the Plan shall have been terminated, but such
unpurchased shares shall not be deemed to increase the aggregate number of
shares specified above to be reserved for purposes of the Plan (subject to
adjustment as provided in Section 9 hereof).
The Company shall not be required upon the exercise of any Option to
issue or deliver any shares of stock prior to the completion of such
registration or other qualification of such shares under any State or Federal
law, rule or regulation as the Company shall determine to be necessary or
desirable.
3. Administration of the Plan.
(a) General. The Plan shall be administered by a committee
(the "Administrative Committee")
DIRECTOR STOCK OPTION PLAN - Page 1
<PAGE> 2
appointed by the Board of Directors of the Company, which
Administrative Committee shall consist of not less than two (2)
members of the Board of Directors who are not eligible to participate
in the Plan, and have not, for a period of at least one (1) year prior
thereto been eligible to participate in the Plan, except that if at
any time there shall be less than two (2) directors who are qualified
to serve on the Administrative Committee, then the Plan shall be
administered by the full Board of Directors. All references in this
Plan to the Administrative Committee shall be deemed to refer instead
to the full Board of Directors at any time there is not a committee of
two (2) members qualified to act hereunder. The Board of Directors may
from time to time appoint members of the Administrative Committee in
substitution for or in addition to members previously appointed and
may fill vacancies, however caused, in the Administrative Committee.
If the Board of Directors does not designate a Chairman of the
Committee, the Committee shall select one of its members as its
Chairman and shall hold its meetings at such times and places as it
shall deem advisable. A majority of its members shall constitute a
quorum. All action of the Administrative Committee shall be taken by a
majority vote of its members. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be deemed fully as effective as if it had been taken by a vote of the
members present in person at the meeting duly called and held. The
Administrative Committee may appoint a Secretary, shall keep minutes
of its meetings, and shall make such rules and regulations for the
conduct of its business as it shall deem advisable.
The Administrative Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan,
to construe the Plan and option agreements granted hereunder, and to
adopt, prescribe, amend, and rescind rules and regulations relating to
the Plan, and to make all determinations necessary or advisable for
administering the Plan, including, but not limited to, (i) which
Outside Director shall be granted Options under the Plan, (ii) the
term of each Option, (iii) the number of shares covered by such
Option, (iv) the exercise price for the purchase of the shares of the
Common Stock covered by the Option, (v) the period during which the
Option may be exercised, (vi) whether the right to purchase the number
of shares covered by the Option shall be fully vested on issuance of
the Option so that such shares may be purchased in full at one time or
whether the right to purchase such shares shall become vested over a
period of time so that such shares may only be purchased in
installments, and (vii) the time or times at which Options shall be
granted. The Administrative Committee's determinations under the Plan,
including the above enumerated determinations, need not be uniform and
may be made by it selectively among the persons who receive, or are
eligible to receive, Options under the Plan, whether or not such
persons are similarly situated. The interpretation and construction by
the Administrative Committee of any provision of the Plan or of any
Option granted hereunder shall be final and conclusive, unless
otherwise determined by the Board of Directors. No member of the Board
of Directors or the Administrative Committee shall be liable for any
action or determination made in good faith with respect to the Plan or
any Option granted under it. Upon issuing an Option under the Plan,
the Administrative Committee shall report to the Board of Directors
the name of the person granted the Option, the number of shares of
Common Stock covered by the Option, and the terms and conditions of
such Option.
(b) Changes in Law Applicable. If the laws relating to
nonqualified stock options are changed, altered or amended during the
term of the Plan, the Board of Directors shall have full authority and
power to alter or amend the Plan with respect to Options to conform to
such changes in the law without the necessity of obtaining further
stockholder approval, unless such changes require such approval.
4. Outside Directors to Whom Options Shall Be Granted. Options shall
be granted only to Outside Directors. As used herein, the term "Outside
Directors" shall mean only those directors of the Company or any Subsidiary of
the Company who are not regular salaried employees of either the Company or a
Subsidiary as of the date an Option is granted. The determination of the
Committee shall be conclusive as to the eligibility of any director to
participate in the Plan.
5. Granting Options. Eligible Directors automatically receive an
initial grant of options to purchase 25,000 shares of Common Stock upon their
appointment to the Board of Directors, beginning with the 1998 Annual
Stockholders Meeting, and annual grants of options to purchase the lesser of
20,000 shares of Common Stock or
DIRECTOR STOCK OPTION PLAN - Page 2
<PAGE> 3
$200,000 in face value of underlying Common Stock as of the date following each
annual meeting of the Company's stockholders.
6. Terms and Conditions of Options. All Options granted pursuant to
this Plan must be granted within ten (10) years from the date the Plan is
adopted by the Board of Directors of the Company. Each Option Agreement
governing an Option granted hereunder shall be subject to at least the
following terms and conditions, and shall contain such other terms and
conditions, not inconsistent therewith, that the Committee shall deem
appropriate:
(a) Number of Shares. Each Option shall state the number of
shares of Common Stock which it represents.
(b) Option Period.
(1) General. Each Option shall state the date upon
which it is granted. Each Option shall be exercisable in whole
or in part during such period as is provided under the terms
of the Option subject to any vesting period set forth in the
Option, but in no event shall an Option be exercisable either
in whole or in part after the expiration of ten (10) years
from the date of grant.
(2) Termination of Status as Outside Director. In the
event an optionee's status as an Outside Director is
terminated for any reason, other than the death of such
optionee or a Change of Control (as hereinafter defined) prior
to the full exercise of the Option, such optionee may exercise
his Option at any time within ninety (90) days after such
termination to the extent he was entitled to exercise such
option at the date such optionee's status as an Outside
Director terminated; provided, however, that no Option shall
be exercisable after the expiration of ten (10) years from the
date it is granted.
(3) Death. If an optionee dies while an Outside
Director of the Company or Subsidiary and shall not have fully
exercised Options granted pursuant to the Plan, such Options
may be exercised in whole or in part at any time within six
(6) months after the optionee's death, by the executors or
administrators of the optionee's estate or by any person or
persons who shall have acquired the Options directly from the
optionee by bequest or inheritance, but only to the extent
that the Outside Director was entitled to exercise such Option
at the date of such optionee's death, subject to the condition
that no Option shall be exercisable after the expiration of
ten (10) years from the date it is granted.
(4) Acceleration and Exercise Upon Change of Control.
Notwithstanding the preceding provisions of this Section 6(b),
if any Option granted under the Plan provides for either (a)
an incremental vesting period whereby such Option may only be
exercised in installments as each such incremental vesting
period is satisfied or (b) a delayed vesting period whereby
such Option may only be exercised after the lapse of a
specified period of time, such as after the expiration of one
(1) year, such vesting period shall be accelerated upon the
occurrence of a Change of Control of the Company so that such
Option shall thereupon become exercisable immediately in part
or in its entirety by the holder thereof, as such holder shall
elect, subject to the condition that no Option shall be
exercisable after the expiration of ten (10) years from the
date it is granted. For the purposes of this Plan, a "Change
of Control" shall be deemed to have occurred if:
(i) Any "person", including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange
Act of 1934 (the "Exchange Act") and the Rules and Regulations
promulgated thereunder, is or becomes, through one or a series
of related transactions or through one or more intermediaries,
the beneficial owner, directly or indirectly, of securities of
the Company representing 25% or more of the combined voting
powers of the Company's then outstanding securities, other
than a person who is such a beneficial owner on the effective
date of the Plan and any affiliate of such person;
DIRECTOR STOCK OPTION PLAN - Page 3
<PAGE> 4
(ii) As a result of, or in connection with, any
tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "Transaction"),
the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board
of Directors of the Company or any successor to the Company;
(iii) Following the effective date of the Plan, the
Company is merged or consolidated with another corporation and
as a result of such merger or consolidation less than 40% of
the outstanding voting securities of the surviving or
resulting corporation shall then be owned in the aggregate by
the former stockholders of the Company, other than (x) any
party to such merger or consolidation, or (y) any affiliates
of any such party;
(iv) A tender offer or exchange offer is made and
consummated for the ownership of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding voting securities; or
(v) The Company transfers more than 50% of its
assets, or the last of a series of transfers result in the
transfer of more than 50% of the assets of the Company, to
another corporation that is not a wholly-owned corporation of
the Company. For purposes of this subsection 6(b)(4)(v), the
determination of what constitutes more than 50% of the assets
of the Company shall be determined based on the sum of the
values attributed to (i) the Company's real properties as
determined by an independent appraisal thereof and (ii) the
net book value of all other assets of the Company, each taken
as of the date of the Transaction involved.
In addition, upon a Change of Control, any Options
previously granted under the Plan may be exercised to the
extent not already exercised either immediately or at any time
during the term of the Option as such holder shall elect.
(c) Option Prices. The purchase price or prices of
the shares of the Common Stock of the Company which shall be
offered to any Outside Director under the Plan and covered by
each Option shall be one hundred percent (100%) of the fair
market value of the Common Stock at the time of granting the
Option or such higher purchase price as may be determined by
the Committee at the time of granting the Option. During such
time as the Common Stock of the Company is not listed upon an
established stock exchange, the fair market value per share
shall be deemed to be the closing sales price of the Common
Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on the day the Option is
granted, as reported by NASDAQ, if the Common Stock is so
quoted, and if not so quoted, the mean between dealer "bid"
and "ask" prices of the Common Stock in the New York
over-the-counter market on the day the Option is granted, as
reported by the National Association of Securities Dealers,
Inc. If the Common Stock is listed upon an established stock
exchange or exchanges, such fair market value shall be deemed
to be the highest closing price of the Common Stock on such
stock exchange or exchanges on the day the Option is granted
or, if no sale of the Common Stock of the Company shall have
been made on any stock exchange on such day, on the next
preceding day on which there was a sale of such stock. If
there is no market price for the Common Stock, then the Board
of Directors and the Committee may, after taking all relevant
facts into consideration, determine the fair market value of
the Common Stock.
(d) Exercise of Options. To the extent that a holder
of an Option has a current right to exercise, the Option may
be exercised from time to time by written notice to the
Company at its principal place of business. Such notice shall
state the election to exercise the Option, the number of
shares in respect of which it is being exercised, shall be
signed by the person or persons so exercising the Option, and
shall contain any investment representation required by
Section 10 hereof. Such notice shall be accompanied by
payment of the full purchase price of such shares and
DIRECTOR STOCK OPTION PLAN - Page 4
<PAGE> 5
by the Option Agreement evidencing the Option. In addition, if
the Option shall be exercised, pursuant to Section 6(b)(3)
hereof, by any person or persons other than the optionee, such
notice shall also be accompanied by appropriate proof of the
right of such person or persons to exercise the Option. The
Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the
aforesaid notice and payment of such shares shall be received.
The certificate or certificates for the shares as to which the
Option shall have been so exercised shall be registered in the
name of the person or persons so exercising the Option. In the
event the Option shall not be exercised in full, the Secretary
of the Company shall endorse or cause to be endorsed on the
Option the number of shares which has been exercised
thereunder and the number of shares that remain exercisable
under the Option and return such Option Agreement to the
holder thereof.
(e) Nontransferability of Options. An Option granted
pursuant to the Plan shall be exercisable only by the optionee
during his or her lifetime and shall not be assignable or
transferable by him or her otherwise than by Will or the laws
of descent and distribution. An Option granted pursuant to the
Plan shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise other than by Will
or the laws of descent and distribution) and shall not be
subject to execution, attachment, or similar process. Any
attempted transfer, assignment, pledge, hypothecation, or
other disposition of any Option or of any rights granted
thereunder contrary to the foregoing provisions of this
Section 6(e), or the levy of any attachment or similar process
upon an Option or such rights, shall be null and void.
(f) Compliance with Securities Laws. The Plan and the
grant and exercise of the rights to purchase shares hereunder,
and the Company's obligations to sell and deliver shares upon
the exercise of rights to purchase shares, shall be subject to
all applicable federal and state laws, rules and regulations,
and to such approvals by any regulatory or governmental agency
as may, in the opinion of counsel for the Company, be
required, and shall also be subject to all applicable rules
and regulations of any stock exchange upon which the Common
Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee
to execute any documents or take any action which may be then
necessary to comply with the Securities Act of 1933, as
amended (the "Securities Act") and the rules and regulations
promulgated thereunder, or any other applicable federal or
state laws regulating the sale and issuance of securities; and
the Company may, if it deems necessary, include provisions in
the stock option agreements to assure such compliance. The
Company may, from time to time, change its requirements with
respect to enforcing compliance with federal and state
securities laws including the request for and enforcement of
agreements of investment intent, such requirements to be
determined by the Company in its judgment as necessary to
assure compliance with such laws. Such changes may be made
with respect to any particular Option or stock issued upon
exercise thereof. Without limiting the generality of the
foregoing, if the Common Stock issuable upon exercise of an
Option granted under the Plan is not registered under the
Securities Act, the Company at the time of exercise will
require that the registered owner execute and deliver an
investment representation agreement to the Company in form
acceptable to the Company and its counsel, and the Company
will place a legend on the certificate evidencing such Common
Stock restricting the transfer thereof, which legend shall be
substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT
BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME
DIRECTOR STOCK OPTION PLAN - Page 5
<PAGE> 6
EFFECTIVE WITH REGARD THERETO, OR (ii) THE COMPANY
SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY AND ITS COUNSEL THAT REGISTRATION
UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED OFFER, SALE OR TRANSFER.
(g) Additional Provisions. The option agreements
authorized under the Plan shall contain such other provisions
as the Committee shall deem advisable, including, without
limitation, restrictions upon the exercise of the Option.
7. Medium and Time of Payment. The purchase price of the shares of the
Common Stock as to which any Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of such Option, (ii) by tendering to
the Company shares of the Company's Common Stock having a fair market value
equal to the purchase price for the number of shares of Common Stock purchased,
or (iii) partly in cash and partly in shares of the Company's Common Stock
valued at fair market value as of the date of receipt of such shares by the
Company. Cash payment for the shares of the Common Stock purchased upon
exercise of the Option shall be in the form of either a cashier's check,
certified check or money order. Personal checks may be submitted, but will not
be considered as payment for the shares of the Common Stock purchased and no
certificates for such shares will be issued until the personal check clears in
normal banking channels. If a personal check is not paid upon presentment by
the Company, then the attempted exercise of the Option will be null and void.
In the event the optionee tenders shares of the Company's Common Stock in full
or partial payment for the shares being purchased pursuant to the Option, the
shares of Common Stock so tendered shall be accompanied by fully executed stock
powers endorsed in favor of the Company with the signature on such stock power
being guaranteed. If an optionee tenders shares, such optionee assumes sole and
full responsibility for the tax consequences, if any, to such optionee arising
therefrom.
8. Rights as a Stockholder. The holder of an Option shall have no
rights as a stockholder of the Company with respect to the shares covered by the
Option until the due exercise of the Option and the date of issuance of one or
more stock certificates to such holder for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 9 hereof.
9. Adjustments on Changes in Capitalization or Reorganization.
(a) Changes in Capitalization. Subject to any required action
by the Stockholders of the Company, the number of shares of Common
Stock covered by the Plan, the number of shares of Common Stock
covered by each outstanding Option, and the exercise price per share
specified in each such Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a subdivision or consolidation of
shares or the payment of a stock dividend (but only on the Common
Stock) or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Company after the
date the Option is granted, so that upon exercise of the Option, the
optionee shall receive the same number of shares the optionee would
have received had the optionee been the holder of all shares subject
to such optionee's outstanding Option immediately before the effective
date of such change in the number of issued shares of the Common Stock
of the Company.
(b) Reorganization. Dissolution or Liquidation. Subject to any
required action by the Stockholders of the Company, if the Company
shall be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain to and apply to the securities
to which a holder of the number of shares of Common Stock subject to
the Option would have been entitled. A dissolution or liquidation of
the Company or a merger or consolidation in which the Company is not
the surviving corporation, shall cause each outstanding Option to
terminate as of a date to be fixed by the Committee (which date shall
be as of or prior to the effective date of any such dissolution or
liquidation or merger or consolidation); provided, that not
DIRECTOR STOCK OPTION PLAN - Page 6
<PAGE> 7
less than thirty (30) days written notice of the date so fixed as such
termination date shall be given to each optionee, and each optionee
shall, in such event, have the right, during such period of thirty
(30) days preceding such termination date, to exercise such optionee's
Option in whole or in part in the manner herein set forth.
(c) Change in Par Value. In the event of a change in the
Common Stock of the Company as presently constituted, which change is
limited to a change of all of its authorized shares with par value
into the same number of shares with a different par value or without
par value, the shares resulting from any change shall be deemed to be
the Common Stock within the meaning of the Plan.
(d) Notice of Adjustments. To the extent that the adjustments
set forth in the foregoing paragraphs of this Section 9 relate to
stock or securities of the Company, such adjustments, if any, shall be
made by the Committee, whose determination in that respect shall be
final, binding and conclusive. The Company shall give timely notice of
any adjustments made to each holder of an Option under this Plan and
such adjustments shall be effective and binding on the optionee.
(e) Effect Upon Holder of Option. Except as hereinbefore
expressly provided in this Section 9, the holder of an Option shall
have no rights by reason of any subdivision or consolidation of shares
of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any
class by reason of any dissolution, liquidation, merger,
reorganization, or consolidation, or spin-off of assets or stock of
another corporation, and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock
subject to the Option. Without limiting the generality of the
foregoing, no adjustment shall be made with respect to the number or
price of shares subject to any Option granted hereunder upon the
occurrence of any of the following events:
(1) The grant or exercise of any other options which
may be granted or exercised under any qualified or
nonqualified stock option plan or under any other employee
benefit plan of the Company whether or not such options were
outstanding on the date of grant of the Option or thereafter
granted;
(2) The sale of any shares of Common Stock in the
Company's initial or any subsequent public offering,
including, without limitation, shares sold upon the exercise
of any over-allotment option granted to the underwriter in
connection with such offering;
(3) The issuance, sale or exercise of any warrants to
purchase shares of Common Stock whether or not such warrants
were outstanding on the date of grant of the Option or
thereafter issued;
(4) The issuance or sale of rights, promissory notes
or other securities convertible into shares of Common Stock in
accordance with the terms of such securities (" Convertible
Securities") whether or not such Convertible Securities were
outstanding on the date of grant of the Option or were
thereafter issued or sold;
(5) The issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether
or not any adjustment in the purchase price was made or
required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of grant of the Option
or were thereafter issued or sold; or
(6) Upon any amendment to or change in the terms of
any rights or warrants to subscribe for or purchase, or
options for the purchase of, Common Stock or Convertible
Securities or in the terms of any Convertible Securities,
including, but not limited to, any extension of any expiration
date of any such right, warrant or option, any change in any
exercise or purchase price provided for
DIRECTOR STOCK OPTION PLAN - Page 7
<PAGE> 8
in any such right, warrant or option, any extension of any
date through which any Convertible Securities are convertible
into or exchangeable for Common Stock or any change in the
rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock.
(f) Right of Company to Make Adjustments. The grant of an
Option pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to
merge or to consolidate or to dissolve, liquidate or sell, or transfer
all or any part of its business or assets.
10. Investment Purpose. Each Option under the Plan shall be granted on
the condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to the sale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such
condition is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
11. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.
12. Modification, Extension, and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Committee and
the Board of Directors may modify, extend or renew outstanding Options granted
under the Plan, or accept the surrender of outstanding Options (to the extent
not theretofore exercised). Neither the Committee nor the Board of Directors
shall, however, modify any outstanding Options so as to specify a lower price
or accept the surrender of outstanding Options and authorize the granting of
new Options in substitution therefor specifying a lower price. Notwithstanding
the foregoing, however, no modification of an Option shall, without the consent
of the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the effective on the date of execution hereof, which
is the date the Board of Directors approved and adopted the Plan (the
"Effective Date"); provided, however, if the Stockholders of the Company shall
not have approved the Plan by the requisite vote of the Stockholders, within
twelve (12) months after the Effective Date, then the Plan shall terminate and
all Options theretofore granted under the Plan shall terminate and be null and
void.
14. Termination of the Plan. This Plan shall terminate as of the
expiration of six (6) years from the date of execution hereof, which date of
execution is the date the Plan was approved and adopted by the Board of
Directors of the Company. Options may be granted under this Plan at any time
and from time to time prior to its termination. Any Option outstanding under
the Plan at the time of its termination shall remain in effect until the Option
shall have been exercised or shall have expired.
15. Amendment of the Plan. The Plan may be terminated at any time by
the Board of Directors of the Company. The Board of Directors may at any time
and from time to time, without obtaining the approval of the Stockholders of the
Company, modify or amend the Plan (including the form of Option Agreement as
hereinabove mentioned) in such respects as it shall deem advisable to conform to
any change in the law, or in any other respect which shall not change: (a) the
maximum number of shares for which Options may be granted under the Plan, except
as provided in Section 6 hereof; or (b) the option prices other than to change
the manner of determining the fair market value of the Common Stock for the
purpose of Section 6(c) hereof to conform with any then applicable laws or
regulations thereunder; or (c) the periods during which Options may be granted
or exercised; or (d) the provisions relating to the determination of persons to
whom Options shall be granted and the number of shares to be covered by such
Options; or (e) the provisions relating to adjustments to be made upon changes
in capitalization. The termination or any modification or amendment of the Plan
shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to that person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
DIRECTOR STOCK OPTION PLAN - Page 8
<PAGE> 9
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date
of modification or amendment.
16. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceedings, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any Option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to pursue and defend the same.
17. Withholding. Whenever an optionee shall recognize compensation
income as a result of the exercise of any Option granted under the Plan, the
optionee shall remit in cash to the Company or Subsidiary the minimum amount of
federal income and employment tax withholding which the Company or Subsidiary is
required to remit to the Internal Revenue Service in accordance with the then
current provisions of the Code. The full amount of such withholding shall be
paid by the optionee simultaneously with the award or exercise of an Option, as
applicable.
18. Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to Options granted hereunder will be used for
general corporate purposes.
19. Governing Law. This Plan shall be governed and construed in
accordance with the laws of the state of incorporation of the Company.
DIRECTOR STOCK OPTION PLAN - Page 9
<PAGE> 1
Subsidiaries of PawnMart, Inc.
1. PCI Finance 1994-I, Inc., a Texas corporation
Charter No. 01329406
2. PCI Finance 1995-I, Inc., a Texas corporation
Charter No. 01344104
3. PCI Finance 1996-1, Inc., a Texas corporation
Charter No. 01387197
4. PCI Finance 1996-2, Inc., a Texas corporation
Charter No. 01423120
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
PawnMart, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our report dated June 27,
1997, except for the last four paragraphs of note 11 which are as of August 21,
1997, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations, has experienced negative cash flows
from operating activities, and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Fort Worth, Texas
February 6, 1998
