UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
PAWNBROKER.COM, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0794473
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
85 Keystone, Suite F, Reno, Nevada 89503
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (775) 332-5048
Securities to be registered under Section 12(b) of the Act:
NONE None
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Title of each class to be so registered Name of each exchange on which each
class is to be registered
Securities to be registered under Section 12(g) of the Act:
Common Shares, Par Value $0.00001 Per Share
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(Title of Class)
Not Applicable
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(Title of Class)
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TABLE OF CONTENTS
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NOTE REGARDING FORWARD LOOKING STATEMENTS........................................................................1
Item 1. Description of Business..................................................................................2
Item 2. Financial Information...................................................................................35
Item 3. Properties..............................................................................................42
Item 4. Security Ownership of Certain Beneficial Owners and Management..........................................42
Item 5. Directors, Executive Officers, Promoters and Control Persons............................................44
Item 6. Executive Compensation..................................................................................46
Item 7. Certain Relationships and Related Transactions..........................................................52
Item 8. Legal Proceedings.......................................................................................53
Item 9. Marketing Price of and Dividends on Registrant's Common Equity and Related Stockholder Matters..........52
Item 10. Recent Sales of Unregistered Securities................................................................54
Item 11. Descriptions of Registrant's Securities to be Registered...............................................56
Item 12. Indemnification of Directors and Officers..............................................................54
Item 13. Financial Statements and Supplementary Data............................................................56
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................57
Item 15. Financial Statements and Exhibits.....................................................................56
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NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained herein
constitutes "forward-looking statements," including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, as well as all projections of future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the
Registrant to be materially different from any future results or achievements of
the Registrant expressed or implied by such forward-looking statements. Such
factors include, but are not limited to the following: the Registrant's limited
operating history; history of losses; risks involving new product development;
competition; management of growth and integration; risks of technological
change; the Registrant's dependence on key personnel, marketing relationships
with pawnshops and third party suppliers; the Registrant's ability to protect
its intellectual property rights; government regulation of Internet commerce and
the pawn industry; economic and political factors; dependence on continued
growth in use of the Internet; risk of technological change; capacity and
systems disruptions; liability for Internet content; uncertainty regarding
infringing intellectual property rights of others; security risks; year 2000
compliance risks and the other risks and uncertainties described under
"Description of Business - Risk Factors" in this registration statement. Certain
of the forward looking statements contained in this registration statement are
identified with cross-references to this section and/or to specific risks
identified under "Description of Business - Risk Factors".
The Registrant's management has included projections and estimates in this
registration statement, which are based primarily on management's assessment of
the Registrant's results of operations, discussions and negotiations with third
parties, management's experience and a review of information filed by its
competitors with the Securities and Exchange Commission. Investors are cautioned
against attributing undue certainty to management's projections.
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Item 1. Description of Business.
General Overview
We, Pawnbroker.com, Inc., are a Delaware corporation in the development stage,
which means we are in the process of developing our business and have no
revenues from our operations and have not generated any profits. We intend to
launch a web site designed to provide online customers a fundamentally new
method to search for and buy merchandise from the inventories of pawnshops. Our
web site is located at www.pawnbroker.com.
We intend to enter into agreements with "brick-and-mortar" pawnshops with
existing physical locations under which each participating pawnshop will agree
to make certain items or all of their inventory available for purchase through
Pawnbroker.com at prices established by the pawnshop or on a "make an offer"
basis. Based on our discussion with potential participants, we believe that our
Pawnbroker.com web site services will be particularly attractive to small
independent pawnshops and small pawnshop chains, who sell their merchandise
exclusively through their physical locations and may be limited by the scope of
their geographic market. We intend to generate revenues by charging pawnshops a
transaction fee, ranging between 5% to 10% of the purchase price, on
successfully completed transactions. The Company's management and its board of
advisors are in the process of determining an appropriate transaction fee
policy, and the Company anticipates that the transaction fee policy will be
finalized in late November 1999.
We are currently in the process of completing the development of the software
and technology related to our business and intend to beta test our web site in
December 1999 with approximately 65 pawnshops who have orally committed to
participate in the tests by each listing approximately 500 items of merchandise
on our site. See "Plan of Operation - Complete Beta Testing of Our Web Site."
After completing beta tests and debugging our software, we intend to launch our
site to the general public in two phases:
1. Soft Launch: Our soft launch is scheduled for January 2000 and is
anticipated to feature between 65 and 100 participating pawnshops. The
general public will be allowed to access general information about (i)
the pawn industry, (ii) our web site, (iii) our participating
pawnshops, (iv) our policies related to purchasing merchandise on our
web site and our Pawnbroker.com Satisfaction Program and (iv) the
schedule for our hard launch when they will be able to purchase
merchandise on our web site. Participating pawnshops will be able to
(i) use Pawnbroker.com email; (ii) complete applications to become a
participating pawnshop; (iii) upload inventory lists of merchandise to
sell on our web site when we complete the hard launch of our web site;
and (iv) access information specifically designed for pawnshops
including pawnshop regulatory information, instructions and guidelines
related to listing merchandise for sale on our web site, our policies
and procedures related to participating pawnshops and information
posted on our web site by our participating pawnshops. We do not
anticipate that visitors will be able to purchase merchandise on our
web site during our soft launch.
2. Hard Launch: Our hard launch is scheduled for March 2000 and is
anticipated to feature between 100 and 200 participating pawnshops.
After our hard launch, we anticipate that our web site will be fully
operational and that we will begin to facilitate transactions between
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visitors and our participating pawnshops. We anticipate that each
participating pawnshop will feature approximately 300 to 500 items for
sale on our pawnbroker.com web site.
Our goal is to have a total of up to 2,000 participating pawnshops offering an
average of 275 items each by December 2000.
We have presented our web site concept to over 3,000 pawnshops at conventions
and tradeshows and have oral expressions of interest or requests for additional
information from approximately 2,000 pawnshops. We do not intend to enter into
any definitive agreements with pawnshops until we have completed the beta
testing of our web site. We also cannot assure you that we will successfully
complete the development of the technology required to launch our web site or
enter into any definitive agreements with pawnshops as planned or that we will
generate sufficient revenues to become profitable.
Participating pawnbrokers will be able to run our Pawnbroker.com software on
IBM-compatible PCs with Microsoft Windows 95/98. We anticipate that
participating pawnbrokers will be able to purchase an IBM-compatible PC with
Microsoft Windows 95/98 and a laser printer to print invoices and shipping
labels at a cost of less than $2,000. We will also recommend the use of a
digital camera to display pictures of merchandise on our web site. See
"Participating Pawnbroker Systems Requirements."
Our web site will include an automated, easy-to-use search and retrieval system
that is designed to make purchasing merchandise on our Pawnbroker.com web site
easy and popular. We plan to incorporate visual displays on our web site that
permit a visitor to view pictures of merchandise and interactive capabilities
that allow buyers to make offers on merchandise at any point in their visit. Our
software developer, Banshee, Inc., is in the process of developing the
technologies that will allow us to integrate these features on our web site. The
software is anticipated to be ready for beta testing in December 1999.
We believe that our Pawnbroker.com web site will be attractive to consumers of
merchandise typically offered at pawnshops, such as jewelry, consumer
electronics, tools, collectibles, coins, cameras and musical instruments. We
intend to attract buyers by offering consumers an opportunity to locate and
purchase merchandise from an inventory that we anticipate will be larger than
any single pawnshop or pawnshop chain. We do not intend to post firearms, adult
materials or other potentially illegal merchandise for sale on our web site. Our
web site is designed to facilitate seamless, secure transactions, unlike other
existing systems that require buyers to visit other web sites or contact the
pawnshop directly to complete a secure transaction. We intend to create buyer
confidence by offering a unique 10-day Pawnbroker.com Satisfaction Program that
is intended to reduce the risk and uncertainty of purchasing merchandise from
independent pawnshops. See "Pawnbroker.com Satisfaction Guarantee."
We intend to increase repeat purchases and build loyalty to our service by using
post-sale marketing techniques including follow-up email messages to remind
customers of our web site and personalized services that will allow visitors to
(i) request merchandise that is not listed for sale on our web site, (ii)
notification by email when a particular item of merchandise is available on our
web site, and (iii) automatic email reminders of specific occasions like
birthdays, holidays or anniversaries.
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We anticipate that the number of transactions facilitated on Pawnbroker.com will
increase and decrease during certain times of the year, similar to the sales
fluctuations experienced by physical pawnshops in their retail sales. Based on
our management's experience in the pawnshop industry, we anticipate our sales
will be higher during the periods immediately prior to Christmas, Valentine's
Day, Mother's Day and Father's Day than during other times of the year.
Our revenues will depend on transaction fees, ranging from 5% to 10% of the
purchase price, paid by pawnshops for successful transactions completed with
purchasers. Based on our discussions with potential advertisers, we believe that
when and if our site traffic reaches 10,000 or more visitors per day, we may
receive additional revenues by selling banner ads. In the future, we plan to
generate additional revenue by licensing a point-of-sale & inventory management
application that allows participating pawnshops to seamlessly post items in
their inventory database for sale on our web site and to manage their in-store
and online inventory in an effective, efficient manner.
We have no revenues from our operations and we have a history of losses. As of
June 30, 1999, we had an accumulated deficit of $203,349. We anticipate that we
will continue to incur substantial losses for the foreseeable future. We
estimate that we will require additional financing of at least $5 million to
meet our cash requirements through the fiscal quarter ending June 30, 2000. See
"Note Regarding Forward Looking Statements." Our ability to fully implement our
business strategy will depend on our ability to raise future financing. Factors
that will affect our ability to raise such financing may include, among other
things:
o the market acceptance of our Pawnbroker.com web site by buyers of
pawnshop merchandise;
o traffic on our web site;
o our ability to obtain participating member pawnshops; and
o the revenues generated from our operations.
We anticipate that we will raise additional financing through private placements
of our equity or debt during the fourth quarter of 1999. We are currently
seeking such financing by presenting our business plan to merchant and
investment banks, fund managers and investment advisors. We cannot assure you
that we will successfully complete any private placements or that we will obtain
additional financing to implement our business plans on acceptable terms, if at
all.
We intend to compete in the highly competitive Internet commerce industry. Many
of our competitors have substantially greater financial, technical and other
resources than us. Several competitors already have established web sites, brand
names, strategic relationships with advertisers and other web sites and user
loyalty, all of which create a competitive advantage over us. We have not
launched our web site or begun the process of developing our brand name or
promoting our web site. We cannot guarantee that we will be able to compete
effectively or that we will ever generate sufficient revenues from our
operations to make our business commercially viable.
Industry Background
The Internet is an increasingly significant global interactive medium for
communications, content and commerce. Growth in Internet usage has been fueled
by a number of factors, including
(i) the large and growing base of personal computers in the workplace
and home,
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(ii) advances in the performance of personal computers and modems,
(iii) improvements in network systems and infrastructure,
(iv) readily available and lower cost access to the Internet,
(v) increased awareness of the Internet among businesses and
consumers,
(vi) increased volume of information and services offered on the Web
and
(vii) reduced security risks in conducting transactions online.
We believe that the growing adoption of the Internet represents an opportunity
for businesses to conduct commerce electronically without borders over the
Internet.
The Pawnshop Industry
According to information published by the National Pawnbroker's Association, the
pawnshop industry in the United States is a growing industry. Pawnshops are
primarily regulated by state and local laws. Based on information available from
the National Pawnbroker's Association, we believe that the majority of pawnshops
are owned by individuals operating one to three locations, and that the pawnshop
industry is fragmented and comprised primarily of several thousand independent
"mom and pop" pawnshops operating less than three stores. In recent years,
several operators have begun to develop multi-unit chains through acquisitions
and new store openings. The four largest publicly traded pawnshop companies are
EZCorp, Inc., First Cash, Inc., U S Pawn Inc. and Cash America, collectively
operating approximately 1000 stores in the United States.
Each of the publicly traded pawnshop companies are, or are in the process of,
offering merchandise on the Internet through company-owned web sites. In
addition, there are several independent pawnshops that are offering merchandise
on the Internet through their own web sites. We also believe that pawnshops may
be offering merchandise on auction-type web sites such as eBay, Onsale, Bidz,
First Auction, Surplus Auction and uBid. Several pawnshops advertise on web
sites that post links to pawnshop web sites, such as Pawn Shop Links, and
classified ad web sites. We do not believe there is currently a web site that
compiles the inventory of participating pawnshops into a single searchable
database and that offers the transaction clearing capabilities of our
Pawnbroker.com web site.
Based on management's experience, we believe that several characteristics of the
traditional pawnshop industry have created inefficiencies in the industry.
Brick-and-mortar based pawnshops must make significant investments in credit
capital, inventory, real estate and personnel for each retail location. Further,
because most pawnshops obtain most of their inventory locally, they must contend
with the logistical problems of matching pawned merchandise to unpredictable
demand for such merchandise. We believe the growth of the Internet has
facilitated the development of solutions to some of these traditional problems
and will lead to growth and efficiencies in the pawnshop industry.
Competition
We intend to compete with a number of other companies with substantially greater
financial, technical and human resources than us. Our competitors, in connection
with the sale of merchandise, include numerous brick-and-mortar retail and
wholesale stores, including jewelry stores, discount retail stores, consumer
electronics stores, pawnshops, and other retailers of new and previously-owned
merchandise. Competitive factors in our business include:
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(i) the ability to provide the customer with a variety of merchandise
at an exceptional value;
(ii) the quality of merchandise offered;
(iii) consumer brand loyalty to the merchandiser; and
(iv) level of service provided by the merchandiser.
We also compete with numerous other retailers who have significantly greater
financial resources than the Company.
At the present time, we believe we will compete with three principal types of
distribution channels available to pawnshops on the Internet: (i) list services,
(ii) independent pawnshop web sites, and (iii) large Internet resellers.
List Services
A variety of list services are presently available on the Internet. These
services, such as Secondhand.com and Pawn Shop Link, are similar to
advertisements in the yellow pages and make available to Internet shoppers lists
of pawnshops and links to the web sites of advertising pawnshops. We also
believe that certain list services, including ePawn.com, Forsale.com,
Amazon.com's zShops, GoTthat.com, SelectPawn.com, Pawn.Net, Pawnbrokers Auction,
Pawnshop Link, and Virtual Pawnshop may be in the process of developing web
sites that will allow pawnshops to post merchandise for sale on the Internet.
These systems are anticipated to allow buyers to locate items online, provided
that their description correlates with the description contained in the list
compiled by each participating seller. We anticipate that the buyer will contact
the pawnshop directly to purchase merchandise and that the pawnshop will deal
directly with the purchaser and handle a majority of the transaction-related
functions to sell merchandise.
For shoppers, these services typically require the buyer to complete a number of
steps including possibly linking onto individual pawnshop web sites to browse
for merchandise. The search and matching services are also problematic for
sellers because they effectively require pawnshops to deal directly with the
customer and to handle most of the functions related to processing the
transaction and updating the web site inventory.
We believe that there are severe limitations with list services that create
inefficiencies for buyers and sellers. Retail buyers experience multiple-step
purchasing and a likelihood for errors. We believe that the existing systems are
also inconvenient for participating pawnshops because the systems can require
high administrative and transactional costs. In the future, we intend to develop
or license an integrated Internet software system for pawnshops that is
compatible with an in-store inventory and point of sale system, which may allow
pawnshops to update both their in-store inventory and Pawnbroker.com postings
simultaneously.
Independent Pawnbroker Web sites
A number of pawnshops currently maintain retail web sites on the Internet. These
independent pawnshops range from large retailers, such as EZ Pawn, operated by
EZCorp, Inc., and First Cash, to small independent pawnshops.
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Independent pawnshops' web sites generally allow buyers to search for
merchandise contained within the seller's inventory. In general, buyers search
for and acquire merchandise from independent pawnshops by visiting the web site
and dealing directly with the pawnshop. We believe that due to the limited
inventory of most independent pawnshops, retail customers may find searching for
merchandise an unsatisfactory experience. Customers may perceive purchasing
directly from independent pawnshops as risky.
Based on information available from the National Association of Pawnbrokers and
our discussions with industry experts, we believe there are more than 13,000
pawnshops in the United States that can benefit from our Internet system. We are
positioning our system to offer certain features including:
(i) the convenience created by offering visitors an opportunity to
browse and select from a large inventory;
(ii) search tools designed to allow a visitor to search for specific
items of merchandise, comparison shop specific brands,
merchandise and prices and view the merchandise of several
pawnbrokers throughout the United States at a single web site;
and
(iii) our Pawnbroker.com Satisfaction Program, designed to reduce
consumer risk in the buying merchandise from pawnshops online.
We believe that by offering the merchandise of several hundred pawnshops on a
single web site with search and transaction processing capabilities will be
appealing to buyers. We also believe that by serving as an independent
facilitator of pawnbroker-to-consumer transactions featuring our unique
Pawnbroker.com Satisfaction Program, we can provide an Internet solution that
will appeal to consumers and to pawnshops. See "Our Pawnbroker.com Satisfaction
Program." We also believe our system may reduce start-up costs for participating
pawnshops related to marketing merchandise on the Internet.
Large Internet Resellers
The market for person-to-person trading over the Internet is new, rapidly
evolving and intensely competitive, and we expect competition to intensify in
the future. A variety of auction-type web sites are presently available on the
Internet. These services allow sellers to post merchandise on the Internet and
allow buyers to locate items and submit bids online. These services generally
organize merchandise by categories and provide descriptions, pictures or graphic
capabilities and allow bidders to submit bids on the merchandise. We believe
there are a number of pawnshops that post merchandise for sale on these auction
sites.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially available software. Our
web site will compete directly with online auction services such as eBay,
Amazon.com, MSN.com, Yahoo! Auctions, Fairmarket.com, Auction Universe, Onsale,
First Auction, Surplus Auction, uBid and a number of other small services,
including those that serve specialty or regional markets such as CityAuction.
Some of these auction services are free to sellers and buyers. We potentially
face competition from a number of large online communities and services that
have expertise in developing online commerce and in facilitating online
business-to-person interaction, including America Online, AOL, Lycos, Inc. and
Microsoft Corporation. Other large companies with strong brand recognition and
experience in online commerce, such as Cendant
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Corporation, QVC, USA Network and large newspaper or media companies, also may
seek to compete in the online market to sell merchandise to our target
customers.
Our Pawnbroker.com web site is designed specifically for the special needs of
pawnshops. We believe our Pawnbroker.com system may effectively reduce
transaction costs for pawnshops selling merchandise over the Internet because we
intend to charge a transaction fee based solely on successful transactions.
Pawnshops will be able to post their entire inventory on Pawnbroker.com and will
only be obligated to pay us a fee if we facilitate a transaction. We believe our
10-day Pawnbroker.com Satisfaction Program also will reduce the risk that a
visitor may associate with an Internet transaction, without charging the buyer a
service fee. See "Our Pawnbroker.com Satisfaction Program."
We are attempting to establish Internet traffic arrangements with other online
services like America Online, Yahoo!, Excite and other search engine companies.
Yahoo! has accepted our request to be listed on their search engine, pursuant to
which we will be listed on Yahoo! Based on our experience, we believe Yahoo!
accepts most requests to be listed in their search engine, and we have no formal
agreement with Yahoo! We cannot assure you that we will benefit from a listing
on Yahoo! or that we will not be delisted from the Yahoo! search engine in the
future. We anticipate we will enter into other such arrangements once we have
completed beta testing of our web site and launch our web site in the first
quarter of 2000. However, we cannot assure you that these arrangements can be
established on commercially reasonable terms. Even if these arrangements are
established, they may not result in increased usage of our service. In addition,
companies that control access to transactions through network access or web
browsers could promote our competitors' services or charge us substantial fees
for participation.
The Pawnbroker.com Solution
Pawnbroker.com offers Internet capabilities to traditional physical
brick-and-mortar pawnshops. We believe that our system may enhance the
distribution of pawnshop merchandise online and may lower the overall
transaction costs and risks of conducting business online by charging
transaction fees only for successfully completed transactions. Further, we
believe that our Pawnbroker.com web site will make purchasing pawnshop
merchandise more convenient for consumers than visiting physical stores and that
our Pawnbroker.com Satisfaction Program may provide an incentive to buyers to
purchase merchandise through our web site. Our long term goal will be to provide
pawnshops with an integrated inventory and Internet merchandising system that
will seamlessly allow a pawnshop to manage its in-store and online inventory
with one system.
A Transaction on Pawnbroker.com
Each transaction between the pawnshop and the purchaser is planned to be
structured as follows:
1. the pawnshop will register to become a participating member pawnshop
of Pawnbroker.com;
2. the participating pawnshop will electronically transmit a list of
available inventory to Pawnbroker.com, which they desire to post on
the Pawnbroker.com web site. The list will include (a) the category in
which each item of merchandise will be listed, (b) a brief description
of the merchandise, (c) pictures of the merchandise, if desired, (d)
the suggested or "ask price" for the merchandise, (e) a minimum bid
offer that will be considered, (f) full disclosure of the condition of
the item, and (g) any other useful information about the item;
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3. we will post the listed merchandise on the Pawnbroker.com web site in
the predetermined category and post the information provided by the
participating pawnbroker;
4. we intend to establish oversight and quality control procedures to
monitor types of merchandise posted and the information provided by
the participating pawnshop;
5. we anticipate that visitors to our Pawnbroker.com web site will be
able to browse our site by category and view available merchandise
posted for sale by participating pawnbrokers;
6. if the visitor makes a purchase decision and chooses to pay the ask
price or to make an offer at other than the ask price, the visitor
will be required to register the purchase "offer" by providing us with
information such as (a) name, (b) shipping address, (c) special
shipping instructions, (d) method of payment, including credit card or
online electronic check, (e) the item the purchaser desires to
purchase and (f) the offer price;
7. we will process offers as follows:
(a) offers at the ask price in accordance with Step 10 below;
(b) offers above the minimum offer a pawnshop has indicated it would
consider will be transmitted to the pawnshop immediately by
email; and
(c) offers below the minimum offer price will be rejected;
8. if the offer price is less than the ask price, the pawnshop may accept
the offer or counter-offer with a different price within 24 hours by
transmitting a message to us by email, and we will forward the
"counter-offer" to the offeror;
9. we will inform the offeror by email if the final offer is accepted or
rejected immediately after we receive notice from the pawnshop, all
offers not accepted within 24 hours will automatically be rejected;
10. if an offer or counter offer is accepted, we will send an acceptance
notification to the offeror, and we will simultaneously (a) process
payment, including shipping costs and the applicable taxes as
specified by the pawnshop, (b) establish an escrow for the
transaction, and (c) electronically transmit order shipping
information to the participating pawnbroker;
11. the pawnshop will be responsible for retrieving the merchandise from
inventory, packing it in a shipping container, labeling the package
with a Pawnbroker.com label, and shipping the merchandise to the
customer;
12. we intend to confirm receipt of the merchandise with the purchaser by
email, and the purchaser will have 10 days after delivery to examine
the merchandise under our Pawnbroker.com Satisfaction Program;
13. if the purchaser has not notified us or returned the merchandise to
the participating pawnshop within 10 days of receipt, we will
authorize the release of the escrow funds to the pawnshop; and
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14. If the merchandise is returned during the Pawnbroker.com Satisfaction
Program period, we will credit the purchaser's credit card for credit
card purchases or send a check for cash purchases in the amount of the
purchase price, less shipping costs.
Participating pawnshops will be required to post merchandise; update their
available inventories; accept offers or submit counteroffers in a timely manner;
pack, label and ship merchandise to buyers and to notify us when merchandise is
returned by buyers under the Pawnbroker.com Satisfaction Program. We are in the
process of developing a policies and procedures manual for participating
pawnshops that will outline our policies and procedures for posting merchandise,
updating the inventory list, accepting offers, making counter-offers, packing,
shipping and processing orders, and rectifying credit and payment for
merchandise. We also intend to enter into agreements with each of our
participating pawnshops, pursuant to which they will agree to follow our
policies and procedures as a condition to posting merchandise for sale on
Pawnbroker.com and participating in our program. We intend to revise our
policies and procedures based on the results of our beta tests and the comments
of our customers and beta testers. If participating pawnshops do not follow our
policies and procedures or such policies and procedures do not allow us to
facilitate transactions in an efficient and effective manner, we may be unable
to facilitate a sufficient number of transactions to be commercially viable.
Based on our discussions with prospective participating pawnbrokers, a majority
of prospective pawnbrokers currently ship items to customers or would be willing
to ship merchandise to online customers. In order to facilitate order
fulfillment, we are designing our policies to address logistical issues of speed
of order fulfillment, convenience, accountability and quality assurance. We are
considering options that will allow web-based tracking and other conveniences to
consumers. We are pursuing relationships with major carriers, including UPS and
FedEx to service our participating pawnshops.
In the future, we intend to develop or license other technology that will
improve the functionality of our web site and provide Internet solutions that
will assist participating pawnshops. Such technology may include inventory
management software that will permit participating pawnshops to integrate an
in-store inventory management and point of sale system with our Pawnbroker.com
web site. We anticipate that such a system will allow the participating pawnshop
to automatically update the inventory they offer on the Pawnbroker.com web site
with the inventory offered in their physical location. We cannot assure you that
we will successfully develop the technology required to complete the initial
launch of our Pawnbroker.com web site or that we will successfully attract
participating pawnshops to use our services.
Our Pawnbroker.com Satisfaction Program
Our Pawnbroker.com Satisfaction Program is designed to ensure customer
satisfaction with merchandise purchased on our web site. We intend to implement
the following policies related to our Pawnbroker.com Satisfaction Program:
(i) all orders for merchandise must be paid for at the time the offer
is accepted;
(ii) prior to shipment we will process the payment and establish an
escrow of the purchase price less shipping and handling costs;
(iii) the pawnshop will be responsible for shipping the merchandise, no
later than three days after the offer is accepted and the escrow
is established;
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(iv) we will confirm the receipt of the merchandise with the purchaser
by email, we will credit the charge card of the purchaser if we
have not received verification of the shipment from the pawnshop
within seven days after the offer is accepted;
(v) the purchaser will have 10 days from the date the merchandise is
received to examine the merchandise;
(vi) if the purchaser is not satisfied with the merchandise, the
purchaser must (a) return the merchandise to the pawnbroker and
(b) notify us by email of the return no later than 10 days from
the date the merchandise is received;
(vii) we will notify the pawnbroker of the return;
(viii) once we have confirmed that the returned merchandise has been
received by the pawnbroker, we will credit the purchaser's credit
card or send a check to the purchaser in the amount of the
purchase price less shipping and handling costs;
(ix) In the event there is a dispute between the purchaser and the
pawnbroker:
(a) we will hold the purchase price in escrow
(b) our customer service department will attempt to resolve the
dispute; and
(c) in the event the dispute is unresolved by our customer
service department, we will continue to hold the funds
pending resolution and written notification from the
purchaser and the pawnbroker.
We intend to monitor the returns ratio for each participating pawnbroker and
each customer of Pawnbroker.com. We will establish an acceptable return ratio
for pawnbroker participation in our program. In the event the pawnbroker
experiences a returned merchandise ratio higher than our acceptable level or we
receive an unacceptable number of complaints from our customers, we will not
allow that pawnbroker to participate in our program. We also intend to establish
an acceptable return ratio for customers and will not accept offers from
customers that have a history of returning merchandise. We anticipate
establishing our definitive policies for our Pawnbroker.com Satisfaction Program
once beta testing is completed and we have received suggestions from
participating pawnshops.
Our Business Solution Goals
Key goals of our business solution include the following:
o Act as a trusted transaction host. Under our business plan, retail
customers purchasing merchandise at our Pawnbroker.com Web site will enter into
an electronic transaction with Pawnbroker.com in which we act as a financial
intermediary between the customer and the individual pawnshop that owns the
merchandise. By hosting the sale, we will take the customer's payment
information, place the proceeds into escrow during the 10-day Pawnbroker.com
Satisfaction Program period and remit payment for the merchandise to the selling
pawnshop, less costs and a transaction fee. We will effectively reduce
transaction risks for the consumer by offering our 10-day Pawnbroker.com
Satisfaction Program.
o Provide advantages over auction sites to consumers. Our Pawnbroker.com
system is designed to provide advantages to our customers. Our automated offer
and counter-offer mechanisms and other special features are designed to exert
downward pressure on prices, unlike in auctions, where prices are bid up and an
item cannot be bought until an auction is over. For the right price, the
consumer can buy an item quickly on the Pawnbroker.com site. We have designed
several features to distinguish our
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services from auction sites, including integrated payment and shipping
functions, standardized product descriptions, our Pawnbroker.com Satisfaction
Program and a wish-list function that allows consumers to send an email to our
participating pawnshops to request unlisted items.
o Provide free services and novel shopping mechanisms. We plan to provide
free services such as email, chat rooms, consumer information, shopping tips, a
wish-list function and other services to visitors that we anticipate will
attract positive feed back from visitors and may encourage media coverage and
increased site traffic. We believe that these services, combined with advanced
personalization technology will make our site attractive to the public. We also
plan to use special promotions and advertising campaigns to build awareness and
interest in our site.
o Provide sophisticated business systems to pawnshops at low cost. We
believe that our system will lower transaction costs for pawnshops that desire
to conduct business over the Internet because we absorb the costs associated
with maintaining the computer systems and infrastructure and we update the
technology. By absorbing the sunk costs generally associated with launching an
Internet web site and developing the technology, we believe we can bring a
pawnshop online faster with innovative and advanced technology. In the future,
we anticipate that we will make available to participating pawnshops an
integrated inventory control software to allow pawnshops to accurately track the
store's inventory by using a point of sale system that can be connected to and
used with our Pawnbroker.com web site.
o Create a master database of transactional data for use by pawnshops. We
intend to compile a master database of product sales, offer histories and
statistical data related to pricing, inventory turn around and sales by
geographic location. This master database will have `blue-book' or pricing
information that will allow pawnshops to view the ask price for merchandise,
data related to historical selling prices of merchandise sold on Pawnbroker.com,
statistical information on the number of days products are offered for sale and
sales patterns of various categories of merchandise during the year. This
database is designed to assist pawnshops in making purchasing, pricing,
inventory management and other business decisions.
o Create a global database of lost/stolen items. We intend to offer, at no
cost to the public, the ability to list missing items in a database. We intend
to make this list available, free of cost, to law enforcement agencies and also
offer it to businesses that purchase previously-owned merchandise.
o Expand the potential customer base for pawnshops. By joining our system,
a participating pawnshop opens for business on the Internet and has access to
global marketing opportunities. As a result, a pawnshop's base of potential
customers is not limited by geography or operating hours. Our Internet service
makes a participating pawnshop's inventory available for sale to customers
around the world, around the clock, and without the significant expense required
to establish and maintain an Internet web site. Also, we intend to launch a
multi-million dollar marketing campaign to build awareness of our Pawnbroker.com
web site that would be difficult for independent pawnshops to undertake with
their own resources. A pawnshop may also benefit from an increase in
foot-traffic as a result of web consumers who visit pawnshops listed in our
online pawnshop directory.
o Benefits over listing with auction houses. We intend to charge minimal
fees and to offer an item-upload methodology that is tailored to the pawnbroker
business. Our upload system is designed to categorize merchandise commonly
offered by pawnshops into such types as jewelry, tools and
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electronics. Pawnshops will be able to keep listed items on our site until sold.
Our role as facilitator is designed to eliminate the necessity of an email
dialogue between pawnshops and the public. Based on our discussions with
potential participating pawnshops, we perceive these to be advantageous over
services offered by auction sites.
o Membership benefits. We intend to provide a variety of services used by
the industry, including access to consumer wish-lists, access to our marketing
information database, educational resources, supplier directories, discussion
forums and trading areas on the site. Our offer of free web-based email on the
Pawnbroker.com domain is designed to assist pawnshops in branding themselves as
a member of an online pawnbroking community. Our Pawnbroker.com lost items
database is designed to provide pawnshops the ability to check items against
items that are reported stolen, which may result in lowering business insurance
rates for stores that use our service.
Plan of Operation
Our plan of operation is based on information provided in discussions with
our consultants, discussions with pawnshop owners, our results of operations,
our negotiations and discussions with third party vendors, experience of
management and the decisions of our management. Set out below is a summary of
our plan of operation for each of our projects and for administration and
marketing through June 30, 2000. Our plan of operation for the next three fiscal
quarters is to (i) complete development of the Pawnbroker.com system, (ii)
commence the commercial launch of our Pawnbroker.com web site and operations and
(iii) enter into participation agreements with pawnshops in the United States
and Canada. The Company intends to accomplish this strategy through the
following activities:
o Hire Key Consultants and Personnel to Implement Our Business Strategy. We
hired Neil McElwee, our Chief Executive Officer, and Vahid Rafizadeh, our Chief
Technology Officer, both of whom have e-commerce business experience. Mr.
McElwee served as director of business development for InfoSeek before joining
us, and Mr. Rafizadeh served as the Chief Technology Officer of KSM, Inc., a
software development company, before joining us. See "Directors, Executive
Officers, Promoters and Control Persons." Joseph Schlader, our President, and
William Galine, our Vice President, have business experience in the pawnbroker
industry. Mr. Schlader founded and served as President of Pacific Pawnbrokers, a
chain of four pawnshops in Nevada and California, before joining us, and Mr.
Galine served as Vice President of Pacific Pawnbroker from 1984 to 1999. See
"Directors, Executive Officers, Promoters and Control Persons." We anticipate
hiring additional consultants and personnel with Internet e-commerce experience
to complement our current management team. Our management team will design,
manage and implement the operational and management systems for Pawnbroker.com
during the fourth quarter of 1999 and the first two quarters of 2000.
o Complete initial prototype of the item listing component of our
technology. We intend to develop a working version of the item-upload and
listing component of our technology during the fourth quarter of 1999. This
component of our technology will permit the tracking on an online database of
the uploaded inventory of participating pawnshops. We expect to beta test our
technology with 65 pawnshops, including Pacific Pawnbrokers, which operates
three pawnshops in Nevada and one in California. See "Certain Relationships and
Related Transactions."
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<PAGE>
o Complete Beta Testing of Our Web Site. We have oral commitments from
approximately 65 pawnshops to assist us in beta testing our web site and related
software. We plan to begin beta testing in December 1999. Under our planned beta
test, we will:
o Provide internal web site access to the pawnshops participating in our
beta test and our board of advisors by issuing passwords to our beta
testers.
o Assist each participating pawnshop in uploading inventory lists of
approximately 500 items to our web site database.
o Trial test our operating system software in a closed environment where
we will place mock orders for inventoried merchandise from various
locations.
o Trial test our fulfillment systems by transmitting mock offers to each
participating pawnshop.
o Trial test our order confirmation systems.
o Trial test our escrow and invoice processing systems.
o Trial test our Pawnbroker.com Satisfaction Program systems.
o Modify and debug our web site and software based on comments from our
participating pawnshops and our Board of Advisors.
We anticipate the beta test of our web site and system software will require
approximately 30 days to complete. We cannot guarantee that we will successfully
complete all of the testing and debugging of our web site and our software
systems as planned.
o Use our Board of Advisors to assist us in developing our policies. We
have recently established a Board of Advisors, comprised of members with
experience in the pawnbroker industry. We intend to solicit feedback from our
Board of Advisors to develop our policies and to assist us in establishing a
base of participating pawnshops. Our Board of Advisors is as follows:
Ron Atlas, Wheeling, IL LLB, Certified Public Accountant
Edward Bean, Boston, MA Board of Directors and Board of
Governors, National Pawnbrokers
Association
Tim Cassidy, Stockton, CA Board of Directors, Collateral Loan
and Second Hand Dealers Association
of California Board of Directors,
National Pawnbrokers Association
Harold Dambrot, Brooklyn, NY Executive V.P., Collateral
Loanbrokers Association of New York
State
Board of Directors, National
Pawnbrokers Association
Erminia Drobkin, Las Vegas, NV V.P., Collateral Loan Association
of Nevada
Steve Fowler, Tucson, AZ Board of Directors, National
Pawnbrokers Association
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Nick Fulton, Ridgeland, MS Board of Directors, National
Pawnbrokers Association
Michael Hyman, Santa Rosa, CA Board of Directors, Collateral Loan
and Second Hand Dealers Association
Board of Directors, National
Pawnbrokers Association
Michael Isman, New Westminster, Board of Directors, National
BC, Canada Pawnbrokers Association
Director of BC Pawnbrokers
Association
Steve Krupnik, Southbend, IN President, Indiana Pawnbrokers
Association
Tim Lanham, Fort Collins, CO Board of Directors, National
Pawnbrokers Association
David Newman, San Francisco, CA Board of Directors, Collateral Loan
and Second Hand Dealers Association
of California
Board of Directors, National
Pawnbrokers Association
Brian Smith, Ridgeland, MS Board of Directors and Board of
Governors, National Pawnbrokers
Association
Sam Shocket, Los Angeles, CA Board of Directors, Collateral Loan
and Second Hand Dealers Association
of California
Mike Stogner, Greensboro, NC Board of Directors and Board of
Governors, National Pawnbrokers
Association
Curtis Sutherland, Austin, TX Board of Directors, Texas
Association of Pawnbrokers
Board of Directors, National
Pawnbrokers Association
Brooks Thiele, Scottsdale, AZ Mortgage Lending Consultant
Jerry Whitehead, Margate, FL Board of Directors, National
Pawnbrokers Association
o Unveil a fully-functional retail web site at www.pawnbroker.com by the
first quarter of 2000. We have oral commitments from approximately 65 pawnshops
to participate in our beta test launch in December 1999. After beta testing our
technology, we intend to roll out our site beginning with a soft launch in
January 2000 and a full hard launch including between 100 and 200 pawnshops,
each featuring approximately 300 to 500 items of merchandise, in March 2000. See
"Description of Business - General Overview." We have presented our concept to
approximately 3,000 potential participating pawnshops at the National Pawnbroker
Association 1999 Convention, the Florida State Pawnbroker Convention, and the
Oklahoma State Pawnbroker Convention. Approximately 2,000 pawnshops have
expressed interest in participating in our Pawnbroker.com program or receiving
additional information about our program and web site. We are in the process of
creating a master database of those pawnshops that have expressed an interest in
our program.
o Complete prototype of the point-of-sale component of our technology. The
other primary component of our proprietary system is expected to consist of an
inventory management and point of
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sale system that will function electronically over the Internet in conjunction
with in-store inventory management systems. We intend to develop a working
version of this component of our technology and to begin testing it on a working
web site during the fourth quarter of 2000.
We estimate that our current cash requirements are approximately $349,000 a
month, principally for salaries, professional services, marketing and office
expenses. We anticipate that our cash requirements will increase to
approximately $440,000 to $500,000 per month in the first quarter 2000 as a
result of professional services associated with the development of our
proprietary system and increased salary and related expenses associated with the
anticipated testing and pre-launch of the Pawnbroker.com web site. We anticipate
that our cash requirements will increase during the first two fiscal quarters of
2000 as we launch our web site and expenditures related to marketing and
advertising increase. However, we cannot guarantee that we will generate
sufficient revenues from our operations to operate a commercially viable
business or to earn a profit.
In order to reduce our cash requirements, we intend to initially outsource
certain development, marketing, human resources, legal and accounting functions.
Similarly, in order to reduce capital expenditures, we intend to enter into
leasing agreements for hardware and other equipment requirements.
Summary of Operating Budget
Set forth below are our estimated operating budgets for operations and
research and development for the four fiscal quarters ending June 30, 2000.
<TABLE>
Description: Quarter Ending Quarter Ending Quarter Ending Quarter Ending
September 30, 1999 December 31, 1999 March 31, 2000 June 30, 2000
- ---------------------------------- ------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Research and Development $113,663 $116,000 $133,000 $353,000
Equipment/Hardware 46,576 113,400 109,200 132,000
Management salaries/ Consulting 225,075 122,000 154,000 154,500
fees
Marketing Costs 134,816 425,000 435,000 435,000
Registrations/Licensing fees 2,119 6,150 6,900 6,900
Office Leases 17,525 21,075 42,525 48,525
Office Administration 257,100 469,800 567,400 666,300
Office/Telephone/Supplies 16,328 25,141 31,141 34,441
Insurance 375 12,375 15,375 15,525
Legal/Audit/Professional Fees 11,400 15,000 15,000 15,000
Travel Expense (Trade Shows, 57,579 88,500 90,000 95,000
Conventions)
Miscellaneous/Contingency 30,726 30,726 30,726 30,726
- ---------------------------------- ------------- -------------------- -------------------- -------------------
Total: $913,282 $1,445,167 $1,630,767 $1,986,917
</TABLE>
Our operating budget for the period beginning July 1, 1999 through December 31,
1999 is estimated to be approximately $2,358,498, and $3,617,184 for the period
beginning January 1, 2000 through June 30, 2000. We cannot guarantee our actual
expenditures for these periods will not exceed our estimated operating budget.
Actual expenditures will depend on a number of factors, some of which are beyond
our control, including, among other things, timing of our software development,
beta testing, the availability of financing on acceptable terms, reliability of
the assumptions of management in estimating cost and timing, the time expended
by consultants, marketing costs associated with recruiting
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participating pawnshops and professional fees. As of June 30, 1999, we had a
working capital of $2,538,743. We will need to raise approximately $5 million in
additional capital during the fourth quarter of 1999 to meet our anticipated
cash needs for the first two calendar quarters of 2000. If we are unable to
raise additional financing on acceptable terms, we may be forced to delay the
implementation of certain portions of our plan of operation, which may adversely
affect our business and results of operations.
Business/Strategic Associates
We intend to enter into agreements with existing pawnshops under which these
pawnshops will make inventory available to our customers at a price structure
established by the pawnshop. By acting as the host of online sales, we believe
that we can reduce the cost of conducting business on the Internet for the
participating pawnshops and assist them in increasing their overall sales. We
anticipate participating pawnshops will assist us in developing our policies and
procedures.
We have an agreement with Banshee, Inc. to develop our technology, software and
systems, and we anticipate we may enter into additional development agreements
with Banshee or other development companies to develop our Internet based
solutions for the pawnshop industry. See "Development Agreement - Banshee, Inc."
We intend to enter into agreements with providers of hardware and equipment for
maintenance of our equipment and leasing companies to provide equipment and
capacity for our future needs. We have begun negotiations to provide us with
off-site servers for our web site. We also may enter into agreements with
potential providers of such services and expect to enter agreements for off-site
server capacity in early-November 1999, prior to the beta testing of our
software.
We may enter into strategic relationships with other Internet providers to
direct traffic to our Pawnbroker.com web site. We may also participate in
cooperative marketing arrangements designed to build our brand name and our web
site presence on the Internet. Except for Yahoo!, which has accepted our request
to be listed, we have not entered into any arrangements with other Internet
providers. We anticipate such agreements will be made prior to our launch in
2000.
We intend to rely on third-party service providers of security and credit card
processing services to assist us in facilitating transactions on Pawnbroker.com
web site. We are currently in the process of negotiating with service providers
to provide us such services and anticipate to have agreements with such
providers when we launch Pawnbroker.com for beta testing in December 1999.
Research & Development
Our technology is currently being developed by Banshee, Inc. which is based in
Minden, Nevada. Under an agreement between Banshee and Pawnbroker.com (Nevada),
Banshee will initially develop the software and the e-commerce architecture for
the in-store item listing component, the Pawnbroker.com database and the
Pawnbroker.com Web site. At this time, we anticipate continuing our relationship
with Banshee to maintain our site and to engage in further research and
development efforts, and to enhance functionality for site upgrades, including a
point of sale system. During the fourth quarter 1999, we intend to begin
staffing our own in-house development team to further develop our technologies
and software. We intend to use currently available technology and products and
to contract out most
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technical services required for customization. We also intend to retain rights
to the proprietary intellectual property embodied in our technology including,
wherever possible, source code, and to maintain a continual right to use the
system for our purposes.
As of September 30, 1999, we have spent approximately $200,000 for research and
development including expenses related to programming, testing and prototyping
and technologies. We expect that research and development of our solution will
cost between approximately $500,000 to $1,750,000. Maintenance, updates and
developing additional components will cost a minimum of $25,000 per month after
launch. In addition, we intend to maintain a relationship with a data hosting
and Internet server center, which would provide reliability and scalability for
our networking needs; that service is expected to cost approximately $20,000 per
month upon commencement, and rise to approximately $50,000 per month by the end
of 2000.
Development Agreement - Banshee, Inc.
We entered into a development agreement with Banshee to develop our web site and
the technologies related to our web site. Under the Banshee agreement, Banshee
agreed to complete the following:
o Complete the initial design of our web site including determining the
hardware requirements, network requirements, browser design and
interface and page layout;
o Develop and install web site hardware and systems requirements
including site server requirements, communication server requirements
and software requirements;
o Develop third-party system integration and interface software;
o Develop database systems;
o Assist us in the alpha and beta testing and debugging of software and
hardware systems; and
o Assist us in the commercial launch of our Pawnbroker.com web site.
We agreed to pay Banshee $100,000 upon signing of the agreement, $100,000 on
July 15, 1999 and $45,000 upon the completion and commercial launch of our web
site. As of September 30, 1999, we have paid Banshee $200,000. Upon completion
of the project, we will own the technologies developed by Banshee under the
agreement.
Our Technology
Our technology is designed to include three principal components: a web
inventory system, the web transaction interface, and the Pawnbroker.com
database.
Web Inventory System: The web inventory system will consist of an item listing
and uploading component that allows participating pawnshops to transmit for
posting (a) the category in which each item of merchandise will be listed, (b) a
brief description of the merchandise, (c) pictures of the merchandise, if
desired, (d) the suggested or "ask price" for the merchandise and (e) other item
specific
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information. The web inventory system is proprietary technology developed
exclusively for use by Pawnbroker.com. Our software will require that the
pawnbroker's system run Windows 95/98.
In the future, we may offer an inventory management system that incorporates
inventory management capabilities with a point of sale computer, printer, label
printer, credit card reader, bar code scanner and cash register. We anticipate
that users of the turn-key inventory management system will be connected to the
Internet with a persistent or "always on" connection in order to facilitate
transactions and offer real-time response to customers. Currently, a modem
dial-up to a local ISP through an additional phone line will suffice for
item-uploading purposes.
Web Transaction Interface: Our web transaction interface is expected to use
industry standard credit card clearing and security procedures such as SSL and
online transaction processing services. We anticipate that our web site will
also include custom components and the ability to randomly browse for
interesting merchandise, for an online experience more like shopping in
brick-and-mortar stores.
Pawnbroker.com Database: We intend to use the services of database
administrators who will maintain the underlying structure of the Pawnbroker.com
database. Vahid Rafizadeh, our Chief Technical Officer, is in the process of
selecting a database administrator to maintain our database. Our Pawnbroker.com
database was developed by Banshee based on the specifications of the
Pawnbroker.com transaction model and information architecture.
Each participating pawnshop will be required to have Internet access and
hardware that meets minimum system requirements. See "Participating Pawnbroker
Systems Requirements." We intend to provide technical assistance to
participating pawnshops, including assistance with hardware system
configuration, software installation and technical support by telephone. We
anticipate that our technical support staff will assist participating pawnshops
in our initial launch pilot program without costs and, thereafter, we intend to
provide on site technical support to participating pawnshops for a fee based on
our actual costs.
Participating Pawnbroker Systems Requirements
We anticipate that each pawnshop will be connected to the Internet with a local
Internet service provider dial-up connection with a dedicated phone line in
order to facilitate transactions and offer real-time response to customers. A
persistent connection is highly recommended, but is not a requirement. The
minimum systems requirement for participating pawnshops consist of an
IBM-compatible PC, with a minimum of 32MB of RAM, a P-166 processor, 500MB of
available disk space, a VGA card and a 28.8 kbps modem. We expect most systems
in use and any value-priced new system to exceed these requirements. Our
software will require that the pawnshop's system run Windows 95/98 and recommend
that pawnshops use a digital camera to take advantage of our graphic
capabilities. We intend to offer hardware configurations to participating
pawnshops in the future that will consist of a computer, laser printer, high
speed modem, credit card reader, digital camera and bar code scanner.
In the future, we intend to develop software and a hardware system configuration
that can replace the software being used by participating pawnshops to permit
the posting of the pawnshops' entire inventory on our Pawnbroker.com web site.
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Intellectual Property and Trademarks
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our success. We have filed trademark
applications with the United States Patent and Trademark Office for
"Pawnbroker.com", our Pawnbroker.com logo and "FreeFall." We are in the process
of filing trademark applications for "RecoverIt" and "SecureIt." We intend to
rely on a combination of patent, copyright, trademark, service mark and trade
secret laws and contractual restrictions to protect our proprietary rights in
products and services. We intend to enter into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with third parties with access to our business information and to
limit access to and disclosure of our proprietary information. These contractual
arrangements and the other steps taken by us to protect our intellectual
property may not prevent misappropriation of our technology or deter independent
third-party development of similar technologies.
We anticipate that we may receive communications alleging that certain items
listed or sold on Pawnbroker.com by our users infringe third-party copyrights,
trademarks and tradenames or other intellectual property rights. Upon receipt of
a written claim of intellectual property infringement, we intend to remove the
offending item from the Pawnbroker.com web site and take actions to prevent
future infringing by listing pawnshops. An allegation of infringement of
third-party intellectual property rights may result in litigation against us.
Any such litigation could be costly, could result in increased costs of doing
business through adverse judgment or settlement, could require us to change our
business practices in expensive ways, or could otherwise harm our business.
Sales & Marketing Strategy
Our goal is to be a leading facilitator of transactions between pawnbrokers and
purchasers of merchandise from pawnshops. Our marketing strategy is designed to
strengthen the Pawnbroker.com brand name, increase customer traffic to our
Pawnbroker.com web site, build strong customer loyalty, maximize repeat
purchases and develop incremental revenue opportunities. Our marketing strategy
and promotional activities will be aimed at both pawnshops that can benefit from
our services and the consumer.
We intend to employ a variety of methods to promote our brand and attract
potential buyers. We believe that our domain name is easy to remember and easy
to associate with the products we intend to list and the services we provide. We
intend to use our domain name to market our web site and establish the brand
name "Pawnbroker.com."
We expect our Internet advertising campaign to include banner ads. We intend to
engage in a coordinated program of print advertising in specialized and general
circulation newspapers and magazines. We will place additional advertisements
regionally in those areas we target for expansion. We expect the advertisements
in traditional media to result in traffic to our web site. We believe that such
advertising will serve to increase awareness of the Pawnbroker.com brand and our
URL. We also intend to provide superior customer service in an effort to
generate positive word of mouth referrals to our web site.
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Our marketing efforts directed to existing pawnshops will include participation
in industry trade shows and direct selling efforts. We have exhibited in and/or
participated in the following industry trade shows and conventions:
o National Pawnbroker's Association Convention in June 1999;
o Florida State Pawnbroker's Convention in August 1999;
o Oklahoma State Pawnbroker's Convention August 1999; and
o North Carolina State Pawnbroker's Convention in October 1999.
We have presented our web site concept to over 3,000 pawnshops and have oral
expressions of interests or requests for additional information from approximate
2,000 of these pawnshops. We anticipate that we will exhibit in the California
State Pawnbroker's Convention in November 1999.
Based on feedback from potential participating pawnshops, we anticipate that the
benefits to pawnshop owners of a ready to use electronic-commerce Internet
solution will outweigh the initial cost of installing a compatible computer
system and the administrative cost of posting products. We anticipate that we
will install all the necessary hardware and software in the Pacific Pawnbrokers
stores and certain other test stores to beta test our technology, and that our
representatives will work closely with these stores' owners, managers, and
employees to bring the stores online and to test our systems.
We also intend to implement an after-sale marketing program that we anticipate
will include customer promotional and incentive programs to support customer
retention and to promote the Pawnbroker.com brand. Other programs targeted at
participating pawnshops may include volume discounts, software updates and
in-store promotional materials.
Employees
We currently have 10 employees. In addition to management, we employ marketing,
sales, product development and technical personnel. We expect to hire a customer
service manager, database administrator, a developer/IT specialist, customer
service representatives, technical support representatives and a Producer/HTML
code developer. In total, we expect to have a staff of 20 to 30 when we launch
of our full-scale operations, scheduled for the first quarter of 2000.
Development of Our Business to Date
Since June 30, 1999, we have taken the following steps to implement our business
plan:
o Acquired Pawnbroker.com (Nevada).
o Developed the Pawnbroker.com business plan and marketing strategy.
o Began development of operating software for our Pawnbroker.com web site.
o Secured computer software licenses related to our Pawnbroker.com
technology.
o Assembled a board of advisors to assist us in developing our policies and
procedures.
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o Obtained oral commitments from 65 pawnshops to assist us in beta testing
our software and web site.
o Completed a private placement totaling $3,003,000, which we anticipate will
provide sufficient capital to develop our plan through the fourth quarter
1999.
o Hired Neil McElwee, our Chief Executive Officer, and Vahid Rafizadeh, our
Chief Technology Officer, to join our executive and management team.
o Negotiated consulting and software development agreement with Banshee, Inc.
to develop software, technology and our web site.
o Entered into a strategic relationship with Pacific Pawnbrokers of Nevada to
assist us in the testing of our technology and implementation of live
testing of our Pawnbroker.com web site.
o Attended a variety of trade shows and conventions to present our
Pawnbroker.com concept to potential participating pawnshops.
History of Our Corporation
We were incorporated in the State of Delaware on February 13, 1998 as "Digital
Sign Corporation" with an authorized share capital of 70,000,000 shares
consisting of 50,000,000 shares of common stock, with a par value of $0.00001
per share, and 20,000,000 shares of preferred shares, with a par value of
$0.00001 per share.
We were initially organized to acquire the issued and outstanding shares of
Digital Sign, Inc., a California corporation, and to engage in the business of
development and sales of scrolling outdoor digital display signs for commercial
businesses. On February 14, 1998, we issued 100,000 shares at par value for all
of the issued and outstanding shares of Digital Signs, Inc., which had no assets
or liabilities, to Edward F. Meyers III, our then President. We were unable to
obtain sufficient financing to implement our business plan, and we were inactive
until April 1999.
On April 6, 1999, we acquired all of the issued and outstanding shares of common
stock of Eriko Internet Inc., a Washington corporation engaged in the business
of developing Internet technologies, pursuant to a statutory share exchange
under the laws of the state of Washington. See "Our Acquisition of Eriko
Internet, Inc."
On June 10, 1999, we amended our Articles of Incorporation to (i) change our
name from "Digital Sign Corporation" to "Pawnbroker.com, Inc." and (ii) to
effect a 1-for-4 reverse-split of our issued and outstanding share capital.
Prior to the reverse-split, we had 37,499,000 issued and outstanding shares of
common stock, and after giving effect to the reverse-split, we had 9,374,750
issued and outstanding shares of common stock.
On June 14, 1999, we acquired all of the issued and outstanding shares of
Pawnbroker.com, Inc., a Nevada corporation, in exchange for 6,240,000 shares of
our common stock. See "Our Acquisition of
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Pawnbroker (Nevada)." The Nevada corporation was a shell company with no assets,
liabilities, revenues or expenses.
Our common stock is currently quoted on the National Association of Securities
Dealers' over-the-counter bulletin board and trades under the symbol "PBRR".
Our corporate organization structure is as follows:
Pawnbroker.com, Inc.
Organizational Chart
--------------------------------------
Pawnbroker.com, Inc.
a Delaware corporation
--------------------------------------
<TABLE>
- ------------------------------------- -------------------------------------- ----------------------------------
<S> <C> <C>
Eriko Internet Inc. Pawnbroker.com, Inc. Digital Signs, Inc.
a Washington corporation "Pawnbroker (Nevada)" a California corporation
a Nevada corporation
- ------------------------------------- -------------------------------------- ----------------------------------
www.pawnbroker.com -
Inactive Internet Marketing Inactive
</TABLE>
We have not been subject to any bankruptcy, receivership or other similar
proceeding.
Our Acquisition of Eriko Internet, Inc.
On April 6, 1999, we acquired all of the issued and outstanding shares of common
stock of Eriko Internet Inc., a Washington corporation, pursuant to a statutory
share exchange under the laws of the state of Washington. Pursuant to an
Agreement and Plan of Share Exchange, we issued four (4) shares of our common
stock for each one share of common stock of Eriko Internet Inc. We issued
8,500,000 (post-split) shares of our common stock to the shareholders of Eriko
Internet Inc. in exchange for their shares. The value of the shares was based on
a valuation of the net book value of assets acquired of Digital Sign Corporation
in the amount of $3,007. See "Recent Sale of Unregistered Securities."
As a result of the share exchange, control of the combined companies passed to
the former shareholders of Eriko Internet Inc. and Eriko became our wholly-owned
subsidiary. However, for accounting purposes, we accounted for the share
exchange as a capital transaction accompanied by a recapitalization of Eriko
rather than a business combination. See "Financial Information - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
On May 19, 1999, Cameron Woodbridge, a founding shareholder of Eriko Internet,
Inc., contributed 1,000,000 pre-consolidation shares to the corporation for
$250. The shares were initially issued as founder's shares for nominal
consideration by Eriko Internet, Inc., subject to Mr. Woodbridge serving as a
director and officer of Eriko. Mr. Woodbridge contributed the shares because he
was no longer actively involved in Eriko at the time of our share exchange with
Eriko.
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Our Acquisition of Pawnbroker (Nevada)
On June 14, 1999, we acquired all of the issued and outstanding share capital of
Pawnbroker (Nevada), our wholly-owned subsidiary, by issuing a total of
6,240,000 shares of our common stock at par value to Joseph Schlader, Cheryl
Schlader and William Galine. As a result of the acquisition, we acquired all of
the assets of Pawnbroker (Nevada), which consisted of the business concept of
offering the merchandise of pawnshops on the Internet, and are currently
pursuing a business plan based on Pawnbroker (Nevada)'s business concept.
Pawnbroker (Nevada) had no assets or liabilities at the time of the acquisition.
Under the terms of the acquisition agreement:
(a) We effected a 1-for-4 reverse split of our share capital, whereby our then
outstanding capital of 37,499,000 shares of common stock, was consolidated
into 9,374,750 shares of common stock.
(b) We issued 6,240,000 post-split shares to Joseph Schlader (1,541,200
shares), Cheryl Schlader (1,591,200 shares), and William Galine (3,057,600
shares) for all of the issued and outstanding shares of common stock of
Pawnbroker (Nevada).
(c) We completed a private placement of 1,300,000 units at $2.31 per unit to
Packard Financial Group Inc., for proceeds to us of $3,003,000. Each unit
consisted of one share of common stock and one-half of one non-transferable
share purchase warrant. Each whole share purchase warrant is exercisable to
acquire one additional share of our common stock at a price of $2.31 per
share until June 23, 2000, and thereafter at a price of $2.90 per share
until June 23, 2001. See "Recent Sales of Unregistered Securities."
(d) We filed this Form 10 registration statement with the SEC to register our
common stock under the Exchange Act of 1934, as amended.
(e) We appointed Joseph Schlader and William Galine as directors and officers
of our corporation.
(f) We acquired all of the issued and outstanding shares of Pawnbroker
(Nevada), and we commenced the development of technology, software and
systems to launch our Pawnbroker.com web site.
The terms of the share exchange agreement were negotiated at arms' length by
parties represented by separate counsel. Prior to the share exchange, none of
our officers and directors had any relationship with Pawnbroker (Nevada) or its
officers, directors or shareholders.
RISK FACTORS
We are a development stage company in the process of developing an Internet
based business that is designed to allow pawnshops throughout North America the
ability to post merchandise for sale on the Internet and allow visitors to our
web site to search the inventories of participating pawnshops for merchandise.
Our business is subject to a number of risks, as outlined below. An investment
in our securities is speculative in nature and involves a high degree of risk.
You should read this registration statement carefully and consider the following
risk factors.
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Our ability to meet our business projections through the second quarter of 2000
may depend on the securing of additional operating capital in the amount of $5
million or more in the fourth quarter of 1999
In their independent auditor's report dated November 2, 1999, Davidson & Co.,
our auditors, expressed substantial doubt about our ability to continue as a
going concern due to our lack of working capital for our planned business
activities. We anticipate we may need to seek additional capital in the amount
of $5 million or more in the fourth quarter of 1999 to support our capital
requirements through the second quarter of 2000. We cannot assure you that any
additional financing would be available or, if available, that it would be
available on terms acceptable to us. See "Note Regarding Forward Looking
Statements." Furthermore, any issuance of additional securities may result in
dilution to the then existing shareholders. If adequate funds are not available,
we will lack sufficient capital to pursue our business plan fully, which will
have a material adverse effect upon our ability to meet our business
projections.
We have a limited operating history and a history of losses, which makes our
ability to continue as a going concern questionable
We have incurred net losses since our inception and anticipate that we will
continue to incur losses. During the period beginning from our inception on
February 5, 1999 to June 30, 1999, we incurred cumulative net losses of
$203,349. We had no revenues prior to June 30, 1999. During this period, we
incurred operating expenses of $203,349 and spent $364,354 on property and
equipment, including $125,000 to acquire our domain names, $210,518 on equipment
and software, and $28,835 on furniture and fixtures. We do not believe that we
will generate sufficient revenues to support our operations in fiscal 1999
because of our projected development and marketing costs. Therefore, in the
foreseeable future, we believe that such expenses will increase our net losses,
and we cannot assure you that we will ever be profitable.
As of June 30, 1999, we had approximately $2,862,751 in cash. We believe that we
will, on average, spend approximately $349,000 per month through the third
quarter of 1999, and approximately $440,000 to $500,000 per month thereafter
until we can generate revenues from our operations. We anticipate raising
additional capital through sales of our equity and/or debt; however, we cannot
assure you that we will be able to obtain adequate financing to support our
operations or that our estimates of our expenses will be accurate.
Because we have recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. We cannot assure you that we will attract
participating pawnbrokers, buyers or advertisers, to use our web site or
generate significant revenues in the future. We cannot guarantee we will ever
establish a sizeable market share or achieve commercial success.
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Our success depends on the services of our key officers, Neil McElwee, our Chief
Executive Officer, Joseph Schlader, our President and Co-Founder, and William
Galine, our Vice President and Co-Founder, and our ability to attract and
maintain qualified, experienced personnel
Our future success will depend on Neil McElwee, our Chief Executive Officer,
Joseph Schlader, our President and Co-Founder, William Galine, our Vice
President and Co-Founder, and Vahid Rafizadeh, our Chief Technical Officer. We
also rely upon consultants and advisors who are not employees like Banshee,
Inc., our software developer. The loss of key personnel could have an adverse
effect on our operations. We are in the process of obtaining insurance to cover
losses that may result from the death of any of our key personnel, but do not
have coverage at this time. Competition for qualified employees is intense, and
an inability to attract, retain and motivate additional, highly skilled
personnel required for expansion of operations and development of technologies
could adversely affect our business, financial condition and results of
operations. Each of our officers and directors has been affiliated with us for
less than six months, including Mr. McElwee and Mr. Rafizadeh, who joined us in
the past two months. Our ability to retain existing personnel and attract new
personnel may also be adversely affected by our financial situation. We cannot
assure you that we will be able to retain our existing personnel or attract
additional, qualified persons when required and on acceptable terms.
We may be required to sell additional common stock or parties may exercise
options and warrants that cause dilution of your shares
The number of shares of our outstanding common stock held by non-affiliates is
large relative to the trading volume of the common stock. Any substantial sale
of our common stock or even the possibility of such sales occurring may have an
adverse effect on the market price of the common stock.
As of August 15, 1999 we had outstanding warrants to purchase an aggregate of
650,000 shares of our common stock at $2.31 per share until June 23, 2000 and
thereafter at $2.90 per share until June 23, 2001.
Under our agreement with IRG Investor Relations Group Ltd., a consultant to
Pawnbroker.com, Inc., we granted options, vesting immediately upon grant, to
acquire 250,000 shares of our common stock at $6.75 per share and options to
acquire an additional 150,000 shares of our common stock at $6.75 per share,
vesting to acquire 50,000 shares each time we successfully obtain financing of
$5,000,000 or more.
We have reserved up to an additional 2,000,000 shares of common stock for
issuance upon exercise of options under an incentive plan, which our Board of
Directors and a majority of our shareholders approved and adopted on October 28,
1999. We agreed to grant options to acquire up to 690,000 shares of our common
stock to the following employees under the plan:
o We agreed to grant Joseph Schlader, our President, options to acquire
250,000 shares of our common stock at $6.75 per share, vesting pro rata 25%
on each anniversary date, June 14, of his employment over the next four
years.
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o We agreed to grant William Galine, our Vice President, options to acquire
100,000 shares of our common stock at $6.75 per share, vesting pro rata 25%
on each anniversary date, June 14, of his employment over the next four
years.
o We agreed to grant Mr. Rafizadeh, our Chief Technical Officer, options to
acquire up to 340,000 shares of our common stock. We are in the process of
entering into a definitive employment agreement with Mr. Rafizadeh with
regard to the terms of his compensation and options grants.
(a) We have agreed to grant options to acquire 170,000 shares exercisable
at $6.75 per share, vesting as follows: 100,000 in September 2000,
35,000 in October 2001, and 35,000 in October 2002, provided Mr.
Rafizadeh is an employee of our company on such date.
(b) We have also agreed to grant Mr. Rafizadeh, in each of his second and
third years of employment with our company, options to acquire 85,000
shares, exercisable at $6.75 per share and vesting over three years,
provided that our company meets certain milestones and that Mr.
Rafizadeh is an employee of our company on such date. We have not
determined these milestones.
On October 28, 1999, our Board of Directors and a majority of our shareholders
approved and adopted an incentive stock option plan. We intend to grant options
to Mr. Schlader, Mr. Galine and Mr. Rafizadeh in November 1999.
We are in the process of negotiating and finalizing a definitive employment
agreement with Neil McElwee, our Chief Executive Officer. We have agreed to
grant options to Mr. McElwee exercisable at $6.75 per share to acquire a total
of 782,590 shares of our common stock vesting on anniversary dates as follows,
provided Mr. McElwee is an employee on such date: 260,864 on September 12, 2000;
260,863 on September 12, 2001; and 260,863 on September 12, 2002.
Holders of such warrants and options are likely to exercise them when, in all
likelihood, we could obtain additional capital on terms more favorable than
those provided by the options and warrants. Further, while our warrants and
options are outstanding, our ability to obtain additional financing on favorable
terms may be adversely affected.
The e-commerce industry is highly competitive, and we cannot assure you that we
will be able to compete effectively
The market for Internet products, services and marketing is new, rapidly
evolving and intensely competitive. Our Pawnbroker.com web site will potentially
compete with many providers of web classified advertisers, auction sites, web
sites of independent and chain pawnshops, and other e-commerce transaction
facilitators as well as traditional distribution channels including brick and
mortar stores. See "Competition." We expect competition to intensify in the
future. Barriers to entry may not be significant, and current and new
competitors may be able to launch new web sites at a relatively low cost.
Accordingly, we believe that our success may depend heavily upon achieving
significant market acceptance before our competitors and potential competitors
introduce competing services.
Many of our competitors offer additional features and content that we have
elected not to offer. Also, many of these competitors, as well as potential
entrants into our market, have longer operating histories, larger customer or
user bases, greater brand recognition and significantly greater financial,
marketing
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and other resources than we do. Many of these current and potential competitors
can devote substantially greater resources to promotion and Web site and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of
services similar to ours. Any of these trends may increase the competition we
face and could adversely affect our business and operating results.
If we are unable to successfully develop a network of participating pawnshops
who are willing to adhere to our policies, we are unlikely to become profitable
We are currently in the process of developing a network of relationships with
participating pawnshops. We estimate that we will need to bring approximately
2,000 pawnshops offering an average of 500 items of merchandise into our system
by December 2000 to meet our goals. We cannot guarantee that these relationships
will develop, or that they will develop in a satisfactory manner.
We intend to rely on participating pawnshops to post merchandise for sale on
Pawnbroker.com; update their available inventories; accept offers or submit
counteroffers in a timely manner; pack, label and ship merchandise to buyers;
and notify us when merchandise is returned by buyers under our Pawnbroker.com
Satisfaction Program. Most pawnshops have only limited experience, if any, with
merchandising products on the Internet and have not devoted a significant
portion of their marketing and sales expenditures to Internet marketing. We
initially intend to target a fragmented market of small to medium sized
pawnshops, some of which may not have computer based inventory management
systems or a computer system. Some pawnshops may be unwilling to invest the
capital required to establish such a system and others may be adverse to change
and may not participate because of a lack of technological proficiency or
Internet familiarity. We cannot predict if the level of acceptance by pawnshops
will support a market for our Internet based solution for merchandising
products.
If we are unable to achieve a significant number of visitors, successfully
facilitated transactions and consumers, we may be unable to generate sufficient
revenues to earn a profit
The success of our Pawnbroker.com web site may be dependent upon achieving
significant market acceptance of our web site by consumers. We anticipate that
this point will be reached when 10,000 visitors visit our web site regularly and
facilitate 1,000 or more transactions per day. Our Pawnbroker.com web site has
not been tested and we anticipate that we will have very limited market
acceptance until our brand name is established. Internet e-commerce is in the
early stage of development, and our business concept of offering an Internet
solution for merchandising to participating pawnshops has not been tested.
Our competitors and potential competitors may offer more cost-effective
merchandising solutions than us, which could damage our business and our ability
to successfully launch our web site. Our failure to attract visitors,
successfully complete transactions and generate pawnshop participation in our
program will seriously harm our business and our ability to earn a profit.
We are in the process of developing a policies and procedures manual, which
participating pawnshops will be required to agree to prior to posting
merchandise. If participating pawnshops do not follow our policies and
procedures or such policies and procedures do not allow us to facilitate
transactions in an
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efficient manner, we may be unable to facilitate a sufficient number of
transactions to be commercially viable.
If we are unable to develop online relationships with a network of affiliates
who provide links or other referrals to our web site, our web site may never
achieve market acceptance or generate any significant revenues
We anticipate that our Pawnbroker.com web site may depend on traffic from a
limited number of third party web sites. We anticipate we may obtain traffic
from these sources pursuant to short-term agreements. We currently have no
agreements in place and there can be no assurance that they will be successful
in obtaining any of these agreements on commercially acceptable terms.
We may not be able to enter into arrangements with Internet affiliates to direct
Internet traffic to our Pawnbroker.com web site. Potential affiliates include
those businesses, such as America Online, Yahoo! and Excite, that index Internet
resources or publish Internet finding aids, and other compatible businesses with
which we might establish mutual links or other forms of mutual referrals,
including co-branding. We believe that establishing these relationships is
important in order to facilitate broad market acceptance of our service and
enhance our sales. Our future ability to attract consumers to our Pawnbroker.com
web site service may be dependent upon the growth of our network of affiliates,
which has not yet been established. If we are unable to obtain agreements or
arrangements for traffic on commercially acceptable terms or to establish a
relationship with a network of affiliates, our Pawnbroker.com web site business
may never be successfully launched. We cannot guarantee that we will be
successful in obtaining any of these agreements on commercially acceptable
terms.
We have capacity constraints and system development risks that could damage our
customer relations or inhibit our possible growth, and we may need to expand our
management systems and controls quickly
Our success and our ability to provide high quality customer service largely
depends on the efficient and uninterrupted operation of our computer and
communications systems and the computers and communication systems of third
party vendors in order to accommodate any significant numbers or increases in
the numbers of consumers and pawnshops using our services. Our success also
depends upon us and our vendors' abilities to rapidly expand
transaction-processing systems and network infrastructure without any systems
interruptions in order to accommodate any significant increases in use of our
service. We are still in the process of negotiating with potential providers of
such services and have not entered into any definitive agreements related to the
server, computer and communications systems required for our Pawnbroker.com web
site. We cannot assure you that we will enter into such agreements in a timely
manner, on acceptable terms or that the vendor we select will be capable of
accommodating any significant numbers or increases in the numbers of consumers
and pawnshops using our services. Such failures will have a material adverse
affect on our business and results of operations.
We have entered into a software development agreement with Banshee, Inc. to
develop software, technology and our web site, and are dependent on Banshee,
Inc.'s ability to deliver such services. In the future, we intend to rely on
Banshee, Inc., and other software developers which we may hire in the future, to
assist us in expanding our data base, our transaction-processing systems and
network infrastructure as we grow. We may experience periodic systems
interruptions and infrastructural
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damage, which may cause customer dissatisfaction and may adversely affect our
results of operations. Limitations of our and our vendors' technology
infrastructure may prevent us from maximizing our business opportunities.
Changing technology may render our equipment, software and programming obsolete
or irrelevant
The market for Internet-based products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that we continually improve the performance,
features and reliability of our Internet-based products and services,
particularly in response to competitive offerings. We cannot guarantee that we
will be successful in responding quickly, cost effectively and sufficiently to
these developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by us to modify
or adapt our Internet sites and services and could fundamentally affect the
character, viability and frequency of Internet-based advertising, either of
which could have a material adverse effect on our business, financial condition
and operating results. In addition, new Internet-based products, services or
enhancements offered by us may contain design flaws or other defects that could
require costly modifications or result in a loss of consumer confidence, either
of which could have a material adverse effect on our business, financial
condition and operating results.
Increased security risks of online commerce may deter future use of our services
which may adversely affect our ability to generate revenues
Concerns over the security of transactions conducted on the Internet and the
privacy of consumers may inhibit the growth of the Internet and online commerce.
Our inability to prevent security breaches could significantly harm our business
and results of operations. We cannot be certain that advances in computer
capabilities, new discoveries in the field of cryptography, or other
developments will not result in a compromise or breach of the algorithms used to
protect our transaction data. Anyone who is able to circumvent our or our third
party vendors' security measures could misappropriate proprietary information,
cause interruptions in their operations or damage our brand and reputation. We
may be required to incur significant costs to protect against security breaches
or to alleviate problems caused by breaches. Any well-publicized compromise of
security could deter people from using the Internet to conduct transactions that
involve transmitting confidential information or downloading sensitive
materials.
We depend on third parties for uninterrupted Internet access and may be harmed
by the loss of any such service
We are in the process of negotiating the terms of an agreement with an Internet
service provider located in Reno, Nevada, for uninterrupted Internet access. We
will depend upon a third party Internet service provider to provide us with
Internet access, third party software development companies to upgrade the
software we may incorporate into our server and web site software and third
party credit card processing services to process credit card transactions. We
have not entered into a definitive agreement for such services. In addition, our
customers will require the services of telecommunications or cable companies for
access to the Internet and our web site. Our business is dependent on
uninterrupted Internet access
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and the loss of such services may have a material adverse effect on our
business, financial condition and operating results. We also intend to rely on
third parties for most of the information and content on our web site, including
the National Association of Pawnbrokers, and the loss of services of from any
one or more of these third party content providers will may have a material
adverse affect on our business. We cannot assure you that we would be able to
obtain such services from other third parties in the event of the loss of any of
such services.
Our business may be harmed by claims that we have infringed intellectual
property rights of others
Claims of infringement are becoming increasingly common as the software industry
develops and legal protections are applied to software products. Litigation may
be necessary to protect our proprietary technology, and third parties may assert
infringement claims against us with respect to their proprietary rights. Any
claims or litigation can be time-consuming and expensive regardless of their
merit. Infringement claims against us could cause product release delays,
require us to redesign our products or require us to enter into royalty or
license agreements, which agreements may not be available on terms acceptable to
us or at all.
We cannot assure you that we will not be subject to third-party infringement
claims, especially as the number of competitors in our industry segment
increases.
Our success may depend on developing and defending intellectual property rights
without which competitors may copy aspects of our products or services
Our success and ability to compete are substantially dependent upon our
technology and data resources, which we intend to protect through a combination
of patent, copyright, trade secret and/or trademark law. We have no patents or
trademarks issued to date on our technology. We submitted applications with the
Trademark Office to trademark our Pawnbroker.com logo and the names
`Pawnbroker.com' and "FreeFall." We are in the process of filing trademark
applications for "RecoverIt" and "SecureIt."
We also intend to patent our business model and the proprietary features of our
service. Fenwick & West, L.L.P. is assisting us with our intellectual property
claims.
We cannot assure you that our intellectual property protection applications will
be granted or that we will be able to continue to successfully negotiate
agreements protecting our intellectual property. In addition, despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or services or to obtain and use information that
we regard as proprietary. Third parties may also independently develop similar
technology without breach of our proprietary rights. In addition, the laws of
some foreign countries do not protect the proprietary rights to the same extent
as do the laws of the United States.
If we cannot protect our Internet domain name, our ability to conduct our
operations may be impeded
We anticipate that the Internet domain name, "pawnbroker.com" will be an
extremely important part of our business and the business of our subsidiaries.
We own both the "pawnbroker.com" and
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"pawnbrokers.com" domain names. Additionally, we own at this time, the following
domain names: "buysellshops.com", "bargainpurchase.com", "fairbargain.com",
"fairbargains.com", "collectibleshops.com" and "rarebargains.com". Governmental
agencies and their designees generally regulate the acquisition and maintenance
of domain names. The regulation of domain names in the United States and in
foreign countries may be subject to change in the near future. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. Therefore, we may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise decrease
the value of our trademarks and other proprietary rights. Third parties have
acquired domain names that include "pawnbroker" or variations thereof both in
the United States and elsewhere.
Our Pawnbroker.com business may be subject to government regulation and legal
uncertainties that may increase the costs of operating our web site or limit our
ability to generate revenues
We are subject to the same federal, state and local laws as other companies
conducting business on the Internet. Today there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that laws
and regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. In
addition, numerous states have regulations regarding the manner in which certain
types of transactions that may be considered "auctions" may be conducted and the
liability of "auctioneers" in conducting such auctions. We have not made a
determination with respect to the applicability of such regulations on business
to date and little precedent exists in this area. One or more states may attempt
to impose these regulations upon us in the future, which could have a material
adverse affect on our business.
Due to the global nature of the Internet, it is possible that the governments of
other states and foreign countries might attempt to regulate our transmissions
or prosecute us for violations of their laws. We might unintentionally violate
such laws. Such laws may be modified, or new laws may be enacted, in the future.
Any such development could damage our business.
Participating pawnshops may be subject to regulatory review under state and
federal laws governing pawnbrokers
Our participating pawnshops' operations are generally subject to extensive
regulation, supervision, and licensing under various federal, state, and local
statutes, ordinances, and regulations. Such laws and regulations require
pawnshops to transaction business and sell merchandise in accordance with
specific guidelines, including the required time periods which pledges of
merchandise must be held before it may be sold, reporting and other obligations
related to stolen merchandise, the interest rates a pawnshop may charge for
loans, restrictions on the type of merchandise that may be pawned, restrictions
on who may
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pawn merchandise and other restrictions that may vary from state to state. Our
policies will require that all our participating pawnshops certify that they
will adhere to their individual compliance obligations. We cannot guarantee that
we will not be subject indirectly to actions arising out of violations by our
participating pawnshops. Such action may have a material adverse affect on our
business and results of operations.
Our business may be harmed by the listing or sale by our users of illegal items
The law relating to the liability of providers of online services for the
activities of their users on their service is currently unsettled. We are aware
that certain goods, such as firearms, other weapons, adult material, and other
goods that may be subject to regulation by local, state or federal authorities
that may be listed and traded on our service. We will forbid the sale of any
firearms, weapons and adult materials to the public. We may be unable to prevent
the sale of unlawful goods, or the sale of goods in an unlawful manner, by users
of our service, and we may be subject to civil or criminal liability for
unlawful activities carried out by users through our service. In order to reduce
our exposure to this liability, we intend to implement protective measures to
prevent posting of such merchandise. Such measures could require us to spend
substantial resources and/or to reduce revenues by discontinuing certain service
offerings. Any costs incurred as a result of liability or asserted liability
relating to the sale of unlawful goods or the unlawful sale of goods, could harm
our business. In addition, we may receive media attention relating to the
listing or sale of unlawful goods on our Pawnbroker.com web site, which may
damage our brand name and make users reluctant to use our services.
Our business may be subject to sales and other taxes, which may cause
administrative difficulties and increase our cost of operations
We intend to rely on the participating pawnshop to collect applicable sales and
other similar taxes on goods sold on Pawnbroker.com. One or more states may seek
to impose additional sales tax collection obligations on companies such as ours
that engage in or facilitate online commerce. Several proposals have been made
at the state and local level that would impose additional taxes on the sale of
goods and services through the Internet. These proposals, if adopted, could
substantially impair the growth of electronic commerce, and could diminish our
opportunity to derive financial benefit from our activities. The U.S. federal
government recently enacted legislation prohibiting states or other local
authorities from imposing new taxes on Internet commerce for a period of three
years ending October 21, 2001. This tax moratorium will last only for a limited
period and does not prohibit states or the Internal Revenue Service from
collecting taxes on our income, if any, or from collecting taxes that are due
under existing tax rules. A successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the exchange of
merchandise on our system could harm our business and adversely affect our
results of operations.
Our business may be harmed by fraudulent activities on our web site
Our future success will depend largely upon pawnshops reliably delivering and
accurately representing their listed goods and buyers paying the agreed purchase
price. We intend to take responsibility for delivery of payment to our
participating pawnshops after the 10-day Pawnbroker.com Satisfaction
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<PAGE>
Program period. However, our systems may not prevent customer dissatisfaction or
the delivery of defective merchandise. We anticipate that we will receive
communications from users who did not receive the merchandise described or that
the merchandise was defective. While we can suspend the accounts of pawnshops
that fail to fulfill their delivery obligations to customers, we do not have the
ability to require pawnshops deliver goods or otherwise make consumers whole.
Any negative publicity generated as a result of fraudulent or deceptive conduct
by pawnshops of our service could damage our reputation and diminish the value
of our brand name. We may receive requests from customers requesting
reimbursement or threatening legal action against us if no reimbursement is
made. Any resulting litigation could be costly for us, divert management
attention, result in increased costs of doing business, lead to adverse
judgments or could otherwise harm our business.
We do not intend to declare dividends, which may lower the market value of our
shares
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
Broker-dealers may be discouraged from effecting transactions in our shares
because they are considered penny stocks and are subject to the penny stock
rules
Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales
practice and disclosure requirements on NASD brokers-dealers who make a market
in "a penny stock." A penny stock generally includes any non-NASDAQ equity
security that has a market price of less than $5.00 per share. Our shares are
quoted on the OTCBB and the closing price of our shares on September 30, 1999
was $4.813. Purchases and sales of our shares are generally facilitated by NASD
broker-dealers who act as market makers for our shares. The additional sales
practice and disclosure requirements imposed upon brokers-dealers may discourage
broker-dealers from effecting transactions in our shares, which could severely
limit the market liquidity of the Shares and impede the sale of our shares in
the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (generally, an
individual with net worth in excess of $1,000,000 or an annual income exceeding
$200,000, or $300,000 together with his or her spouse) must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to sale, unless the broker-dealer or
the transaction is otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the Commission relating to the penny stock market, unless the broker-dealer
or the transaction is otherwise exempt. A broker-dealer is also required to
disclose commissions payable to the broker-dealer and the registered
representative and current quotations for the securities. Finally, a
broker-dealer is required to send monthly statements disclosing recent price
information with respect to the penny stock held in a customer's account and
information with respect to the limited market in penny stocks.
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<PAGE>
Item 2. Financial Information.
Selected Financial Data
On April 6, 1999, we acquired all of the issued and outstanding shares of Eriko
Internet Inc. in exchange for 8,500,000 (post-consolidation) shares of our
common stock.). As a result of the share exchange, control of the combined
companies passed to the former shareholders of Eriko Internet Inc. and Eriko
became our wholly-owned subsidiary. However, for accounting purposes, we
accounted for the share exchange as a capital transaction accompanied by a
recapitalization of Eriko. Recapitalization accounting results in our
consolidated financial statements being issued under our name, Pawnbroker.com,
Inc., but our consolidated financial statements are considered a continuation of
Eriko Internet Inc.'s financial results. As a result, the financial statements
and the financial data contained in this registration statement represent (i)
the consolidated financial position of us and our subsidiaries as at June 30,
1999; (ii) the results of operations of Eriko for the period from February 5,
1999 (date of incorporation) to June 30, 1999; and (iii) the results of
operations and cash flows of Pawnbroker.com, Inc., Pawnbroker.com, Inc. (Nevada)
and Digital Signs Inc. from their deemed dates of acquisition during the period.
During the period from February 5, 1999, to April 6, 1999 (the date of the share
exchange), Digital Sign Corporation had no revenues, expenses or other
transactions. Accordingly, there would be no pro forma adjustments required to
reflect the share exchange and we have not provided pro forma financial
statements with this Registration Statement.
The following table sets forth selected financial data regarding our
consolidated operating results and financial position. The data has been derived
from our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
("US GAAP"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operation." The following selected financial data is qualified in
our entirety by, and should be read in conjunction with, the consolidated
financial statements and notes thereto included elsewhere in this Registration
Statement.
Period From
Inception on
February 5, 1999 to
June 30, 1999
----------------------
$
- ---------------------------------- ----------------------
Operating Revenues --
General & Administrative Expenses 203,349
Net (Loss) from Continuing (203,349)
Operations
Net Loss Per share (1) (0.02)
- ---------------------------------- ----------------------
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<PAGE>
June 30, 1999
-------------------
$
- ------------------------------------ -------------------
Working Capital 2,538,493
Total Assets 3,209,041
Total Liabilities 326,071
Shareholders' Equity 3,882,970
Long-term Obligations --
Cash Dividends --
- ------------------------------------ -------------------
(1) After giving effect to a 1-for-4 reverse stock split that occurred on June
9, 1999.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operation contains "forward looking
statements." Actual results may materially differ from those projected in the
forward looking statements as a result of certain risks and uncertainties set
forth in this report. Although management believes that the assumptions made and
expectations reflected in the forward looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual future results will not be different from the
expectations expressed in this Registration Statement.
Overview
We were incorporated in the State of Delaware on February 13, 1998 under the
name "Digital Sign Corporation" with an authorized share capital of 70,000,000
shares consisting of 20,000,000 Preferred shares of a par value of $0.00001 each
and 50,000,000 Common shares of a par value of $0.0001 each.
On April 6, 1999, we acquired all of the issued and outstanding shares of common
stock of Eriko Internet Inc., a Washington corporation engaged in the business
of developing Internet technologies, pursuant to a statutory share exchange
under the laws of the state of Washington. Our transaction with Eriko Internet
Inc. was considered a merger of non-operating entities with nominal assets and
Eriko Internet Inc. is deemed to be the surviving entity for accounting
purposes.
On May 14, 1999, we acquired all of the issued and outstanding shares of
Pawnbroker (Nevada). Pawnbroker (Nevada) was a shell company with no assets,
liabilities, revenues or expenses. After we acquired Pawnbroker (Nevada), we
undertook the process of designing, building and operating an Internet based
electronic-commerce Web site to provide retail customers with the ability to
search for and acquire, via the Internet, merchandise in inventories of
pawnshops throughout North America. At the time we acquired Pawnbroker (Nevada),
our operations were insignificant.
The financial statements filed with our Registration Statement and our
management's discussion and analysis of financial condition and results of
operation are for the period from February 5, 1999, the date of inception of
Eriko Internet Inc., to June 30, 1999.
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<PAGE>
Results of Operations
Period from our inception on February 5, 1999 to June 30, 1999
The period from February 5, 1999 to June 30, 1999 was our first period of
material operations. We had no revenues from operations. Our loss during this
period of $203,349 was as a result of costs associated with corporate
acquisition expenses, developing our business plan, research and development
expenditures related to the development of our Pawnbroker.com web site and
technologies and general overhead and administrative expenses. These expenses
included $33,517 in expenses related to marketing and promotion; $23,631 in
travel expenses; $36,089 in salary expenses; $27,000 in consulting and
management fees; $18,996 in professional fees; $21,865 in rent expenses and
$59,151 in expenses related to general administrative expenses and overhead.
We expect expenses related to research and development and administrative
expenses to continue to be a material component of our expenses during the
start-up phase of our development. We anticipate that professional fees will
increase during the start-up phase of our development and as we complete the
Exchange Act registration process. We also anticipate that expenses related to
marketing and sales will increase substantially during the fourth quarter ending
December 31, 1999 and the first half of 2000, as we begin an extensive campaign
to market and promote our Pawnbroker.com Web site and develop strategic
alliances with participating pawnshops.
With the receipt of $3,003,000 by the private placement of private placement of
1,300,000 units at $2.31 per unit, as at June 30, 1999, our working capital
increased to $2,538,493.
Liquidity and Capital Resources
As at June 30, 1999 we have $2,862,751 in cash or term deposits, which we
believe will be sufficient to satisfy our cash requirements through our third
fiscal quarter ending December 31, 1999. We will need to raise additional
financing to fund our operations after December 31, 1999. We intend to raise
such financing through private equity or debt offerings during the fourth
calendar quarter of 1999; however, we cannot assure you that we will acquire
this financing on acceptable terms, if at all.
Since our inception on February 5, 1999, we raised net cash from financing of
$3,293,326 during the fiscal quarter ended June 30, 1999, including $3,003,000
in capital through private placements of our common stock and $290,326 in
advances to us. Since our inception on February 5, 1999 to June 30, 1999, we
used net cash of $511,075. We received no cash from our operations during these
periods, and our use of cash during such periods were primarily as a result of
expenses related to research and development of our web site, expenses related
to marketing and promotion, salary expenses, professional fees and expenses
related to general administrative expenses and overhead.
During the period from our inception on February 5, 1999 to June 30, 1999, we
applied cash of $239,353 towards the purchase of capital assets and $125,000
towards the purchase of the domain names "pawnbroker.com" and "pawnbrokers.com".
Our cash position at June 30, 1999 was $2,862,751.
Our operating budget for the period beginning July 1, 1999 through December 31,
1999 is estimated to be approximately $2,358,449, and $3,617,684 for the period
beginning January 1, 2000 through June 30, 2000. We cannot assure you that our
actual expenditures for these periods will not exceed our estimated
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<PAGE>
operating budget. Actual expenditures will depend on a number of factors, some
of which are beyond our control, including, among other things:
(i) timing of the development and testing of our software and web
site,
(ii) our ability to attract visitors to our web site,
(iii) our ability to attract pawnshops to use our services,
(iv) our ability to launch our web site in a timely manner,
(v) our ability to successfully complete transactions,
(vi) the availability of financing on acceptable terms,
(vii) reliability of the assumptions of management in estimating cost
and timing,
(viii) the time spent by consultants and professionals developing our
web site,
(ix) competition; and
(x) other factors that may be beyond our control.
We estimate that we will be required to raise approximately $5 million in
additional capital during the fourth calendar quarter 1999 to meet our
anticipated cash needs during the first two calendar quarters of 2000. In their
independent auditor's report dated November 2, 1999, Davidson & Co., our
auditors, expressed substantial doubt about our ability to continue as a going
concern due to our lack of working capital for our planned business activities.
We estimate that our minimum cash requirement for the period from July 1, 1999
through June 30, 2000 is approximately $4 million, primarily for expenses
related to general over head and administration, launching and web site, web
site maintenance, web site and data base development, server maintenance and
costs associated with facilitating transactions between our customers and
participating pawnshops. As such, we will need to raise at least $1,250,000
during the first half of 2000 to remove the going concern qualification raised
by our auditors.
We intend to raise additional financing through private placements of our equity
or debt in the fourth quarter of 1999. We engaged Investor Relations Group to
assist us in develop a strategy to raise additional financing and to provide
investor relations services. Our relation with IRG has been as follows:
o IRG assisted in defining our investor relations goals and objectives;
o IRG Capital assisted us in preparing a corporate fact sheet for
distribution to targeted investment professionals and certain
accredited investors;
o IRG arranged periodic meetings with interested retail brokers, fund
managers and investment advisers;
o IRG provided potential investors with certain company approved due
diligence/investor relations kits; and
o IRG agreed to assist us in developing relationships with merchant and
investment banks, private placement professionals and other
intermediaries which could provide us with additional private
placement financing;
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<PAGE>
We have presented our business concept and marketing strategy to more than
twenty-one potential investors. We anticipate that we will complete a private
placement of approximately $5 million in the fourth calendar quarter of 1999.
We anticipate we will require approximately $12 million to meet our cash
requirements for the period from July 1, 2000 through December 31, 2000, and
approximately $21 million to meet our cash requirements for the calendar year
2001. Our cash requirements for these periods will primarily be to satisfy
expenses related to marketing our web site and web site and data base
development costs. Our marketing costs are expected to constitute approximately
65% - 75% of our total budget for these periods. We intend to meet our cash
requirements through revenues generated from our operations and private or
public placements of our equity or debt. We have not had any discussions related
to raising additional financing beyond our planned private placement in the
fourth calendar quarter 1999, and have no definitive plan to raise such
financing. Our auditors expressed substantial doubt about our ability to
continue as a going concern due to our lack of working capital for our planned
business activities. We estimate that our minimum cash requirement to remove the
going concern qualification raised by our auditor is approximately $7.5 million
for the 18 month period from July 1, 2000 through December 31, 2001, primarily
for expenses related to general overhead and administration, web site
maintenance, web site and data base development, server maintenance and costs
associated with facilitating transactions between our customers and
participating pawnshops.
We cannot assure you that we will successfully obtain additional financing on
acceptable terms, if at all. If we are unable to secure additional financing, we
intend to concentrate our resources on developing our web site and intend to
reduce the amount of resources we have budgeted for marketing our web site. Such
a reduction may have a material adverse affect on our business and results of
operations.
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<PAGE>
Recent Financing
Our business activities and operations have been funded to date through issuance
of shares of our common stock in the following transactions:
<TABLE>
Summary of Transactions
- --------------------------------------------------------------------------------------------------------------
Number of Shares Total Price of
Shares ($)
-------------------- --------------------
<S> <C> <C>
Founders shares issued at par value
(post-consolidated) 968,750(1) 388(1)
Issued as consideration for the acquisition of shares in
Digital Sign, Inc. (post-consolidated). 25,000(1) 10(1)
Issued for cash at $0.20 per share (post-consolidated) 24,875 4,975
Issued for cash issued at $0.05 per share (post-
consolidated). 106,125(1) 20,895(1)
Issued as consideration for the acquisition of shares in
Eriko Internet, Inc. (post-consolidated). 8,500,000(1)(2) 3,007(1)
Issued as consideration for the acquisition of all
the issued and outstanding shares of Pawnbroker.com. 6,240,000 Nil(3)
Cancellation/surrender of 250,000 shares (250,000)(4) (250)
Issued for cash at $2.31 per share(4) 1,300,000 3,003,000
- -------------------------------------------------------------------- -------------------- --------------------
TOTAL 16,914,750 3,032,087
</TABLE>
(1) On a post split basis. On June 10, 1999, we amended our Articles of
Incorporation to effect a 1-for-4 reverse stock split of our issued and
outstanding share capital.
(2) We issued 34,000,000 pre-split shares in connection with a statutory share
exchange between us and Eriko Internet, Inc.
(3) The shares were issued in exchange for all of the issued and outstanding
shares of Pawnbroker (Nevada) to Joseph Schlader, our President, Cheryl
Schlader, and William Galine, our Vice President. The shares were issued
based on the book value of Pawnbroker (Nevada), which was nil.
(4) On May 19, 1999, Cameron Woodbridge, a founding shareholder of Eriko
Internet, Inc., contributed 1,000,000 pre-consolidation shares to the
corporation for $250. The shares were initially issued as founder's shares
for nominal consideration by Eriko Internet, Inc., subject to Mr.
Woodbridge serving as a director and officer of Eriko. Mr. Woodbridge
contributed the shares because he was no longer actively involved in Eriko
at the time of our share exchange with Eriko.
(5) We issued 1,300,000 Units consisting of one Common share and one-half of
one common Share Purchase Warrant. Each whole Share Purchase Warrant is
exercisable to acquire one additional common share at $2.31 per share until
June 23, 2000 and at $2.90 per share until June 22, 2001. There can be no
assurance that such warrants will be exercised.
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<PAGE>
Year 2000 Compliance
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (i.e. December 31, 1999 would appear as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000, and
calculations using or reporting the date will not be correct and errors will
arise (the "Year 2000 Issue"). To prevent this from occurring, information
systems need to be updated to ensure they recognize dates during and after the
Year 2000.
The potential exists that we and each of our subsidiaries are exposed to a risk
that certain aspects of their businesses will fail or suffer impairment as a
result of internally operated or externally contracted hardware or software
systems and services not being able to correctly "rollover" dates to the new
century. The risk stems from our reliance on certain hardware, software and
services to carry out the daily operation of our proposed respective businesses.
The exposure may result from, amongst other things, the use of computers,
general software and servers for office purposes and data storage; connections
to and use of the services of Internet Service Providers and telephone companies
for office purposes and customer and investor relations; the software underlying
the operation of the Web site web site and the online business operations and
the Registrant's servers.
We have only been operating and developing our business during the last four
months and the office hardware, administrative general software, software
development tools, servers and services of Internet Service Providers and
telephone companies have been acquired during this period. As a result, and in
oral consultation with the suppliers of this hardware, software and services, we
believe the related systems that we intend, directly or indirectly, to use in
our respective businesses are Year 2000 compliant. Our due diligence also
included an evaluation of supplier provided technology and the implementation of
new policies to require our suppliers to confirm in writing that they have
disclosed and will correct Year 2000 compliance issues. We have not received
written confirmation from all of our vendors. Although we are relying primarily
on systems developed with current technology and on systems designed to be Year
2000 compliant, we may have to replace, upgrade or reprogram certain systems to
ensure that all interfacing technology will be Year 2000 compliant when running
jointly.
In the event that we incur expenses associated with resolving Year 2000
compliance issues, we intend to expense the operating costs as they are incurred
and capitalize the capital costs as they are incurred. However, our purchases of
hardware and general and specific purpose software have been relatively recent,
and the more expensive of the hardware and general and specific software items
that we have purchased are covered under warranties that will extend over the
rollover period to January 1, 2000. As a result, we do not expect to incur any
major operating or capital expenditures that would have a material impact on our
financial condition or results of operations.
While we believe that our hardware and general and specific purpose software
applications will be Year 2000 compliant, there can be no assurance until the
Year 2000 occurs that all systems will function adequately. In the worst case
scenario, a Year 2000 problem would cause Internet systems to fail and we would
not be able to commercially launch our web site. Such a failure would cause us
to delay our commercial launch until the Internet is operational, and would have
a material adverse affect on our business.
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<PAGE>
We do not currently anticipate any disruption in our operations as the result of
the Year 2000 issue. We do not have any information concerning the Year 2000
compliance status of our suppliers and customers that would affect our
operations. Any failure of our material systems, our vendors' material systems
or the Internet to be Year 2000 compliant may have a material adverse effect on
our business and results of operations.
In order to protect against the possibility of any material disruption in our
operations as the result of the Year 2000 issue we have taken the following
precautions:
- - developed, initiated and maintained procedures that ensure that the
information stored on the office computer hard drives are backed up on a
regular basis and stored safely;
- - copies of the source code for the special purpose software are maintained
in secure offsite locations by the developers of the software;
- - installed a backup server in Minden, Nevada at the headquarters of Banshee,
Inc.; and
- - implemented a policy of acquiring name brand hardware and retained
experienced consultants upon whose warranties we believe that we can rely.
We do not believe the Year 2000 issue will have any material affect on our
business or that we will have any material expenditures related to problems
arising out of the Year 2000 issue.
Quantitative and Qualitative Disclosures About Market Risks
We intend to transact our business in United States Dollars, and we anticipate
that we will have no material risks resulting from sales commitments, inventory
or similar items.
Item 3. Properties.
We currently lease our principal business office through our subsidiary, at 85
Keystone, Suite F, Reno, Nevada pursuant to a lease that expires on April 14,
2002. The monthly payments under the lease are approximately $1300.
Neither we nor any of our subsidiaries presently own or lease any other property
or real estate.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of August 15, 1999 by: (i) each
person (including any group) known to us to own more than five percent (5%) of
any class of our voting securities, (ii) each of our directors, and (iii)
officers and directors as a group. Unless otherwise indicated, the shareholders
listed possess sole voting and investment power with respect to the shares
shown.
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<PAGE>
<TABLE>
Title of Class Name and Address of Amount and Nature of Percentage of Class(1)
Beneficial Owner Beneficial Ownership
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Common Stock Dotcom Fund, S.A. 1,600,000 9.46%
Box 571, Providenciales,
Turks & Caicos Islands
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock Packard Financial Group 1,950,000(2) 9.01%(2)
#11 Old Parham Rd, St.
Charles Nevis, West Indies
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock Doug McLeod(3) 1,243,750 7.35%
688-6 Ishikawa, Kanagawa,
Japan
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock Neil McElwee nil nil
85 Keystone, Suite F
Reno, NV 89503
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock William Galine 3,057,600 18.08%
85 Keystone, Suite F
Reno, NV 89503
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock Cheryl Schlader(4) 3,182,400(4) 18.81%(4)
85 Keystone, Suite F
Reno, NV 89503
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock Joseph Schlader(5) 3,182,400 (5) 18.81%(5)
85 Keystone, Suite F
Reno, NV 89503
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Common Stock Officers and Directors as 6,240,000 36.89%
a Group
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
(1) Based on an aggregate of 16,914,750 shares outstanding as of September 30,
1999.
(2) Includes Warrants immediately exercisable to acquire 650,000 shares at
$2.31 per share until June 23, 2000 and at $2.90 per share until June 22,
2001.
(3) Doug McLeod served as an officer and director of the Registrant from March
1999 to September 30, 1999.
(4) Joseph Schlader and Cheryl Schlader are husband and wife. As such, each
would be deemed to be the beneficial owner the other's shares. Includes
1,591,200 shares of common stock owned by Cheryl Schlader.
(5) Joseph Schlader and Cheryl Schlader are husband and wife. As such, each
would be deemed to be the beneficial owner the other's shares. Includes
1,591,200 shares of common stock owned by Joseph Schlader.
Security Ownership of Management
We are not aware of any arrangement that might result in a change in control in
the future.
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<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Directors and Officers
All of our directors are elected annually by the shareholders and hold office
until the next annual general meeting of shareholders or until their successors
are duly elected and qualified, unless they sooner resign or cease to be
directors in accordance with our Articles and Bylaws. Our next regular meeting
will be held in September 2000. Our executive officers are appointed by and
serve at the pleasure of our Board of Directors.
As at November 3, 1999, the following persons were our directors, executive
officers, promoters and control persons:
<TABLE>
Principal occupation and if not at present an
Director elected director, occupation during the
Name and present office held since preceding five years
- ---------------------------- ----- --------------------
<S> <C> <C>
Neil McElwee, Chief Executive Officer September Internet Marketing Consultant - Principal of
1999 McElwee & Associates, a consulting firm, since
1996 to present; director of business
development for Infoseek Corporation from 1998
to 1999; Vice President of Marketing for Caligari
Corporation from 1995 to 1996.
Joseph Schlader, Promoter, Director and June 1999 Pawnbroker Executive - Director, Pacific
President(1) Pawnbrokers from 1981 to present.
William Galine, Promoter, Director and June 1999 Pawnbroker Executive - Secretary and Treasurer,
Vice President(1) Director, Pacific Pawnbrokers from 1984 to present.
Vahid Rafizadeh, Chief Technical Officer October 1999 Software Architect - Chief Technical Officer and
Vice President, KSM, Inc. from 1998 to 1999; Chief
Software Architect, Lockheed Martin from 1996 to
1998; software architect, North American Drager from
1994 to 1996.
Doug McLeod, Promoter(2) March 1999 Internet Consultant - Director AbleAuctions.com,
Inc. from May 1999 to present; Blue Zone
Entertainment Inc. from May 1999 to present;
President of Eriko Internet, Inc. from April 1999
to October 1999; Secretary of the Company from
April 1999 to October 1999; independent consultant
from 1995 to present.
Cheryl Schlader, Promoter June 1999 Pawnbroker Executive - President and Director, Pacific
Pawnbrokers from 1992 to present.
</TABLE>
- ----------------------
(1) Member of the Registrant's audit committee.
(2) Doug McLeod served as an officer and director of our company from March
1999 to September 30, 1999.
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<PAGE>
The following is a brief biographical information on each of the officers and
directors of listed:
Neil McElwee, Chief Executive Officer - Age 53
Mr. McElwee joined as our Chief Executive Officer in September 1999. He has been
a senior marketing and business development executive for over 15 years. Mr.
McElwee has been a principal of McElwee & Associates, a consulting firm, since
1996 to present. Mr. McElwee also served as a director of business development
for Infoseek Corporation, an Internet commerce company, from 1998 to 1999. Mr.
McElwee was Vice President of Marketing for Caligari Corporation, a marketer of
3D graphics and animation software, from 1995 to 1996. Mr. McElwee will be
employed full time with Pawnbroker.com
Joseph Schlader, Director, President - Age 47
Joseph Schlader, who played a central role in the formation of the
Pawnbroker.com (Nevada), was appointed our President and a director in June
1999. Schlader has over eighteen years experience in the pawnbrokering industry.
In 1981, Schlader founded Pacific Pawnbrokers in Sparks, Nevada. Since that
time, Pacific Pawnbrokers has expanded its operations to four stores located in
the Reno and Lake Tahoe areas. Schlader is also a graduate of the Gemological
Institute of America and a member in the National Pawnbrokers' Association.
William Galine, Director, Vice-President - Age 48
William Galine has joined the Company as Vice-President and director in June
1999. Galine has worked in the pawn industry for the from 1984 to 1999 expanding
Pacific Pawnbrokers' operations. Currently, Galine is the Secretary-Treasurer of
the Nevada Pawnbrokers' Association and a member of the National Pawnbrokers'
Association.
Vahid Rafizadeh, Chief Technical Officer - Age 41
Mr. Rafizadeh has served as our Chief Technical Officer since October 1999. He
has served as Chief Technical Officer and Vice President of Product Development
at KSM, Inc., a software developer from 1998 to 1999, a personalization engine
that delivered sales, marketing, and support programs. Prior to joining KSM,
Inc., Rafizadeh was Chief Software Architect for Lockheed Martin in Valley
Forge, Pennsylvania, from 1996 to 1998, where he directed all technical aspects
of several state-of-the-art imaging projects, including technical design and
quality of implementation. From 1994 to 1996, Mr. Rafizadeh served as lead
software architect for North American Drager, a developer of cardiac output
monitoring and anesthesia products for the health care industry.
Doug McLeod, Promoter - Age 39
Doug McLeod served as our Treasurer and a director from March 1999 to October
1999. Mr. McLeod has spent the last five years as an Internet consultant and is
the President, Founder and Promoter of Eriko Internet Inc. Mr. McLeod attended
York University in Toronto, Ontario from 1992 to 1995 under the University's
Bachelor of Arts program. Mr. McLeod also serves as a director of
Ableauctions.com Inc., an Internet provider of auctions services for retail
auction houses, since May 1999 and a director of Blue Zone International, Inc.,
a provider of high speed Internet services for businesses since June 1999.
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<PAGE>
Cheryl Schlader, Promoter - Age 50
Cheryl Schlader is the spouse of Joseph Schlader and a promoter of our company.
Ms. Schlader has over 10 years experience in the pawnbrokering industry and has
served as President and Director of Pacific Pawnbrokers since June 1999, and an
operations manager of Pacific Pawnbrokers from 1992 to 1999.
Other Information
Members of the Board of Directors are elected by our shareholders. Our Board of
Directors meets periodically to review significant developments affecting our
company and to act on matters requiring Board approval. Although the Board of
Directors delegates many matters to others, it reserves certain powers and
functions to itself. This committee is directed to review the scope, cost and
results of the independent audit of our books and records, the results of the
annual audit with management and the adequacy of our accounting, financial and
operating controls; to recommend annually to the Board of Directors the
selection of the independent auditors; to consider proposals made by the
Registrant's independent auditors for consulting work; and to report to the
Board of Directors, when so requested, on any accounting or financial matters.
None of our directors or executive officers is a party to any arrangement or
understanding with any other person pursuant to which said he was elected as a
director or officer.
None of our directors or executive officers has any family relationship with any
other officer or director.
None of our officers or directors have been involved in the past five years in
any of the following: (1) bankruptcy proceedings; (2) subject to criminal
proceedings or convicted of a criminal act; (3) subject to any order, judgment
or decree entered by any court limiting in any way his or her involvement in any
type of business, securities or banking activities; or (4) subject to any order
for violation of federal or state securities laws or commodities laws.
Item 6. Executive Compensation.
The following table contains information concerning the annual compensation and
long-term compensation to named executive officers during the period from our
inception on February 5, 1999 to March 31, 1999, and the compensation payable
for the during the fiscal year ended March 31, 2000.
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<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------- --------------------------- -----------
Awards Pay-outs
------------ -------------- -----------
Other Securities LTIP
Annual Restricted Under-lying Payouts All Other
Compen- Stock Options/SARs Compen-
Name and Salary Bonus sation Award(s) (#) sation
Principal Position Year Ended ($) ($) ($) ($) ($)
- ---------------------- ----------- ---------- ----------- ---------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Neil McElwee, 3/31/00 200,000 nil nil nil nil nil nil
Chief Executive 3/31/99 nil nil nil nil nil nil nil
Officer
Joseph Schlader, 3/31/00 90,000 nil nil nil nil nil nil
President 3/31/99 nil nil nil nil nil nil nil
William Galine 3/31/00 75,000 nil nil nil nil nil nil
Vice President 3/31/99 nil nil nil nil nil nil nil
Vahid Rafizadeh, 3/31/00 140,000 nil nil nil nil nil nil
Chief Technical 3/31/99 nil nil nil nil nil nil nil
Officer
</TABLE>
Our Directors do not receive any stated salary for their services as directors
or members of committees of the Board of Directors, but by resolution of the
Board, a fixed fee and expenses of attendance may be allowed for attendance at
each meeting. Directors may also serve our company in other capacities as an
officer, agent or otherwise, and may receive compensation for their services in
such other capacity.
Stock Options
We have not granted stock options/SARs to named executive officers.
We have reserved 2,000,000 shares for issuance pursuant to a stock option plan.
See "Description of 1999 Stock Option Plan." We anticipate we will grant options
to certain of our directors, executive officers and consultants in November
1999. We intend to register our stock option plan under the Securities Act after
we adopt a plan.
We intend to grant stock options to the following officers, directors and
consultants after we approve and adopt a stock option plan:
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<PAGE>
<TABLE>
- ----------------------------- -------------------- ------------------------------ ---------------------
Grantee Number of Options Exercise Price Expiry
- ----------------------------- -------------------- ------------------------------ ---------------------
<S> <C> <C> <C>
Neil McElwee 782,590(2) $6.75 3 years
- ----------------------------- -------------------- ------------------------------ ---------------------
Joseph Schlader 250,000(1) $6.75 4 years
- ----------------------------- -------------------- ------------------------------ ---------------------
William Galine 125,000(1) $6.75 4 years
- ----------------------------- -------------------- ------------------------------ ---------------------
Vahid Rafizadeh 170,000(2)(3) $6.75 3 years
- ----------------------------- -------------------- ------------------------------ ---------------------
Total 1,327,540
- ----------------------------- -------------------- ------------------------------ ---------------------
</TABLE>
(1) We reserved for issuance and agreed to grant stock options to Joseph
Schlader and William Galine pursuant to a stock option plan. As of November
3, 1999, we have not granted such options.
(2) We are in the process of negotiating the terms of definitive employment
agreements with Neil McElwee, our Chief Executive Officer, and Vahid
Rafizadeh, our Chief Technology Officer, pursuant to which we anticipate we
will issue options exercisable to acquire shares of our common stock at
$6.75 per share under our stock option plan. The terms of these grants have
not been finalized as of November 3, 1999.
(3) We have also agreed to grant Mr. Rafizadeh, in each of the second and third
years of his employment with our company, options to acquire 85,000 shares
at $6.75 per share in the event that our company meets certain milestones
and Mr. Rafizadeh is an employee on such date; these milestones have not
been determined.
We had no stock options/SARs held by named executive officers. As such, no share
purchase options were exercised during the period from our inception to February
5, 1999 to June 30, 1999.
Employment and Consulting Agreements
The following are employment, consulting or other service contracts or
arrangements between us or our subsidiaries and our directors, executive
officers and consultants.
Neil McElwee Employment Agreement
We in the process of finalizing a definitive employment agreement with Neil
McElwee, our Chief Executive Officer. The term of Mr. McElwee's employment will
be for three years beginning September 12, 1999 and ending September 12, 2002,
provided that we may terminate Mr. McElwee's employment upon (i) three months
written notice during the first year of his employment, (ii) six months notice
during the second or third year of employment or (iii) at an time during his
employment for cause, including conviction for criminal acts, committing acts
gross negligence or breach of the employment agreement. Mr. McElwee agreed to
serve full time as our Chief Executive Officer. We agreed to compensate Mr.
McElwee as follows:
(i) We will pay Mr. McElwee a salary of $200,000 per year during the
first year of his employment commencing on September 12, 1999
through September 12, 2000. Mr. McElwee's salary will increase
12% per year during the term of his employment after the first
year, subject to fulfilling the goals outlined by our board of
directors at the beginning of each year.
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<PAGE>
(ii) We agreed to grant Mr. McElwee options to acquire up to 782,590
shares of our common stock at $6.75 per share under our stock
option plan, vesting as follows:
(a) options exercisable to acquire 260,864 shares on September
12, 2000;
(b) options exercisable to acquire 260,863 shares on September
12, 2001; and
(c) options exercisable to acquire 260,863 shares on September
12, 2002,
provided that Mr. McElwee is as employee on such date.
(iii) We agreed to pay Mr. McElwee a bonus of $25,000 in the event we
close a financing of at least $3 million prior to January 15,
2000.
As of November 3, 1999, our legal counsel has been in the process of finalizing
Mr. McElwee's employment agreement, and we anticipate that a definitive
employment agreement will be finalized in early-November 1999.
Joseph Schlader Employment Agreement
We in the process of finalizing a definitive employment agreement with Joseph
Schlader, our President. The term of Mr. Schlader's employment will be for three
years beginning June 14, 1999 and ending June 14, 2002, provided that we may
terminate Mr. Schlader's employment upon (i) three months written notice during
the first year of his employment, (ii) six months notice during the second or
third year of employment or (iii) at an time during his employment for cause,
including conviction for criminal acts, committing acts gross negligence or
breach of the employment agreement. Mr. Schlader agreed to serve full time as
our President and a member of our board of directors. We agreed to compensate
Mr. Schlader as follows:
(i) We agreed to pay Mr. Schlader a salary of $90,000 per year during
the first year of his employment commencing on June 14, 1999
through June 14, 2000. Mr. Schlader's salary will increase at the
discretion of our board of directors.
(ii) We also agreed to grant Mr. Schlader options to acquire up to
250,000 shares of our common stock at $6.75 per share under our
stock option plan vesting pro rata 25% on each anniversary date,
June 14, of his employment over the next four years.
As of November 3, 1999, our legal counsel has been in the process of finalizing
Mr. Schlader's employment agreement, and we anticipate that a definitive
employment agreement will be finalized in early-November 1999.
William Galine Employment Agreement
We in the process of finalizing a definitive employment agreement with William
Galine, our Vice President. The term of Mr. Galine's employment will be for
three years beginning June 14, 1999 and ending June 14, 2002, provided that we
may terminate Mr. Galine's employment upon (i) three months written notice
during the first year of his employment, (ii) six months notice during the
second or third year of employment or (iii) at an time during his employment for
cause, including conviction for criminal acts, committing acts gross negligence
or breach of the agreement. Mr. Galine agreed to serve
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<PAGE>
full time as our Vice President and a member of our board of directors. We
agreed to compensate Mr. Galine as follows:
(i) We agreed to pay Mr. Galine a salary of $75,000 per year during
the first year of his employment commencing on June 14, 1999
through June 14, 2000. Mr. Galine's salary will increase at the
discretion of our board of directors.
(iii) We also agreed to grant Mr. Galine options to acquire up to
125,000 shares of our common stock at $6.75 per share under our
stock option plan vesting pro rata 25% on each anniversary date,
June 14, of his employment over the next four years.
As of November 3, 1999, our legal counsel has been in the process of finalizing
Mr. Galine's employment agreement, and we anticipate that a definitive
employment agreement will be finalized in early-November 1999.
Vahid Rafizadeh Employment Agreement
We in the process of finalizing a definitive employment agreement with Vahid
Rafizadeh, our Chief Technology Officer. The term of Mr. Rafizadeh's employment
will be for three years beginning October 5, 1999 and ending September 16, 2002,
provided that we may terminate Mr. Rafizadeh's employment upon (i) three months
written notice during the first year of his employment, (ii) six months notice
during the second or third year of employment or (iii) at an time during his
employment for cause, including conviction for criminal acts, committing acts
gross negligence or breach of the agreement. Mr. Rafizadeh agreed to serve full
time as our Chief Technology Officer. We agreed to compensate Mr. Rafizadeh as
follows:
(i) We agreed to pay Mr. Rafizadeh a salary of $140,000 per year
during the first year of his employment commencing on September
16, 1999. Mr. Rafizadeh's salary will increase at the discretion
of our board of directors.
(ii) We agreed to grant Mr. Rafizadeh options to acquire up to 170,000
shares of our common stock at $6.75 per share under our stock
option plan, vesting as follows: 100,000 in September 2000,
35,000 in September 2001, and 35,000 in September 2002, provided
that Mr. Rafizadeh is an employee on such date.
(iii) We also agreed to grant Mr. Rafizadeh, in each of his second and
third years of employment with our company, options to acquire
85,000 shares, exercisable at $6.75 per share and vesting over
three years, if our company meets certain milestones in that year
and Mr. Rafizadeh is an employee on such date. We have not
determined these milestones.
As of November 3, 1999, our legal counsel has been in the process of finalizing
Mr. Rafizadeh's employment agreement, and we anticipate that a definitive
employment agreement will be finalized in early-November 1999.
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<PAGE>
Description of 1999 Stock Option Plan
On October 28, 1999, our board of directors and a majority of our shareholders
approved and adopted a stock option plan and authorized the issuance of up to
2,000,000 shares of our common stock as incentive stock options to our current
and future key employees and consultants. The following is a summary of the
principal features of the plan.
Under our stock option plan, we reserved a total of 2,000,000 shares of common
stock for issuance under the plan, which may be incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
nonqualified stock options. If any outstanding option expires or is terminated
for any reason, the shares of common stock allocable to the unexercised portion
of that option may again be subject to an option to the same optionee or to a
different person eligible under the plan.
The option grant program is administered by the Board of Directors or a
committee of two or more members of the Board. Plan administrators have sole
authority to prescribe the form, content and status of options to be granted,
select the eligible recipients, determine the timing of option grants, determine
the number of shares subject to each grant, the exercise price, vesting
schedule, and term for which any option will remain outstanding, provided,
however, that the exercise price for any option granted may not be less than the
fair market value per share of the common stock at the date of grant. The Board
of Directors has the authority to determine the terms and restrictions on all
restricted option awards granted under the plan, and in general, to construe and
interpret any provision of the plan.
The exercise price for outstanding option grants under the plan may be paid in
cash or in shares of common stock valued at fair market value on the exercise
date, having shares withheld from the amount of shares of common stock to be
received by the optionee, by delivery of an irrevocable subscription agreement
obligating the optionee to take and pay for the shares of common stock to be
purchased within one year of the date of such exercise, through a same-day
cashless exercise program or a reduction in the amount of any liability on our
behalf to the optionee, or by such other consideration and method of payment for
the issuance of shares to the extent permitted by applicable laws.
Under the plan, no stock option can be granted for a period longer than ten
years or for a period longer than five years for incentive stock options granted
to optionees possessing more than 10% of the total combined voting power of all
of our classes of stock. Unless extended by the Plan administrators until a date
not later than the expiration date of the option, the right to exercise an
option terminates 90 days after the termination of an optionee's employment,
contractual or director relationship with Pawnbroker.com, Inc. If the optionee
dies or is disabled, the option will remain exercisable for a period of one year
after the termination of employment or relationship with us.
Other Consulting Agreements
We entered into a consulting agreement with IRG Investor Relations Group Ltd., a
consultant to Pawnbroker.com, Inc., dated June 25, 1999. Under the terms of the
agreement, IRG agreed to provide us certain investor relations consulting
services. We agreed to pay IRG as consideration for such services $100,000
(paid) upon execution of the agreement and a monthly fee in the amount of
$20,000 for the term of the agreement. We also agreed to grant options
exercisable to acquire up to 400,000 shares of our common stock for no
additional consideration, of which options to acquire 250,000 shares
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<PAGE>
will vest immediately upon grant and 50,000 shares will vest each time we
successfully obtain financing of $5,000,000 or more. The options we agreed to
grant to IRG will expire on June 25, 2000. We also agreed to use reasonable
efforts to file a registration statement to register the shares issuable under
the options pursuant to the Securities Act of 1933, as amended. As of September
30, 1999, we have not granted such options to IRG.
IRG agreed to provide the following consulting and investor relations services:
o IRG assisted us in defining our investor relations goals and
objectives;
o IRG Capital assisted us in preparing a corporate fact sheet for
distribution to targeted investment professionals and certain
accredited investors;
o IRG arranged periodic meetings with interested retail brokers, fund
managers and investment advisers;
o IRG assisted us in preparing and disseminating press release materials
to the financial community and media;
o IRG assisted us in communicating with NASD market makers by informing
them of recent company developments;
o IRG provided potential investors with certain company approved due
diligence/investor relations kits;
o IRG provided us with recommendations to improve disclosure on our Web
site related to investors relations;
o IRG agreed to assist us in developing relationships with merchant and
investment banks, private placement professionals and other
intermediaries which could provide us with additional private
placement financing; and
o IRG assisted us in developing relationships with potential strategic
e-commerce affiliates.
Item 7. Certain Relationships and Related Transactions.
Joseph Schlader, a director and our President, and William Galine, a director
and our Vice President, are directors of Pacific Pawnbrokers. Mr. Galine is also
an officer of Pacific Pawnbrokers. Pacific Pawnbrokers has agreed to assist us
in testing our Pawnbroker.com software. Pacific Pawnbrokers will participate in
the beta test launch of our Pawnbroker.com web site and be a participating
pawnshop during the initial soft launch of our site in the fourth quarter of
1999. Pacific Pawnbrokers will post merchandise for sale on our web site and
test our systems during the beta test phase. After the beta tests, Pacific
Pawnbrokers will offer and sell merchandise on the same terms as other
participating pawnshops.
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<PAGE>
We also acquired the domain names "pawnbroker.com" and "pawnbrokers.com" from
Pacific Pawnbrokers for $125,000.
We believe that our relationship with Pacific Pawnbrokers is no less favorable
to us than an arrangement with other unrelated parties at arms' length.
Mr. Schlader and William Galine were founders and promoters of Pawnbroker
(Nevada). We acquired Pawnbroker (Nevada) by issuing 6,240,000 shares of our
common stock to Mr. Schlader, Cheryl Schlader, and Mr. Galine. These shares were
issued at a nominal value of $62, which is equal to the par value of the shares
and the book value of the assets of Pawnbroker (Nevada) at the time of the
acquisition. Cheryl Schlader is Mr. Schlader's wife. The terms of the
acquisition were negotiated, at arm's length, by our management at the time of
the acquisition with Mr. Schlader, Ms. Schlader, and Mr. Galine. We were
represented by separate counsel.
Except for relationships and transactions that we have disclosed above and in
other sections of this registration statement such as (a) the ownership of our
securities and (b) the compensation described herein, to our knowledge, none of
our directors, executive officers, holders of ten percent of our outstanding
shares of common stock, or any associate or affiliate of such person, have had a
material interest, direct or indirect, since our inception or in any proposed
transaction which may materially affect us.
Item 8. Legal Proceedings.
To the best of our knowledge, we are not subject to any active or pending legal
proceedings or claims against us or any of our properties. However, from time to
time, we may become subject to claims and litigation generally associated with
any business venture.
Item 9. Market Price of and Dividends on Registrant's Common Equity and Related
Stockholder Matters.
On September 17, 1998 our common stock was approved for trading on the National
Securities Dealer's Association - over the counter bulletin board under the
symbol "DGSG". There was no material market for our common shares prior to March
31, 1999. Our trading symbol was changed to "PBRR" effective June 14, 1999. The
following table sets forth, for the periods indicated, the range of the high and
low bid quotations as reported by NASD. The bid quotations set forth below
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not reflect actual transactions:
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<PAGE>
OTCBB
<TABLE>
- ---------------------- -------------------------- ------------------------- --------------------------
1999 High Low Volume
- ---------------------- -------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
2nd Quarter 7.50 6.75 266,000
3rd Quarter 8.00 4.625 1,148,745
- ---------------------- -------------------------- ------------------------- --------------------------
</TABLE>
On September 30, 1999, the last reported sale price of our common stock reported
by the NASD was $4.813. As of September 30, 1999, there were 13 holders of
record of our common stock.
We have not declared or paid any cash dividends on our common stock since our
inception, and our Board of Directors currently intends to retain all earnings
for use in the business for the foreseeable future. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by our Board of Directors.
Item 10. Recent Sales of Unregistered Securities.
Pursuant to a resolution of the Board of Directors dated February 14, 1998, we
initially issued 968,750 (post-split)1 shares of common stock to certain
officers, directors and other related persons at par value. The issuance of
Original Shares was exempt from registration under the provisions of Section
4(2) of the Securities Act of 1933, as amended. The issuance of the shares did
not involve a public offering.
Pursuant to a resolution of the Board of Directors dated February 14, 1998, we
issued 25,000 (post-split)1 shares of common stock to Edward F. Meyers III,
President of Digital Sign Corporation, to acquire all of the issued and
outstanding shares of Digital Signs, Inc., a California corporation. The
issuance of the shares was exempt from registration under the provisions of
Section 4(2) of the Securities Act of 1933, as amended. The issuance of the
shares did not involve a public offering.
Pursuant to a resolution of the Board of Directors dated February 14, 1998, we
issued 106,125 (post-split)1 shares of our common stock for $0.20 per share to
raise $20,895, and subsequent to March 31, 1998, we issued an additional 24,875
(post- split) 1 shares of common stock for $0.20 per share to raise $4,975.
These offerings were fully subscribed and the shares were issued on March 31,
1998 to the 86 private investors. The offering was not underwritten. This sale
was exempt from registration in reliance upon Rule 504 under Regulation D
promulgated under the Securities Act. The aggregate offering price did not
exceed $1,000,000, and the offering was otherwise in compliance with Rules 501
and 502 promulgated under the Securities Act.
On April 6, 1999, we acquired all of the issued and outstanding shares of common
stock of Eriko Internet Inc., a Washington corporation engaged in the business
of developing Internet technologies, pursuant to a statutory share exchange
under the laws of the state of Washington. Pursuant to an Agreement and Plan of
Share Exchange, we issued four (4) shares of our common stock for each one
- -------------------
1 On June 10, 1999, we amended our Articles of Incorporation to effect a 1-for-4
reverse split of our issued and outstanding share capital. Prior to the reverse
split, we had 37,499,000 shares of common stock issued and outstanding and after
the reverse split we had 9,374,750 shares of common stock issued and
outstanding.
-54-
<PAGE>
share of common stock of Eriko Internet Inc. We issued 8,500,000 (post- split) 1
shares of our common stock to the shareholders of Eriko Internet Inc. in
exchange for their Eriko shares. The shares were issued to the following
persons: Doug McLeod, Cameron Woodbridge, Terra Growth Fund, Centennial Growth
Fund, Jenner Properties Ltd., GTL Financial Group Inc., Eurogrowth Investments,
S.A., Ingleby Investments Ltd., Dotcom Fund, S.A., Remington Capital Partners
Ltd. and E.C. Money Fund Ltd. The shares we issued were issued pursuant to an
exemption from registration pursuant to Rule 504 of Regulation D promulgated
under the Securities Act. The aggregate offering price of all Rule 504
transactions completed by us did not exceed $1,000,000, and the offering was
otherwise in compliance with Rules 501 and 502 promulgated under the Securities
Act. On May 19, 1999, Cameron Woodbridge, a founding shareholder of Eriko
Internet, Inc., contributed 1,000,000 pre-consolidation shares to the
corporation for $250. The shares were initially issued as founder's shares for
nominal consideration by Eriko Internet, Inc., subject to Mr. Woodbridge serving
as a director and officer of Eriko. Mr. Woodbridge contributed the shares
because he was no longer actively involved in Eriko at the time of our share
exchange with Eriko.
Effective on June 14, 1999, we acquired all of the issued and outstanding shares
of Pawnbroker (Nevada) by issuing 6,240,000 post-split shares of common stock to
Joseph Schlader, Cheryl Schlader and William Galine. The shares we issued were
issued pursuant to an exemption from registration pursuant to Rule 506 of
Regulation D promulgated under the Securities Act. The offering was otherwise in
compliance with Rules 501 and 502 promulgated under the Securities Act.
Pursuant to a Subscription Agreement dated June 14, 1999, we issued 1,300,000
units consisting of one common share and one-half of one Common Share Purchase
Warrant for $2.31 per unit to raise $3,003,000. Each whole Share Purchase
Warrant is exercisable to acquire one additional common share at $2.31 per share
until June 23, 2000 and at $2.90 per share until June 23, 2001. This offering
was made to Packard Financial Group Inc., a non-U.S. Person, outside the United
States. The offering was not underwritten. The shares were issued on an
exemption from registration pursuant to Regulation S promulgated under the
Securities Act. No placement agent was retained in connection with the offering
and no fees or commissions were paid in connection with the transaction.
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<PAGE>
Item 11. Descriptions of Registrant's Securities to be Registered.
Our authorized capital consists of 70,000,000 shares consisting of 20,000,000
Preferred shares of a par value of $0.00001 each and 50,000,000 common shares of
a par value of $0.0001 each. At August 15, 1999, there were 16,914,750 shares of
common stock issued and outstanding and an additional 650,000 shares of common
stock have been allotted and reserved for issuance pursuant to outstanding
private placement options to purchase shares and warrants. We also agreed to
grant options to acquire up to 400,000 shares of our common stock to IRG. We
have reserved 2,000,000 shares of our common stock for issuance under our
incentive stock option plan. See "Description of 1999 Stock Option Plan."
All shares of common stock are of the same class and have the same rights,
preferences and limitations. Holders of shares of common stock are entitled to
receive dividends in cash, property or shares when and if dividends are declared
by our Board of Directors out of funds legally available therefor. There are no
limitations on the payment of dividends. A quorum for a general meeting of
shareholders is one shareholder entitled to attend and vote at the meeting who
may be represented by proxy and other proper authority, holding at least a
majority of the outstanding shares of common stock. Holders of shares of common
stock are entitled to one vote per share of common stock. Upon any liquidation,
dissolution or winding up of our business, if any, after payment or provision
for payment of all of our debts, obligations or liabilities shall be distributed
to the holders of shares of common stock. There are no pre-emptive rights,
subscription rights, conversion rights and redemption provisions relating to the
shares of common stock and none of the shares of common stock carry any
liability for further calls.
The rights of holders of shares of common stock may not be modified other than
by vote of majority of the shares of common stock voting on such modification.
Because a quorum for a general meeting of shareholders can exist with one
shareholder (proxy-holder) personally present, the rights of holders of shares
of common stock may be modified by less than a majority of the issued shares of
common stock.
Item 12. Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws require us to indemnify to the fullest
extent permitted by Delaware law, each person that we have the power to
indemnify.
Delaware law permits a corporation, under specified circumstances, to indemnify
its directors, officers, employees or agents against expenses (including
attorney's fees), judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by third parties by reason of the fact that they were or are directors,
officers, employees or agents of the corporation, if such directors, officers,
employees or agents acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reason to believe their
conduct was unlawful. In a derivative action, that is, one by or in the right of
the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
-56-
<PAGE>
Our Articles of Incorporation and Bylaws also contain provisions stating that no
director shall be liable to us or any of our stockholders for monetary damages
for breach of fiduciary duty as a director, except with respect to (1) a breach
of the director's duty of loyalty to the corporation or its stockholders, (2)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) liability under Delaware law (for unlawful payment
of dividends, or unlawful stock purchases or redemptions) or (4) a transaction
from which the director derived an improper personal benefit. The intention of
the foregoing provisions is to eliminate the liability of our directors or our
stockholders to the fullest extent permitted by Delaware law.
Item 13. Financial Statements and Supplementary Data.
Not Applicable.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 15. Financial Statements and Exhibits.
The following financial statements and related schedules are included in this
Item:
(a) Financial Statements
Audited Financial Statements for the period beginning from inception (February
5, 1999) to June 30, 1999
Auditors' Reports
Consolidated Balance Sheets as at June 30, 1999.
Consolidated Statements of Operations for the fiscal period beginning from
inception (February 5, 1999) to June 30, 1999.
Consolidated Statements of Cash Flows for the fiscal period beginning from
inception (February 5, 1999) to June 30, 1999.
Notes to Consolidated Financial Statements.
(b) Exhibits
Exhibit
Number Description
- ------ -----------
2.1 Agreement of Reorganization by and between Digital Sign
Corporation, Edward F. Meyers III and Digital Signs, Inc. dated
February 14, 1998.
2.2 Agreement and Plan of Share Exchange by and between Digital Sign
Corporation and Eriko Internet, Inc. dated April 4, 1999.
-57-
<PAGE>
Exhibit
Number Description
- ------ -----------
2.3 Agreement and Plan of Reorganization by and among Pawnbroker.com,
Inc. and Joseph Schlader, Cheryl Schlader and William Galine
dated May 14, 1999.
2.4 Addendum to Agreement and Plan of Reorganization by and among
Pawnbroker.com, Inc. and Joseph Schlader, Cheryl Schlader and
William Galine dated June 11, 1999.
3.1 Certificate of Incorporation of Digital Sign Corporation filed
February 13, 1998.
3.2 Certificate of Amendment of Digital Sign Corporation filed June
10, 1999.
3.3 Bylaws of Digital Sign Corporation.
10.1 Form of Private Placement Subscription Agreement dated February
1998.
10.2 Contribution Agreement by and between Digital Sign Corporation
and Cameron Woodbridge dated May 19, 1999.
10.3 Subscription Agreement by and between Pawnbroker.com, Inc. and
Packard Financial Group Inc. dated June 14, 1999.
10.4 Form of Share Purchase Warrant issued to Packard Financial Group
Inc. on June 14, 1999
10.5 85 Keystone Lease Agreement by and between Pawnbroker.com, Inc.
and The Kowalski Family Trust dated April 1, 1999.
10.6 Design and Development Agreement by and between Pawnbroker.com,
Inc. and Banshee, Inc. dated April 26, 1999
10.7 Consulting Agreement by and between Pawnbroker.com, Inc. and IRG
Investor Relations dated June 25, 1999
10.8 Stock Option Plan
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
-58-
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
<PAGE>
A Partnership of
Incorporated Professionals
DAVIDSON & COMPANY=========Chartered Accountants================================
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders of
Pawnbroker.com, Inc.
(formerly Digital Sign Corporation)
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Pawnbroker.com,
Inc. (formerly Digital Sign Corporation) (A Development Stage Company) as at
June 30, 1999 and the related consolidated statement of operations, changes in
stockholders' equity and cash flows for the period from February 5, 1999 to June
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an 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 audit provides a
reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that
Pawnbroker.com, Inc. (formerly Digital Sign Corporation) will continue as a
going concern. The Company is in the development stage and does not have the
necessary working capital for its planned activity which raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are discussed in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Pawnbroker.com, Inc. (formerly
Digital Sign Corporation) (A Development Stage Company) as at June 30, 1999 and
the results of its operations and its cash flows for the period from February 5,
1999 to June 30, 1999 in conformity with generally accepted accounting
principles in the United States of America.
/s/ Davidson & Company
Vancouver, Canada Chartered Accountants
November 2, 1999
A Member of Accounting Group International
==========================================
Suite 1270, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1999
================================================================================
<TABLE>
ASSETS
<S> <C>
Current
Cash $ 2,862,751
Employee advances 500
Prepaid expenses 1,313
---------------
2,864,564
Capital assets (Note 4) 222,949
Domain name (Note 5) 121,528
---------------
$ 3,209,041
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 35,745
Advances - Pacific Pawn Broker (Note 7) 15,326
Advances - A Canadian corporation (Note 7) 275,000
---------------
326,071
Stockholders' equity Capital stock (Note 8)
Authorized
20,000,000 preferred stock with a par value of $0.00001
50,000,000 common stock with a par value of $0.00001
Issued and outstanding
June 30, 1999 - 16,914,750 common shares 170
Additional paid-in capital 3,086,149
Deficit accumulated during the development stage (203,349)
---------------
2,882,970
$ 3,209,041
==========================================================================================================
</TABLE>
On behalf of the Board:
Director
- ----------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1999 TO JUNE 30, 1999
================================================================================
<TABLE>
OPERATING EXPENSES
<S> <C>
Contract services $ 8,719
Consulting 6,000
Depreciation 19,877
General and administrative 10,764
Management fees 21,000
Marketing and related expenses 9,009
Professional fees 18,996
Promotion 24,508
Rent 21,865
Salary and wages 36,089
Shareholder information and transfer agent fees 735
Taxes 2,156
Travel and related 23,631
--------------
Loss for the period $ (203,349)
=================================================================================================
Basic and diluted loss per common share (Note 3) $ (0.02)
=================================================================================================
Weighted average shares outstanding 11,873,212
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1999 TO JUNE 30, 1999
================================================================================
<TABLE>
CASH PROVIDED BY (APPLIED TO):
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Loss for the period $ (203,349)
Item not affecting cash:
Depreciation 19,877
Net change in non-cash working capital items:
Increase in employee advances (500)
Increase in prepaid expenses (1,313)
Increase in accounts payable and accrued liabilities 30,557
--------------
Net cash provided by operating activities (154,728)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (239,354)
Purchase of domain name (125,000)
Acquisition of cash on purchase of subsidiary 8,007
--------------
Net cash applied to investing activities (356,347)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,003,000
Advances from Pacific Pawn Broker and a Canadian corporation 290,326
Net cash provided by financing activities 3,293,326
--------------
Change in cash position for the period 2,782,251
Cash position, beginning of period 80,500
Cash position, end of period $ 2,862,751
====================================================================================================
</TABLE>
Supplemental disclosure with respect to cash flows (Note 9)
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
Deficit
Accumulated
Common Stock Additional During Total
-------------- ------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, February 5, 1999 - $ - $ - $ - $ -
Common stock issued for cash 8,500,000 85 80,415 - 80,500
Capital stock of Pawnbroker.com, Inc.
at April 6, 1999 1,124,750 12 26,256 - 26,268
Deficit of Pawnbroker.com, Inc.
at April 6, 1999 - - (23,261) - (23,261)
Common stock issued pursuant to the acquisition of Pawnbroker.com, Inc.
(Nevada) (Note 6) 6,240,000 62 - - 62
Common stock issued for cash 1,300,000 13 3,002,987 - 3,003,000
Share cancellation (250,000) (2) (248) - (250)
Loss for the period - - - (203,349) (203,349)
------------- ----------- ------------ ----------- -----------
Balance, June 30, 1999 16,914,750 $ 170 $ 3,086,149 $(203,349) $ 2,882,970
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================
1. ORGANIZATION OF THE COMPANY
Digital Sign Corporation ("the Company), a Delaware corporation, was
incorporated on February 13, 1998. On February 14, 1998, the Company issued
100,000 (25,000 post-consolidation) common shares at par value for all of
the issued and outstanding shares of Digital Signs, Inc. On April 6, 1999,
the Company acquired all of the issued and outstanding shares of Eriko
Internet Inc. in exchange for 34,000,000 (8,500,000 post-consolidation)
common shares of the Company. On June 10, 1999, the Company consolidated
its issued and outstanding shares of common stock through a one for four
reverse stock split, from 38,499,000 issued and outstanding to 9,624,750
issued and outstanding. Effective June 14, 1999, the Company acquired all
of the issued and outstanding shares of Pawnbroker.com Inc. (a Nevada
corporation), in exchange for 6,240,000 common shares of the Company. On
June 10, 1999, the Company changed its name to Pawnbroker.com Inc.
These financial statements contain the financial statements of Eriko
Internet Inc. ("Eriko"), Pawnbroker.com, Inc., Digital Signs, Inc. and
Pawnbroker.com, Inc. (a Nevada Corporation) presented on a consolidated
basis. On April 6, 1999, Pawnbroker.com, Inc. acquired all of the issued
and outstanding share capital of Eriko by issuing 8,500,000 common shares
(Note 6). As a result of the share exchange, control of the combined
companies passed to the former shareholders of Eriko. This type of share
exchange has been accounted for as a capital transaction accompanied by a
recapitalization of Eriko. Recapitalization accounting results in
consolidated financial statements being issued under the name of
Pawnbroker.com, Inc., but are considered a continuation of Eriko. As a
result, the financial statements presented represent the consolidated
financial position of the above Companies as at June 30, 1999 and the
results of operations of Eriko for the period from February 5, 1999
(incorporation) to June 30, 1999 and the results of operations and cash
flows of Pawnbroker.com, Inc., Pawnbroker.com, Inc. (Nevada) and Digital
Signs Inc. from their deemed dates of acquisition during the period. The
number of shares outstanding at June 30, 1999 as presented are those of
Pawnbroker.com, Inc.
The Company is in the development stage, and is currently developing an
internet based electronic-commerce web site to provide retail customers
with the ability to search for and acquire, via the internet, merchandise
in inventories of pawnshops throughout North America.
2. GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the Company has no current source
of revenue. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern. It is management's plan in
this regard to detain additional working capital through equity financings.
---------------------------------------------------------------------------
June 30,
1999
---------------------------------------------------------------------------
Deficit accumulated during the development stage $ (203,349)
Working capital 2,538,493
===========================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include Eriko Internet Inc.,
Pawnbroker.com Inc. (formerly Digital Sign Corporation) and its
wholly-owned subsidiaries, Digital Signs, Inc., and Pawnbroker.com Inc. (a
Nevada corporation). All significant inter-company balances and
transactions have been eliminated in consolidation.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Revenue recognition
The Company will recognize revenue from transaction fees charged to pawn
shops when completion of the sale of the related item has occurred and the
Company has received its portion of the sales proceeds released from
escrow.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the period. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
Loss per share
Earnings per share are provided in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Due to the Company's
simple capital structure, with only common stock outstanding, only basic
loss per share must be presented. Basic loss per share is computed by
dividing losses available to common stockholders by the weighted average
number of common shares outstanding during the period.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carryforwards. Deferred
tax expenses (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities" which establishes accounting
and reporting standards for derivative instruments and for hedging
activities. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not anticipate that the
adoption of the statement will have a significant impact on its financial
statements.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities" which provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 with initial
adoption reported as the cumulative effect of a change in accounting
principle. The Company has adopted this statement during the period.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income". This statement establishes
rules for the reporting of comprehensive income and its components. The
adoption of SFAS 130 had no impact on total stockholders' equity as of June
30, 1999.
Software development
The Company has adopted Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", as its accounting policy for internally developed computer
software costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer software
costs incurred during the application development stage are capitalized and
amortized over the software's estimated useful life.
Capital assets
Capital assets will be recorded at cost less accumulated depreciation. The
cost of capital assets is depreciated over the estimated useful lives of
the related assets. Depreciation is computed on the Modified Accelerated
Cost Recovery System (MACRS) method for both financial reporting and income
tax purposes.
Domain names
The cost of domain name rights will be amortized over 3 years from the date
of commencement of operations.
Advertising costs
The Company recognizes advertising expenses in accordance with Statement of
Position 98-7, "Reporting on Advertising Costs". As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
4. CAPITAL ASSETS
<TABLE>
Accumulated Net
Cost Depreciation Book Value
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 28,835 $ 938 $ 27,897
Equipment and software 210,518 15,466 195,052
-------- --------- ----------
$239,353 $ 16,404 $ 222,949
==================================================================================================
</TABLE>
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================
5. DOMAIN NAME
June 30,
1999
----------------------------------------------------------------------------
Domain name $ 125,000
Accumulated amortization (3,472)
--------------
$ 121,528
============================================================================
6. BUSINESS COMBINATIONS
Eriko Internet Inc.
On April 6, 1999, Pawnbroker.com, Inc. ("Pawnbroker") acquired all of the
issued and outstanding share capital of Eriko Internet Inc. ("Eriko"). As
consideration, Pawnbroker issued 8,500,000 shares. Legally, Pawnbroker is
the parent of Eriko. However, as a result of the share exchange described
above, control of the combined companies passed to the former shareholders
of Eriko. This type of share exchange, has been accounted for as a capital
transaction accompanied by a recapitalization of Eriko rather than a
business combination. Accordingly, the net assets of Eriko are included in
the balance sheet at book values, with the net assets of Pawnbroker
recorded at fair market value at the date of acquisition. The revenues and
expenses and assets and liabilities reflected in the financial statements
prior to the date of acquisition are those of Eriko. Revenue and expenses
or assets and liabilities are subsequent to the date of acquisition include
the accounts of Pawnbroker.
The cost of an acquisition should be based on the fair value of the
consideration given, except where the fair value of the consideration given
is not clearly evident. In such a case, the fair value of the net assets
acquired is used.
At April 6, 1999, Pawnbroker was inactive with a thin market for its
shares, making it impossible to estimate the actual market value of the
8,500,000 common shares. Therefore, the cost of the acquisition, $3,007,
has been determined by the fair value of Pawnbroker 's net assets.
The total purchase price of $3,007 was allocated as follows:
Current assets $ 8,007
Accounts payable and accrued liabilities (5,000)
-------------
$ 3,007
Pawnbroker.com Inc. (Nevada)
On June 14, 1999, Pawnbroker acquired all of the issued and outstanding
share capital of Pawnbroker.com Inc., a Nevada corporation ("Pawnbroker
-Nevada"). As consideration, Pawnbroker issued 6,240,000 common shares at a
deemed value of $62, equal to the par value of the shares issued. As the
acquisition of Nevada was deemed to be from a promoter of Pawnbroker, the
purchase has been recorded at the historical cost of the net assets of
Nevada, which approximate the par value of the shares issued.
7. ADVANCES
The advances are non-interest bearing and contain no terms of repayment.
<PAGE>
PAWNBROKER.COM INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
8. CAPITAL STOCK
On May 19, 1999, a shareholder of Pawnbroker surrendered 250,000 shares of
common stock which were initially issued as a part of the total shares
issued for the acquisition of Eriko Internet Inc. Capital stock and
contributed surplus have been reduced by $2 and $248 respectively to
eliminate the values initially recorded on issuance.
9. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
June 30,
1999
---------------------------------------------------------------------------
Cash paid for income taxes $ -
Cash paid for interest -
===========================================================================
Non-cash investing and financing transactions during the three month period
ended June 30, 1999 were as follows:
a) The Company issued 8,500,000 shares of common stock at a deemed value
of $3,007 to acquire 100% of the outstanding of shares of Eriko
Internet Inc.
b) The Company issued 6,240,000 shares of common stock at a deemed value
of $62 to acquire 100% of the outstanding shares of
Pawnbroker.com-Nevada.
c) The Company received 250,000 shares of common stock for cancellation
at a deemed value of $250, of which amount is included in accounts
payable at June 30, 1999.
10. COMMITMENTS
a) On June 25, 1999, the Company entered into a one-year consulting
agreement commencing on July 1, 1999, whereby the Company is obligated
to pay $20,000 per month. The first month's fee was due and payable
upon execution of the agreement. The Company further agreed to pay the
consultant $100,000 upon execution of the agreement. Both payments
were paid subsequent to June 30, 1999. In addition, the consultant
will be granted 400,000 options to purchase common shares of the
Company, exercisable at the market price, post reverse stock split on
the first day of trading on the newly consolidated shares, for a
period of one year from the date of execution of the agreement. Of
these options, 250,000 will vest immediately upon board approval, the
remaining 150,000 options will vest in equal amounts of 50,000 for
each successful financing of $5,000,000.
b) The Company has formed a stock option plan under which it may grant
stock options to acquire up to a total of 2,000,000 shares of the
Company's common stock, at a price to be determined by the plan
administrator. To date, no option have been granted under the plan.
11. SHARE PURCHASE WARRANTS
During the period from February 5, 1999 to June 30, 1999, the Company
issued 1,300,000 units of a private placement consisting of one common
share and one-half of a share purchase warrant for $2.31 per unit for total
proceeds of $3,003,000. One full share purchase warrant entitles the holder
to acquire one additional common share at a price of $2.31 per share until
June 23, 2000 and at a price of $2.90 per share until June 23, 2001. As of
June 30, 1999, there were 650,000 share purchase warrants outstanding.
12. RELATED PARTY TRANSACTIONS
During the period from February 5, 1999 to June 30, 1999, the Company paid
the following:
a) Advanced $15,326 to a company with directors in common.
b) Management fees of $21,000 to directors of the Company.
c) Salaries of $14,052 to officers of the Company.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934, the
registrant caused this Registration Statement to be signed on our behalf by the
undersigned, thereunto duly authorized.
Date: November 3, 1999
/s/ Joseph Schlader
---------------------------------------
Joseph Schlader, President
<PAGE>
Exhibit
Number Description
- ------ -----------
2.1 Agreement of Reorganization by and between Digital Sign
Corporation, Edward F. Meyers III and Digital Signs, Inc. dated
February 14, 1998.
2.2 Agreement and Plan of Share Exchange by and between Digital Sign
Corporation and Eriko Internet, Inc. dated April 4, 1999.
2.3 Agreement and Plan of Reorganization by and among Pawnbroker.com,
Inc. and Joseph Schlader, Cheryl Schlader and William Galine
dated May 14, 1999.
2.4 Addendum to Agreement and Plan of Reorganization by and among
Pawnbroker.com, Inc. and Joseph Schlader, Cheryl Schlader and
William Galine dated June 11, 1999.
3.1 Certificate of Incorporation of Digital Sign Corporation filed
February 13, 1998.
3.2 Certificate of Amendment of Digital Sign Corporation filed June
10, 1999.
3.3 Bylaws of Digital Sign Corporation.
10.1 Form of Private Placement Subscription Agreement dated February
1998.
10.2 Contribution Agreement by and between Digital Sign Corporation
and Cameron Woodbridge dated May 19, 1999.
10.3 Subscription Agreement by and between Pawnbroker.com, Inc. and
Packard Financial Group Inc. dated June 14, 1999.
10.4 Form of Share Purchase Warrant issued to Packard Financial Group
Inc. on June 14, 1999
10.5 85 Keystone Lease Agreement by and between Pawnbroker.com, Inc.
and The Kowalski Family Trust dated April 1, 1999.
<PAGE>
Exhibit
Number Description
- ------ -----------
10.6 Design and Development Agreement by and between Pawnbroker.com,
Inc. and Banshee, Inc. dated April 26, 1999
10.7 Consulting Agreement by and between Pawnbroker.com, Inc. and IRG
Investor Relations dated June 25, 1999
10.8 Stock Option Plan
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
EXHIBIT 2.1
AGREEMENT OF REORGANIZATION
By and Between
DIGITAL SIGN CORPORATION
A Delaware Corporation,
and
Edward F. Myers III
As SHAREHOLDERS
and
DIGITAL SIGNS, INC.
A California Corporation
<PAGE>
AGREEMENT OF REORGANIZATION
THIS AGREEMENT is made effective February 14, 1998, at San Diego,
California, by and between DIGITAL SIGN CORPORATION, a Delaware Corporation
(hereinafter referred to as "DIGITAL SIGN CORPORATION"), Edward F. Myers III,
hereinafter referred to as "SHAREHOLDERS"), and DIGITAL SIGNS, INC. a California
Corporation (hereinafter referred to as the "CORPORATION").
WHEREAS, the SHAREHOLDERS have represented that they own all of the
outstanding stock of the CORPORATION, and
WHEREAS, DIGITAL SIGN CORPORATION desires to acquire from the SHAREHOLDERS
and the SHAREHOLDERS desire to exchange stock with Digital Signs, Inc., which
are 100% of the outstanding stock of the CORPORATION ("the shares"), and
WHEREAS, the CORPORATION desires that this transaction be consummated.
NOW, THEREFORE, in consideration of the mutual covenants, promises,
conditions, agreements, representations and warranties contained in this
Agreement, setting aside all previous agreements both oral and written the
parties agree as follows:
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1. PURCHASE AND SALE OF SHARES
1.1. The parties hereto adopt this Agreement as a Type B tax-free plan of
reorganization under Section 368(a)(1)(B) of the Internal Revenue Code.
1.2. Subject to the terms and conditions set forth in this Agreement, on
the closing, SHAREHOLDERS will transfer and convey to DIGITAL SIGN CORPORATION,
10,000 shares of common stock in the CORPORATION which represents 100% of the
issued and outstanding shares of stock in the CORPORATION.
1.3. As consideration for the transfer of the shares by SHAREHOLDERS,
DIGITAL SIGN CORPORATION shall deliver at the closing, certificates representing
100,000 shares of DIGITAL SIGN CORPORATION'S common stock.
1.4. The 100,000 shares of DIGITAL SIGN CORPORATION' common stock shall be
issued in the amount following each SHAREHOLDER'S name in Schedule "A".
2. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
2.1. The SHAREHOLDERS represent and warrant that the SHAREHOLDERS are
owners, beneficially and of record, of all the shares free and clear of liens,
encumbrances, security agreements, equities, options, claims charges, and
restrictions, other than any
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restriction set forth by the California Commissioner of Corporations.
SHAREHOLDERS have full power to transfer the shares to DIGITAL SIGN CORPORATION
without obtaining the consent or approval of any other person, governmental
authority or the Corporation.
2.2. The SHAREHOLDERS and the CORPORATION to the best of their knowledge,
represent and warrant as follows:
a. CORPORATION is a corporation duly organized validly existing, and
in good standing under the laws of California and has all
necessary corporate powers to own its properties and to operate
its business as now owned and operated by it.
b. The authorized capital stock of the CORPORATION consists of
1,000,000 shares of common stock, having a par value of $0.0001,
of which 10,000 shares (the shares) are issued and outstanding.
All the shares are validly issued, fully paid, and
non-assessable, and such shares have been so issued in full
compliance with all federal and state securities laws. There are
no outstanding subscriptions, options, rights, warrants,
convertible securities, or other agreements or commitments
obligating the CORPORATION to issue or to transfer from treasury
any additional shares of
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its capital stock of any class.
c. That there is no suit, action, arbitration, or legal
administrative, or other proceeding, to the best knowledge of
CORPORATION; against or effecting CORPORATION or any other
business, assets, or financial condition.
d. The financial statements in Exhibit B have been prepared in
accordance with generally accepted accounting principles
consistently followed by the CORPORATION as of the respective
dates of said financial statements, and the results of its
operation for the respective periods indicated.
e. That there has not been since the date of the attached financial
statements any material change in the financial condition,
liabilities, assets, business or prospects of the CORPORATION.
f. Since January 28, 1998, that within the times and in the manner
prescribed by law, the CORPORATION has filed all federal, state,
and local tax returns required by law and has paid all taxes
assessments, and penalties due and payable. There are not present
disputes as to taxes of any nature payable by the CORPORATION.
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g. The CORPORATION is in possession of all premises leased to it
from others.
h. Neither the SHAREHOLDERS, nor any officer, director, or employee
of the CORPORATION, nor any spouse, child, or other relative of
any of these persons, owns, or has any interest, directly or
indirectly, in any of the real or personal property owned by or
leased to the CORPORATION. That the CORPORATION does not occupy
any real property in violation of any law, regulation, or decree.
i. The execution and delivery of this Agreement by the CORPORATION,
and the performance of its covenants and obligations under it,
shall have been duly authorized by all necessary corporate
action, and the CORPORATION shall have received copies of all
resolutions pertaining to that authorization, certified by the
secretary of the CORPORATION.
k. Each SHAREHOLDER is acquiring the stock of the CORPORATION as an
investment and not with a view to distribution, and each hereby
consents that the shares of the CORPORATION, may be legended to
the effect that such shares are not registered under the
Securities Act of 1933.
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l. The CORPORATION has given no options or other rights to purchase
or subscribe for any shares of stock of the CORPORATION in favor
of any person, firm or corporation. Stockholders do not have
preemptive rights.
m. The CORPORATION has no assets or business other than those shown
in these financial statements.
n. The CORPORATION is not party to any employment agreements.
2.3 DIGITAL SIGN CORPORATION represents and warrants as follows:
a. DIGITAL SIGN CORPORATION is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware and has
all necessary corporate powers to own its properties and to
operate its business as now owned and operated by it; and neither
the ownership of its properties nor the nature of its business
requires DIGITAL SIGN CORPORATION to be qualified in any
jurisdiction other than the state of its incorporation.
b. The authorized capital stock of DIGITAL SIGN CORPORATION consists
of 50,000,000 shares of common
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stock, having a par value of $0.00001 each, 3,850,000 of which
are issued and outstanding. Such shares have been so issued full
compliance with all federal and state securities laws. DIGITAL
SIGN CORPORATION has also authorized 20,000,000 shares of
preferred stock, having a par value of $0.00001, none of which
are issued. There are no outstanding subscriptions,options,
rights, warrants, convertible securities,or other agreements or
commitments obligating DIGITAL SIGN CORPORATION to issue or to
transfer from treasury any class of stock.
c. The financial statements in Exhibit A have been prepared in
accordance with generally accepted accounting principles
consistently followed by DIGITAL SIGN CORPORATION throughout the
periods indicated and fairly present the financial position of
DIGITAL SIGN CORPORATION as of the respective dates of said
financial Statements, and the results of its operations for the
respective periods indicated.
d. That there has not been since the date of the attached financial
statements any material change in the financial condition,
liabilities, assets, business or prospects of DIGITAL SIGN
CORPORATION.
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e. That DIGITAL SIGN CORPORATION does not have any debt, liability,
or obligation of any nature, whether accrued, absolute,
contingent, or otherwise, and whether due or to become due, that
is not reflected in the financial statements or set forth in
Exhibit A to this Agreement, and that all debts, liabilities, and
obligations incurred after that date were incurred in the
ordinary course of business, and are usual and normal in amount
both individually and in the Agreement.
f. That the total liabilities on the part of DIGITAL SIGN
CORPORATION does not exceed the approximate amount of $1,000.00.
g. That within the times and in the manner prescribed by law,
DIGITAL SIGN CORPORATION has filed all federal, state, and local
tax returns required by law and has paid all taxes, assessments,
and penalties which in DIGITAL SIGN CORPORATION'S opinion are due
and payable and has made all filings required by all applicable
state and federal laws.
h. That DIGITAL SIGN CORPORATION has good and marketable title to
all of its respective assets and interests in assets, whether
real, personal, mixed, tangible, and intangible, which constitute
all the
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assets and interests in assets that are used in the business of
DIGITAL SIGN CORPORATION. All these assets are free and clear of
restrictions or of conditions of transfer or assignment, and free
and clear of mortgages, liens, pledges, charges, encumbrances,
equities, claims, easements, rights of way, covenants, conditions
or restrictions, except for (i) these disclosed in DIGITAL SIGN
CORPORATION financial statements in Exhibit A to this Agreement;
(ii) the lien of current taxes not yet due and payable; and (iii)
possible minor matters that in the aggregate, are not substantial
in amount and do not materially detract from or interfere with
the present or intended use of any of these assets, nor
materially impair business operations. All real property and
tangible personal property of DIGITAL SIGN CORPORATION is in good
operating condition and repair, ordinary wear and tear excepted.
DIGITAL SIGN CORPORATION is in possession of all premises leased
to it from others.
i. That there is no suit, action, arbitration, or legal
administrative, or other proceeding, or governmental
investigation pending or, to the best knowledge DIGITAL SIGN
CORPORATION threatened, against or affecting DIGITAL SIGN
CORPORATION, or any of its business, assets, or financial
condition.
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j. The execution and delivery of this Agreement by DIGITAL SIGN
CORPORATION and the performance of its covenants and obligations
under it, shall have been duly authorized by all necessary
corporate action, and SHAREHOLDERS have received copies of all
resolutions pertaining to that authorization, certified by the
secretary of DIGITAL SIGN CORPORATION.
k. That they have had an opportunity to review the financial
statements in Exhibits B to this Agreement and based upon such
financial statements they have .entered into this Agreement.
3. DOCUMENTATION, DELIVERY AND COOPERATION
3.1. The CORPORATION will furnish to DIGITAL SIGN CORPORATION for its
examination (i) copies of the Article of Incorporation and By-Laws of the
CORPORATION; (ii) the minute books of the CORPORATION containing all records
required to be set forth of all proceedings, consents, actions, and meetings of
the SHAREHOLDERS and Boards of Directors of the CORPORATION; (iii) all permits,
orders, and consents issued with Respect to corporation, or any security, and
all applications for such permits, orders, and consents; and (iv) the stock
transfer books of the CORPORATION setting forth all transfers of any capital
stock.
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3.2. At the closing, the SHAREHOLDERS shall deliver to DIGITAL SIGN
CORPORATION the following instruments, in form and substance satisfactory to
DIGITAL SIGN CORPORATION and its counsel:
a. A certificate or certificates representing the shares, registered
in the names of the SHAREHOLDERS, duly endorsed by the
SHAREHOLDERS transfer or accompanied by an assignment of the
shares duly executed by the SHAREHOLDERS. On submission of that
certificate or certificates to the CORPORATION for transfer, the
CORPORATION shall issue to DIGITAL SIGN CORPORATION a certificate
representing the shares, registered in the name of DIGITAL SIGN
CORPORATION.
b. The stock books, stock ledgers, minute books, and corporate seals
of the CORPORATION, and;
3.3. At the closing, DIGITAL SIGN CORPORATION shall deliver to SHAREHOLDERS
the following instruments and documents:
a. The share certificates as set forth in paragraph 1.3.
3.4. All of the parties further agree that they will do all things
necessary and reasonable to accomplish and facilitate the
<PAGE>
transfer of the shares in conformance with any and all governmental bodies and
regulatory agencies, and that they will sign and execute any and all documents
necessary to bring about and perfect the purposes of the Agreement.
4.1. The obligations of the SHAREHOLDERS hereunder are, at the option of
the SHAREHOLDERS, subject to the conditions that on or before the Closing:
a. The SHAREHOLDERS shall not have discovered any material error, or
misstatement or omission in the representations, and warranties
made by DIGITAL SIGN COPORATION herein, and all the terms and
conditions of this Agreement to be complied with and performed by
DIGITAL SIGN COROPRATION at or before the Closing shall have been
complied with and performed in all material respects.
b. The representations and warranties made by DIGITAL SIGN
CORPORATION in this Agreement shall be correct in all material
respects at and as of the Closing.
c. The Commissioner of Corporations of the State of California has
issued, if necessary, the appropriate permit or permits pursuant
to the California Corporations Code the qualification of the
securities which are the subject of this Agreement.
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4.2. The obligations of DIGITAL SIGN CORPORATION hereunder are, at the
option of DIGITAL SIGN CORPORATION, subject to the conditions that on
or before the Closing:
a. DIGITAL SIGN CORPORATION shall not have discovered any material
error, misstatement or omission in the presentations and
warranties made by the SHAREHOLDERS of the CORPORATION, and all
the terms and conditions of this Agreement to be complied with
and performed by the SHAREHOLDERS and the CORPORATION on or
before the Closing shall have been complied with and performed in
all material respects.
b. The representations and warranties made by the SHAREHOLDERS and
the CORPORATION in this Agreement shall be correct in all
material respects at and as of the Closing.
c. The Commissioner of Corporations of the State of California has,
if necessary, issued the appropriate permit or permits pursuant
to the California Corporations Code for the qualification of the
securities which are the subject of this Agreement.
4.3. The Closing under this Agreement shall take place at the law offices
of Carmine Bua, 3838 Camino Del Rio North
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Ste. 333, San Diego, CA 92108, or at such place, time or date, as may
be agreed upon by the parties.
This Agreement may be signed in one or more counterparts.
/s/ Edward F. Myers III /s/ Edward F. Myers III
DIGITAL SIGN CORPORATION DIGITAL SIGNS, INC.
(a Delaware Corporation) (a California Corporation)
STOCKHOLDERS
/s/ Edward F. Myers III
----------------------------------
Edward F. Myers III
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EXHIBIT A
SELECTED FINANCIAL INFORMATION
SUMMARY BALANCE SHEET DATA: February 13, 1998
Current Assets: $ 0.00
Other Assets: $ 0.00
Total Assets: $ 0.00
Total Liabilities: $ 0.00
Shareholders Equity $ 0.00
SUMMARY STATEMENT OF OPERATIONS DATA:
(for period ending Feb. 14, 98)
Total Income $ 0
Net Loss $ 0
Net Loss Per Share: $ 0
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Exhibit B
SELECTED FINANCIAL INFORMATION
SUMMARY BALANCE SHEET DATA: February 13, 1998
Current Assets
Cash On Hand $ 000400
Computer Equipment $ 000.00
Organization Expense $ 715.00
Total Assets: $ 715.00
Total Liabilities:. $ 0.00
Shareholders Equity. $ 715.00
SUMMARY STATEMENT OF OPERATIONS DATA:
(for period ending Feb. 14, 98)
Total Income $ 0
Net Loss $ 0
Net Loss Per Share: $ 0
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Schedule A
Stock Aquired by Digital Stock Issued
Shareholders Signs, Inc. in Exchange
- ------------ ----------- -----------
Edward F. Myers 111 10,000 100,000
EXHIBIT 2.2
AGREEMENT AND PLAN OF SHARE EXCHANGE
This AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement") is made as of
the --- day of April, 1999 by and between Eriko Internet Inc., a Washington
corporation ("Eriko") and Digital Sign Corporation, a Delaware corporation
("Digital") (collectively, the "Constituent Corporations") with reference to the
following facts:
A. Digital wishes to acquire the entire issued and outstanding share
capital of Eriko and Eriko wishes to become the wholly owned subsidiary of
Digital.
B. Each of the Constituent Corporations has, subject, in the case of Eriko,
to approval by its shareholders, adopted the plan of share exchange embodied in
this Agreement.
C. The share exchange is intended to qualify as a reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code (the "Code").
NOW, THEREFORE, the Constituent Corporations do hereby agree to the share
exchange, on the terms and conditions herein provided, as follows:
1. On the Effective Date, by virtue of the share exchange and without any
action on the part of the holders thereof, each then outstanding share of common
stock of Eriko shall be exchanged for four (4) shares of common stock to be
issued by Digital.
2. The "Effective Date" of the share exchange shall be, and such term as
used herein shall mean, 5:00 p.m., Seattle, Washington time, on the day on which
the Articles of Share Exchange in substantially the form attached hereto as
Exhibit A are filed in the office of the Secretary of State of the state of
Washington, after satisfaction of the requirements of applicable laws of the
state's prerequisites to such filings.
3. Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the share exchange abandoned:
(a) Upon written notice at any time prior to the Effective Date by
mutual consent of the Constituent Corporations;
(b) If holders of at least a majority of the outstanding shares of
common stock of a Constituent Corporation shall not vote in favor of the share
exchange; or
(c) If there exists a suit, action, or other proceeding commenced,
pending or threatened, before any court or other governmental agency of the
federal
<PAGE>
or state government, in which it is sought to restrain, prohibit or otherwise
adversely affect the consummation of the share exchange contemplated hereby.
4. Notwithstanding anything contained in this Agreement, this Agreement may
be amended or modified in writing at any time prior to the Effective Date;
provided that, an amendment made subsequent to the adoption of this Agreement by
the shareholders of a Constituent Corporation shall not: (1) alter or change the
amount or kind of shares, securities, cash, property and/or rights to be
received in exchange for or on conversion of all or any of the shares of any
class or series thereof of the Constituent Corporations; (2) alter or change any
term of the Articles of Incorporation of a Constituent Corporation; or (3) alter
or change any of the terms and conditions of this Agreement if such alteration
or change would adversely affect the holders of any class or series thereof of
the Constituent Corporations; provided, however, the Constituent Corporations
may by agreement in writing extend the time for performance of, or waive
compliance with, the conditions or agreements set forth herein.
5. In exercising their rights under Sections 4. or 5., each of the
Constituent Corporations may act by its Board of Directors, and such rights may
be so exercised, notwithstanding the prior approval of this Agreement by the
shareholders of a Constituent Corporation.
6. Each of the Constituent Corporations shall (A) keep its records and file
in connection with its federal and state income tax returns all such information
as may be required by Treas. Reg. Section 1.368-3; (B) for federal and state
income tax purposes report the share exchange as qualifying as a reorganization
under Section 368(a)(1)(B) of the Code; (C) refrain from taking any position in
connection with its federal or any state income tax liability that would be
inconsistent with such qualification; and (D) comply with all the requirements
of Section 368(a)(1)(B) applicable to such corporation.
ERIKO INTERNET INC., a Washington corporation
By: /s/ Cameron Woodbridge
------------------------------------------
Its: President
-----------------------------------------
DIGITAL SIGN CORPORATION, a Delaware
corporation
By: Barbra Paul
------------------------------------------
Its: President
-----------------------------------------
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EXHIBIT A
ARTICLES OF SHARE EXCHANGE
between
DIGITAL SIGN CORPORATION
a Delaware corporation
and
ERIKO INTERNET INC.
a Washington corporation
In accordance with RCW 23B.11.050
The undersigned, Barbra Paul, being the President of Digital Sign Corporation, a
Delaware corporation, ("Digital") and Cameron Woodbridge, being the President of
Eriko Internet Inc., a Washington corporation, ("Eriko"), DO HEREBY CERTIFY as
follows:
(1) The constituent corporations in the share exchange (the "Exchange") are
Digital Sign Corporation, a Delaware corporation, and Eriko Internet Inc, a
Washington corporation;
(2) An Agreement and Plan of Share Exchange dated as of April 5, 1999 (the
"Share Exchange Agreement") has been approved, adopted, and executed by each of
the constituent corporations in accordance with RCW 23B.11.010 et seq. The Share
Exchange Agreement is attached hereto as Exhibit A and incorporated herein by
reference;
(3) The Exchange was duly approved by the shareholders of Eriko in
accordance with Section 23B.011.030 of the Washington Business Corporation Act.
The shareholders of Digital are not required to approve the Exchange.
<PAGE>
The Exchange shall become effective on the date on which these Articles of
Share Exchange are filed by the Secretary of State of the state of Washington.
IN WITNESS WHEREOF, the parties hereto have caused these Articles of Share
Exchange to be duly executed as of this 5th day of April, 1999.
ERIKO INTERNET INC., a Washington corporation
By: /s/ Cameron Woodbridge
------------------------------------------
Its: President
-----------------------------------------
DIGITAL SIGN CORPORATION, a Delaware
corporation
By: Barbra Paul
------------------------------------------
Its: President
-----------------------------------------
EXHIBIT 2.3
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION MADE EFFECTIVE AS OF 14 MAY 1999 (the
"Effective Date").
BETWEEN: JOSEPH SCHLADER ("Mr. Schlader"), of
3085 Windermere Way, Sparks, Nevada, 89431
CHERYL SCHLADER ("Ms. Schlader"), of
3085 Windermere Way, Sparks, Nevada, 89431
WILLIAM GALINE ("Mr. Galine"), of
4332 Amberwood Avenue, Reno, Nevada, 89509
(individually, a "Shareholder" and collectively, the "Shareholders");
AND: PAWNBROKER.COM INC., a corporation incorporated under
the laws of the State of Nevada having a place of business at
701 Ryland Avenue, Reno, Nevada, U.S.A., 89502
("Pawnbroker");
AND: DIGITAL SIGN CORPORATION, a company incorporated under
the laws of the State of Delaware having a place of business at
688 - 6 Ishikawa, Kanagawa, Japan, 252 0815
(the "Acquiror");
WHEREAS:
A. The authorized share capital of Pawnbroker consists of 25,000 common shares
without par value of which only 1,000 common shares (the "Pawnbroker Shares")
are issued and outstanding;
B. The Shareholders are the registered and beneficial owners of the Pawnbroker
Shares as follows:
Mr. Schlader as to 255 Pawnbroker Shares
Ms. Schlader as to 255 Pawnbroker Shares
Mr. Galine as to 490 Pawnbroker Shares
-------------------------
Total: 1,000 Pawnbroker Shares
=========================
C. The Shareholders have agreed to transfer the Pawnbroker Shares to the
Acquiror and the Acquiror has agreed to acquire the Pawnbroker Shares from the
Shareholders in exchange for voting common shares of the Acquiror, in a share
exchange which is intended to qualify as a "reorganization" within section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, for U.S. federal
income tax purposes, on the following terms and conditions;
<PAGE>
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants
and agreements herein contained, the parties hereto do covenant and agree (the
"Agreement") as follows:
1. SHARE EXCHANGE
1.1 Subject to the terms and conditions of this Agreement, the Shareholders
agree to transfer all of the Pawnbroker Shares to the Acquiror, and the Acquiror
agrees to acquire all of the Pawnbroker Shares, in exchange for 4,800,000 voting
common shares of the Acquiror (the "Digital Shares") with an aggregate value of
US$1,500,000 (at the deemed price of US$0.3125 per Digital Share).
1.2 The Digital Shares shall be issued by the Acquiror to the Shareholders as
follows:
Mr. Schlader as to 1,224,000 Digital Shares
Ms. Schlader as to 1,224,000 Digital Shares
Mr. Galine as to 2,352,000 Digital Shares
-------------------------
Total: 4,800,000 Digital Shares
=========================
1.3 The issuance of the Digital Shares has not been approved or disapproved by
the United States Securities and Exchange Commission, any state securities
agency, or any foreign securities agency, and the Acquiror is not registered
under the United States Securities Exchange Act of 1934 (the "Exchange Act").
1.4 The transactions contemplated under this Agreement shall be completed (the
"Completion") at the offices of the Acquiror's solicitors, Messrs. Campney &
Murphy, 2100 - 1111 West Georgia Street, Vancouver, British Columbia, or at such
other place as may be agreed between the parties, at 11:00 o'clock a.m. local
time in Vancouver, B.C., or at such other time as may be agreed between the
parties, (the "Time of Closing") on 16 June 1999, or on such other date as may
be agreed between the parties, (the "Closing Date").
2. CONDITIONS PRECEDENT
2.1 The Acquiror's obligation to carry out the terms of this Agreement and to
complete its transactions contemplated under this Agreement is subject to the
fulfilment to the satisfaction of the Acquiror of each of the following
conditions that:
(a) on or before 16 June 1999, the Acquiror shall have been able to
complete the Acquiror's Investigation (defined below) with results to
its reasonable satisfaction;
(b) at the Time of Closing, the solicitors for the Shareholders shall
provide an opinion dated as of the Closing Date, substantially in the
form of Schedule A to this Agreement (the "Pawnbroker Solicitor
Opinion");
(c) as of the Time of Closing, the Shareholders and Pawnbroker shall have
complied with all of their respective covenants and agreements
contained in this Agreement;
(d) as of the Time of Closing, the representations and warranties of the
Shareholders and of any one of them contained in this Agreement or
contained in any certificates or documents delivered by them or any
one of them pursuant to this Agreement shall be
2
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completely true as if such representations and warranties had been
made as of the Time of Closing; and
(e) the Directors and, if required, the shareholders of the Acquiror shall
have approved this Agreement and all the transactions of the Acquiror
contemplated hereunder.
The conditions set forth above are for the exclusive benefit of the Acquiror and
may be waived by the Acquiror in whole or in part at any time at or before the
Time of Closing.
2.2 The Shareholder's respective obligations to carry out the terms of this
Agreement and to complete their respective transactions contemplated under this
Agreement are subject to the fulfilment to their satisfaction of each of the
following conditions that:
(a) on or before 16 June 1999, the Acquiror shall have restructured or
otherwise altered its share capital so that the Acquiror's authorized
capital is sufficient to permit issuance of the Digital Shares, and so
that upon issuance of the Digital Shares the Acquiror's issued share
capital will be 12,011,346 common shares (excluding the Acquiror's
common shares to be issued in the course of the Financing defined
below);
(b) at the Time of Closing, the solicitors for the Acquiror shall provide
an opinion dated as of the Closing Date, substantially in the form of
Schedule B to this Agreement (the "Digital Solicitor Opinion");
(c) as of the Time of Closing, the Acquiror shall have complied with all
of its covenants and agreements contained in this Agreement; and
(d) at the Time of Closing, the representations and warranties of the
Acquiror contained in this Agreement or contained in any certificates
or documents delivered by it pursuant to this Agreement shall be
completely true as if such representations and warranties had been
made by the Acquiror as of the Time of Closing.
The conditions set forth above are for the exclusive benefit of each of the
Shareholders and may be waived by each of them in whole or in part at or before
the Time of Closing.
2.3 The parties acknowledge and agree each with the other that this Agreement
and all of the transactions contemplated under this Agreement are subject to
receipt of any regulatory approvals that may be required under Applicable Laws.
If any such approvals are required but are not obtained by the Closing Date,
then this Agreement shall terminate and be of no further force and effect.
3. COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS
3.1 The Shareholders and Pawnbroker jointly and severally covenant and agree
with the Acquiror that the Shareholders and Pawnbroker shall:
(a) from and including the Effective Date through to and including the
Time of Closing, permit the Acquiror, through its directors, officers,
employees and authorized agents and representatives, at the Acquiror's
own cost, full access to Pawnbroker's books, records and property
including, without limitation, all of the assets, contracts and minute
books of Pawnbroker, so as to permit the Acquiror to make such
investigation (the "Acquiror's Investigation") of Pawnbroker as the
Acquiror considers advisable;
3
<PAGE>
(b) provide to the Acquiror all such further documents, instruments and
materials and do all such acts and things as may be required by the
Acquiror to obtain any regulatory approvals that may be required under
Applicable Laws;
(c) from and including the Effective Date through to and including the
Time of Closing, do all such acts and things that may be necessary to
ensure that all of the representations and warranties of the
Shareholders, Pawnbroker or any one of them contained in this
Agreement or any certificates or documents delivered by them or any
one of them pursuant to this Agreement remain true and correct;
(d) from and including the Effective Date through to and including the
Time of Closing, preserve and protect all of the goodwill, assets,
business and undertaking of Pawnbroker and, without limiting the
generality of the foregoing, carry on the business of Pawnbroker in a
reasonable and prudent manner; and
(e) from and including the Effective Date through to and including the
Time of Closing, keep confidential all discussions and communications
(including all information communicated therein) between the parties,
and all written and printed materials of any kind whatsoever exchanged
by the parties, except only any information or material that:
(i) was in the public domain at the time of disclosure to a
party (the "Recipient");
(ii) was already in the possession of the Recipient prior to
disclosure, as demonstrated by the Recipient through
tangible evidence;
(iii) subsequently enters the public domain through no fault of
the Recipient or any officer, director, employee or agent of
the Recipient; or
(iv) is required to be disclosed by law or by a court or
regulatory authority of competent jurisdiction;
and, if so requested by the Acquiror, the Shareholders and Pawnbroker
shall arrange for any director, officer, employee, authorized agent or
representative of Pawnbroker to enter into and the Shareholders
themselves shall enter into a non-disclosure agreement with the
Acquiror in a form acceptable to the Acquiror acting reasonably.
3.2 The Shareholders and Pawnbroker jointly and severally covenant and agree
with the Acquiror that, from and including the Effective Date through to and
including the Time of Closing, the Shareholders and Pawnbroker shall:
(a) not do any act or thing that would render any representation or
warranty of the Shareholders, Pawnbroker or any one of them contained
in this Agreement or any certificates or documents delivered by them
or any one of them pursuant to this Agreement untrue or incorrect; and
(b) not sell, encumber or dispose of, or negotiate with any other person
in respect of a sale, encumbrance or disposition of, any of the
Pawnbroker Shares or any goodwill, assets, business or undertaking of
Pawnbroker, other than a sale of part of the assets of Pawnbroker in
the ordinary course of Pawnbroker's business.
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<PAGE>
3.3 The Shareholders and Pawnbroker jointly and severally acknowledge to and
agree with the Acquiror that the Acquiror's Investigation shall in no way limit
or otherwise adversely affect the rights of the Acquiror as provided for
hereunder in respect of the representations and warranties of the Shareholders
and Pawnbroker or any of them contained in this Agreement or in any certificates
or documents delivered by them or any of them pursuant to this Agreement.
3.4 The Acquiror covenants and agrees with the Shareholders and with Pawnbroker
that the Acquiror shall:
(a) use its reasonable best efforts to obtain any regulatory approvals for
this Agreement and the transactions contemplated hereunder required by
Applicable Laws on or before the Closing Date;
(b) from and including the Effective Date through to and including the
Time of Closing, do all such acts and things that may be necessary to
ensure that all of the representations and warranties of the Acquiror
contained in this Agreement or in any certificates or documents
delivered by it pursuant to this Agreement remain true and correct;
(c) from and including the Effective Date through to and including the
Time of Closing, subject to its legal reporting obligations, keep
confidential all discussions and communications (including all
information communicated therein) between the parties, and all written
and printed materials of any kind whatsoever exchanged by the parties,
except only any information or material that:
(i) was in the public domain at the time of disclosure to a
party (the "Recipient");
(ii) was already in the possession of the Recipient prior to
disclosure, as demonstrated by the Recipient through
tangible evidence;
(iii) subsequently enters the public domain through no fault of
the Recipient or any officer, director, employee or agent of
the Recipient; or
(iv) is required to be disclosed by law or by a court or
regulatory authority of competent jurisdiction;
and, if so requested by the Shareholders or by Pawnbroker, the
Acquiror shall arrange for any director, officer, employee, authorized
agent or representative of the Acquiror to enter into, and the
Acquiror itself shall enter into, a non-disclosure agreement with the
Shareholders and Pawnbroker in a form acceptable to the Shareholders
and Pawnbroker acting reasonably;
(d) on Closing, appoint Mr. Schlader as a Director and President of the
Acquiror, with responsibilities that will include assisting in the
assembly of a new Board of Directors of the Acquiror; and
(e) following the Closing Date, the Acquiror will use its reasonable best
efforts to undertake a financing (the "Financing") to raise
US$3,000,000 for working capital purposes.
3.5 The Acquiror covenants and agrees with the Shareholders and with Pawnbroker
that, from and including the Effective Date through to and including the Time of
Closing, the Acquiror shall
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<PAGE>
not do any act or thing that would render any representation or warranty of the
Acquiror contained in this Agreement or any certificates or documents delivered
by it pursuant to this Agreement untrue or incorrect.
3.6 At the request of any or all of the Shareholders, the Acquiror covenants to
execute and deliver to each Shareholder, for filing, such form of election that
may be specified in applicable income tax legislation for election of proceeds
of disposition that is equal to or less than the fair market value of the number
of Digital Shares issuable to that Shareholder under this Agreement and that is
equal to or greater than the cost amount to that Shareholder of the Pawnbroker
Shares exchanged by that Shareholder, for the purposes of lawfully reducing the
amount of income tax payable in respect of the Shareholder's exchange of
Pawnbroker Shares.
4. REPRESENTATIONS AND WARRANTIES
4.1 In order to induce the Acquiror to enter into this Agreement and complete
its transactions contemplated hereunder, the Shareholders and Pawnbroker jointly
and severally represent and warrant to the Acquiror that:
(a) Pawnbroker was and remains duly incorporated and validly existing
under the laws of the State of Nevada and Pawnbroker:
(i) is not subject to the reporting requirements of section 13
or section 15 of the Exchange Act;
(ii) has the power, authority and capacity to enter into this
Agreement and carry out its terms; and
(iii) is in good standing with respect to the filing of annual
reports required under the laws of Nevada;
(b) the authorized and issued share capital of Pawnbroker is as set forth
in paragraphs A and B of the recitals to this Agreement;
(c) the Pawnbroker Shares are and will on the Closing Date immediately
prior to Completion be validly issued and outstanding fully paid and
non-assessable common shares of Pawnbroker registered in the names of,
and legally and beneficially owned by, the Shareholders as set forth
in paragraph B of the recitals to this Agreement, free and clear of
all voting restrictions, trade restrictions, liens, charges or
encumbrances of any kind whatsoever;
(d) except for the Pawnbroker Shares, there are no documents, instruments
or other writings of any kind whatsoever which constitute a "security"
of Pawnbroker as that term is defined in the United States Securities
Act of 1933, as amended (the "Securities Act") and, except as is
provided for by operation of this Agreement, there are no options,
agreements or rights of any kind whatsoever to acquire all or any part
of the Pawnbroker Shares or any interest in them from the Shareholders
or any one of them, or to acquire any other shares of Pawnbroker from
Pawnbroker;
(e) the constating documents of Pawnbroker have not been altered since the
incorporation of Pawnbroker;
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<PAGE>
(f) all of the material transactions of Pawnbroker have been promptly and
properly recorded or filed in or with the books or records of
Pawnbroker and the minute books of Pawnbroker contain all records of
the meetings and proceedings of Pawnbroker's shareholders and
directors since its incorporation;
(g) Pawnbroker holds all licences and permits that are required for
carrying on its business in the manner in which such business has been
carried on;
(h) Pawnbroker is the registered and beneficial owner of all of the
properties and assets used by Pawnbroker and which are necessary or
useful in the conduct of its business (collectively the "Assets"),
including without limitation the domain names "Pawnbroker.com" and
"Pawnbrokers.com" (the "Domain Names") and the other assets listed on
Schedule C to this Agreement;
(i) Pawnbroker has the corporate power to own the Assets and to carry on
the business carried on by it, and Pawnbroker is duly qualified to
carry on business in all jurisdictions in which it carries on
business;
(j) Pawnbroker has good and marketable exclusive title to the Assets free
and clear of all liens, charges and encumbrances of any kind
whatsoever save and except those specified as "Permitted Encumbrances"
on Schedule C to this Agreement, and in particular:
(i) Pawnbroker is the sole and exclusive legal and beneficial
owner of the Domain Names, free and clear of all
encumbrances whatsoever, and is not a party to or bound by
any contract or any other obligation whatsoever that limits
or impairs its ability to sell, transfer, assign or convey,
or that otherwise affects, the Domain Names;
(ii) Pawnbroker is the registered owner of the Domain Names, and
all fees or other costs associated with maintaining the
registration of the Domain Names have been paid as of 1
January 1999 and the registration of the Domain Names is in
good standing with Network Solutions, Inc.; and
(iii) no other person has been granted any interest in or right to
use all or any portion of the Domain Names;
(k) no third party privacy or intellectual property rights, including
without limitation, copyright, trade secret or patent rights, were
violated in the creation, compilation or acquisition of the Assets by
Pawnbroker or by any party through whom Pawnbroker acquired title and,
to the knowledge of the Shareholders and Pawnbroker, the use of the
Domain Names by Pawnbroker does not infringe upon or induce or
contribute to the infringement of any intellectual property rights,
domestic or foreign, of any other person;
(l) each item of machinery and equipment of any kind whatsoever comprised
in the Assets is in reasonable operating condition and in a state of
reasonable maintenance and repair taking into account its age and use;
(m) all of the bank accounts and safety deposit boxes of Pawnbroker are
listed on Schedule C to this Agreement;
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<PAGE>
(n) the books and records of Pawnbroker (collectively the "Pawnbroker
Records"), full access to which has been provided by Pawnbroker to the
Acquiror, are true and correct in every material respect and present
fairly and accurately the financial position and results of the
operations of Pawnbroker for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis;
(o) the Pawnbroker Records disclose all material financial transactions of
Pawnbroker since Pawnbroker's incorporation on 22 April 1999 and such
transactions have been fairly and accurately recorded;
(p) except as disclosed in the Pawnbroker Records:
(i) no dividends or other distributions of any kind whatsoever
on any shares in the capital of Pawnbroker have been made,
declared or authorized;
(ii) Pawnbroker is not indebted to the Shareholders or any one of
them;
(iii) none of the Shareholders or any other officer, director or
employee of Pawnbroker is indebted or under obligation to
Pawnbroker on any account whatsoever; and
(iv) Pawnbroker has not guaranteed or agreed to guarantee any
debt, liability or other obligation of any kind whatsoever
of any person, firm or corporation of any kind whatsoever;
(q) the total debt of Pawnbroker to all creditors does not exceed
US$275,000, and there are no material liabilities of Pawnbroker,
whether direct, indirect, absolute, contingent or otherwise, which are
not disclosed or reflected in the Pawnbroker Records;
(r) any accounts receivable of Pawnbroker shown in the Pawnbroker Records
are bona fide, good and collectible without setoff or counterclaim;
(s) since Pawnbroker's incorporation:
(i) there has not been any material adverse change of any kind
whatsoever in the financial position or condition of
Pawnbroker or any damage, loss or other change of any kind
whatsoever in circumstances materially affecting the
business or Assets of Pawnbroker or the right or capacity of
Pawnbroker to carry on its business;
(ii) Pawnbroker has not waived or surrendered any right of any
kind whatsoever of material value;
(iii) except as permitted under this Agreement, Pawnbroker has not
discharged, satisfied or paid any lien, charge or
encumbrance of any kind whatsoever or obligation or
liability of any kind whatsoever other than current
liabilities in the ordinary course of its business;
(iv) the business of Pawnbroker has been carried on in the
ordinary course; and
8
<PAGE>
(v) no new machinery or equipment of any kind whatsoever has
been ordered by, or installed or assembled on the premises
of, Pawnbroker;
(t) the directors, officers, key employees and independent contractors and
consultants of Pawnbroker and all of their compensation arrangements
with Pawnbroker, whether as directors, officers or employees of, or as
independent contractors or consultants to, Pawnbroker, are as listed
on Schedule D to this Agreement;
(u) no payments of any kind whatsoever have been made or authorized by
Pawnbroker to or on behalf of the Shareholders or any one of them or
to or on behalf of any of the directors, officers, key employees,
independent contractors or consultants of Pawnbroker except in
accordance with those compensation arrangements specified on Schedule
D to this Agreement or except as contemplated by this Agreement;
(v) there are no pensions, profit sharing, group insurance or similar
plans or other deferred compensation plans of any kind whatsoever
affecting Pawnbroker other than those specified on Schedule D to this
Agreement;
(w) Pawnbroker is not now, and has never been, a party to any collective
agreement with any labour union or other association of employees of
any kind whatsoever, no collective bargaining agent has been certified
in respect of Pawnbroker and there is no application pending for
certification of a collective bargaining agent in respect of
Pawnbroker;
(x) the contracts and agreements included on Schedule D to this Agreement
and those additional contracts and agreements specified on Schedule E
to this Agreement (collectively the "Material Contracts") constitute
all of the material contracts and agreements of Pawnbroker;
(y) except as is noted on the appropriate Schedule to this Agreement, the
Material Contracts are in good standing in all respects and not in
default in any respect;
(z) Pawnbroker has not licensed, leased, transferred, disposed of or
encumbered any of the Assets in any way, or permitted any third party
access to any of the Assets the value of which may be compromised by
such access, including in particular the source code to any computer
software or any trade secret information included in the Assets,
except only in accordance with the terms of the Material Contracts;
(aa) all tax returns and reports of Pawnbroker required by law to have been
filed have been filed and are substantially true, complete and correct
and all taxes and other government charges of any kind whatsoever of
Pawnbroker have been paid or accrued in the Pawnbroker Records;
(bb) Pawnbroker has not:
(i) made any election under any applicable tax legislation with
respect to the acquisition or disposition of any property at
other than fair market value;
(ii) acquired any property from a person with whom Pawnbroker was
not dealing with at arm's length for proceeds greater than
the fair market value thereof; or
9
<PAGE>
(iii) disposed of anything to a person with whom Pawnbroker was
not dealing with at arm's length for proceeds less than the
fair market value thereof;
(cc) Pawnbroker has made all elections required to have been made under any
applicable tax legislation in connection with any distributions made
by it and all such elections were true and correct and filed in the
prescribed form and within the prescribed time period;
(dd) adequate provision has been made for taxes payable by Pawnbroker for
the current period for which tax returns are not yet required to be
filed and there are no agreements, waivers or other arrangements of
any kind whatsoever providing for an extension of time with respect to
the filing of any tax return by, or payment of, any tax or
governmental charge of any kind whatsoever by Pawnbroker;
(ee) Pawnbroker does not have any contingent tax liabilities of any kind
whatsoever, and there are no grounds which would prompt a reassessment
of Pawnbroker, including for aggressive treatment of income or
expenses in earlier tax returns filed;
(ff) there are no amounts outstanding and unpaid for which Pawnbroker has
previously claimed a deduction under any applicable tax legislation;
(gg) Pawnbroker has made all collections, deductions, remittances and
payments of any kind whatsoever and filed all reports and returns
required by it to be made or filed under the provisions of all
applicable statutes requiring the making of collections, deductions,
remittances or payments of any kind whatsoever in those jurisdictions
in which Pawnbroker carries on business;
(hh) there are no actions, suits, judgements, investigations or proceedings
of any kind whatsoever outstanding, pending or threatened against or
affecting the Shareholders or any one of them or Pawnbroker at law or
in equity or before or by any federal, provincial, state, municipal or
other governmental department, commission, board, bureau or agency of
any kind whatsoever and there is no basis therefor;
(ii) to the best of their knowledge, Pawnbroker is not in breach of any
law, ordinance, statute, regulation, by-law, order or decree of any
kind whatsoever;
(jj) the Shareholders and Pawnbroker have good and sufficient power,
authority and capacity to enter into this Agreement and complete their
respective transactions contemplated under this Agreement on the terms
and conditions set forth herein;
(kk) the execution and delivery of this Agreement, the performance of their
respective obligations under this Agreement and the Completion will
not:
(i) conflict with, or result in the breach of or the
acceleration of any indebtedness under, or constitute
default under, any of the constating documents of Pawnbroker
or any of the terms of any indenture, mortgage, agreement,
lease, licence or other instrument of any kind whatsoever to
which Pawnbroker, the Shareholders or any one of them is a
party or by which any one of them is bound, or any judgement
or order of any kind whatsoever of any court or
administrative body of any kind whatsoever by which any one
of them is bound; nor
10
<PAGE>
(ii) result in the violation of any law or regulation of any kind
whatsoever by any of the Shareholders or by Pawnbroker;
(ll) neither Pawnbroker nor the Shareholders or any one of them has
incurred any liability for agency, brokerage, referral or finder's
fees, commissions or compensation of any kind whatsoever with respect
to this Agreement or any transaction contemplated under this
Agreement; and
(mm) the representations and warranties of the Shareholders and Pawnbroker
contained in this Agreement disclose all material facts specifically
relating to the transactions involving the Shareholders and Pawnbroker
contemplated under this Agreement which materially and adversely
affect, or in the future may materially and adversely affect, their
respective abilities to perform their respective obligations under
this Agreement or the value of the Pawnbroker Shares or the Assets.
4.2 Each of the Shareholders covenants, represents and warrants to the Acquiror
that:
(a) he or she has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an
investment in the Digital Shares and he or she is able to bear the
economic risk of loss of his or her entire investment;
(b) the Acquiror has provided to him or her the opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering and he or she has had access to such information
concerning the Acquiror as he or she has considered necessary or
appropriate in connection with the investment decision to acquire the
Digital Shares;
(c) he or she is acquiring the Digital Shares for his or her own account,
for investment purposes only and not with a view to any resale,
distribution or other disposition of the Digital Shares in violation
of the United States securities laws;
(d) he or she understands that the Digital Shares have not been and will
not be registered under the Securities Act or the securities laws of
any state of the United States or other jurisdiction and that the sale
contemplated hereby is being made in reliance on an exemption from
such registration requirements;
(e) he or she satisfies one or more of the categories indicated below
(each Shareholder must initial at least one applicable line):
--- Category 1. An organization described in Section 501(c)(3) of the
United States Internal Revenue Code, a corporation, a Massachusetts or
similar business trust or partnership, not formed for the specific
purpose of acquiring the Digital Shares, with total assets in excess
of US$5,000,000;
--- Category 2. A natural person whose individual net worth, or joint
net worth with that person's spouse, at the date hereof exceeds
US$1,000,000;
--- Category 3. A natural person who had an individual income in
excess of US$200,000 in each of the two most recent years or joint
income with that person's spouse in excess of US$300,000 in each of
those years and has a reasonable expectation of reaching the same
income level in the current year;
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<PAGE>
--- Category 4. A trust that (a) has total assets in excess of
US$5,000,000, (b) was not formed for the specific purpose of acquiring
the Digital Shares and (c) is directed in its purchases of securities
by a person who has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits
and risks of an investment in the Securities;
--- Category 5. An investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act;
--- Category 6. A Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958;
--- Category 7. A private business development company as defined in
Section 202(a)(22) of the Investment Advisors Acts of 1940; or
--- Category 8. An entity in which all of the equity owners satisfy
the requirements of one or more of the foregoing categories.
(f) he or she has not purchased the Digital Shares as a result of any form
of general solicitation or general advertising, including
advertisements, articles, notices or other communications published in
any newspaper, magazine or similar media or broadcast over radio, or
television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising;
(g) if he or she decides to offer, sell or otherwise transfer any of the
Digital Shares, he or she will not offer, sell or otherwise transfer
any of such Digital Shares directly or indirectly, unless:
(i) the sale is to the Acquiror;
(ii) the sale is made pursuant to the exemption from the
registration requirements under the Securities Act provided
by Rule 144 thereunder and in accordance with any applicable
state securities or "Blue Sky" laws; or
(iii) the Digital Shares are sold in a transaction that does not
require registration under the Securities Act or any
applicable state laws and regulations governing the offer
and sale of securities, and he or she has prior to such sale
furnished to the Acquiror an opinion of counsel reasonably
satisfactory to the Acquiror;
(h) the certificates representing the Digital Shares will bear a legend
stating that such shares have not been registered under the Securities
Act or the securities laws of any state of the United States and may
not be offered for sale or sold unless registered under the Securities
Act and the securities laws of all applicable states of the United
States or an exemption from such registration requirements is
available;
(i) he or she understands and agrees that there may be material tax
consequences to a Shareholder in respect of an acquisition or
disposition of the Digital Shares, and that the Acquiror gives no
opinion and makes no representation with respect to the tax
12
<PAGE>
consequences to the Shareholder under United States, state, local or
foreign tax law in respect of the Shareholder's acquisition or
disposition of the Digital Shares; and
(j) he or she consents to the Acquiror making a notation on its records or
giving instructions to any transfer agent of the Acquiror in order to
implement the restrictions on transfer set forth and described herein.
4.3 The representations and warranties of the Shareholders and Pawnbroker
contained in this Agreement shall be true at the Time of Closing as though they
were made at the Time of Closing and they shall survive the Completion and
remain in full force and effect thereafter for the benefit of the Acquiror. \
4.4 In order to induce the Shareholders to enter into this Agreement and
complete their respective transactions contemplated hereunder, the Acquiror
represents and warrants to the Shareholders that:
(a) the Acquiror was and remains duly incorporated and validly existing
under the laws of the State of Delaware, and the Acquiror is in good
standing with respect to the filing of annual reports required under
the laws of Delaware;
(b) as of the Effective Date, the authorized share capital of the Acquiror
consists of 20,000,000 preferred shares having a par value of one-one
thousandth of a cent (US$0.00001) each, of which none are issued and
outstanding, and 50,000,000 common shares having a par value of
one-one thousandth of a cent (US$0.00001) each, of which 38,499,000
shares (the "Outstanding Shares") are issued and outstanding;
(c) prior to the Closing Date, the Acquiror will effect a 5.2:1 rollback
of the Outstanding Shares so that on the Closing Date the Acquiror
will have 7,211,346 common shares issued and outstanding
(d) there are no commitments, plans or arrangements of any kind whatsoever
to issue shares of the Acquiror, nor are there any outstanding
options, warrants, convertible securities or other rights of any kind
whatsoever calling for the issuance of any of the unissued shares of
the Acquiror, other than as contemplated in respect of the Financing;
(e) the Digital Shares to be issued on Completion will be, when issued,
validly issued as fully paid and non-assessable;
(f) the Acquiror has good and sufficient power, authority and capacity to
enter into this Agreement and complete its transactions contemplated
under this Agreement on the terms and conditions set forth herein; and
(g) the execution and delivery of this Agreement, the performance of its
obligations under this Agreement and the Completion will not:
(i) conflict with, or result in the breach of or the
acceleration of any indebtedness under, or constitute
default under, the constating documents of the Acquiror or
the terms of any indenture, mortgage, agreement, lease,
licence or other instrument of any kind whatsoever to which
the Acquiror is a party or by which
13
<PAGE>
it is bound, or any judgment or order of any kind whatsoever
of any Court or administrative body of any kind whatsoever
by which the Acquiror is bound; nor
(ii) result in the violation of any law or regulation of any kind
whatsoever by the Acquiror.
(h) the Certificate of Incorporation of the Acquiror is that filed on 13
February 1998 with the Secretary of State of Delaware and there are no
other documents amending such certificate which have been filed or
contemplated except the Certificate of Designation reducing the number
of issued and outstanding common shares of the Acquiror to 7,011,346
immediately before the Closing Date;
(i) all of the material transactions of the Acquiror have been promptly
and properly recorded or filed in or with the books or records of the
Acquiror and the minute books of the Acquiror contain all records of
the meetings and proceedings of the Acquiror's shareholders and
directors since its incorporation;
(j) the Acquiror holds all licences and permits that are required for
carrying on its business in the manner in which such business has been
carried on;
(k) the Acquiror has the corporate power to own the Assets and to carry on
the business carried on by it, and the Acquiror is duly qualified to
carry on business in all jurisdictions in which it carries on
business;
(l) the Acquiror has not assigned or contracted or promised to assign this
Agreement, the Assets or the Domain Names or any of its related
intellectual property rights to any third party;
(m) the books and records of the Acquiror (collectively the "Acquiror
Records"), shown to the Shareholders are true and correct in every
material respect and present fairly and accurately the financial
position and results of the operations of the Acquiror for the periods
indicated, and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis;
(n) the Acquiror Records disclose all material financial transactions of
the Acquiror since the Acquiror's incorporation on 13 February 1998
and such transactions have been fairly and accurately recorded;
(o) except as disclosed in the Acquiror Records:
(i) no dividends or other distributions of any kind whatsoever
on any shares in the capital of the Acquiror have been made,
declared or authorized;
(ii) the Acquiror is not indebted to anyone; and
(iii) the Acquiror has not guaranteed or agreed to guarantee any
debt, liability or other obligation of any kind whatsoever
of any person, firm or corporation of any kind whatsoever;
14
<PAGE>
(p) there are no material liabilities of the Acquiror, whether direct,
indirect, absolute, contingent or otherwise, which are not disclosed
or reflected in the Acquiror Records;
(q) any accounts receivable of the Acquiror shown in the Acquiror Records
are bona fide, good and collectible without setoff or counterclaim;
(r) since the Acquiror's incorporation:
(i) there has not been any material adverse change of any kind
whatsoever in the financial position or condition of the
Acquiror or any damage, loss or other change of any kind
whatsoever in circumstances materially affecting the
business or assets of the Acquiror or the right or capacity
of the Acquiror to carry on its business;
(ii) the Acquiror has not waived or surrendered any right of any
kind whatsoever of material value; and
(iii) except as permitted under this Agreement, the Acquiror has
not discharged, satisfied or paid any lien, charge or
encumbrance of any kind whatsoever or obligation or
liability of any kind whatsoever other than current
liabilities in the ordinary course of its business;
(s) the directors, officers, key employees and independent contractors and
consultants of the Acquiror and all of their compensation arrangements
with the Acquiror, whether as directors, officers or employees of, or
as independent contractors or consultants to, the Acquiror, are as
listed on Schedule F to this Agreement;
(t) there are no material contracts between the Acquiror and third parties
except this Agreement;
(u) all tax returns and reports of the Acquiror required by law to have
been filed have been filed and are substantially true, complete and
correct and all taxes and other government charges of any kind
whatsoever of the Acquiror have been paid or accrued in the Acquiror
Records;
(v) the Acquiror has made all elections required to have been made under
any applicable tax legislation in connection with any distributions
made by it and all such elections were true and correct and filed in
the prescribed form and within the prescribed time period;
(w) adequate provision has been made for taxes payable by the Acquiror for
the current period for which tax returns are not yet required to be
filed and there are no agreements, waivers or other arrangements of
any kind whatsoever providing for an extension of time with respect to
the filing of any tax return by, or payment of, any tax or
governmental charge of any kind whatsoever by the Acquiror;
(x) the Acquiror does not have any contingent tax liabilities of any kind
whatsoever, and there are no grounds which would prompt a reassessment
of the Acquiror, including for aggressive treatment of income or
expenses in earlier tax returns filed;
15
<PAGE>
(y) there are no actions, suits, judgements, investigations or proceedings
of any kind whatsoever outstanding, pending or threatened against or
affecting the Acquiror at law or in equity or before or by any
federal, provincial, state, municipal or other governmental
department, commission, board, bureau or agency of any kind whatsoever
and there is no basis therefor;
(z) to the best of its knowledge, the Acquiror is not in breach of any
law, ordinance, statute, regulation, by-law, order or decree of any
kind whatsoever;
(aa) the Acquiror has incurred no liability for agency, brokerage, referral
or finder's fees, commissions or compensation of any kind whatsoever
with respect to this Agreement or any transaction contemplated under
this Agreement; and
(bb) the representations and warranties of the Acquiror contained in this
Agreement disclose all material facts specifically relating to the
transactions involving the Acquiror contemplated under this Agreement
which materially and adversely affect, or in the future may materially
and adversely affect, the Acquiror's ability to perform its
obligations under this Agreement.
4.5 The representations and warranties of the Acquiror contained in this
Agreement, except for the number of outstanding shares set forth in subparagraph
4.4(b) of this Agreement, shall be true at the Time of Closing as though they
were made at the Time of Closing, and they shall survive the Completion and
remain in full force and effect thereafter for the benefit of the Shareholders.
5. INDEMNITIES
5.1 Notwithstanding the Completion of the transactions contemplated under this
Agreement or the Acquiror's Investigation, the representations, warranties and
acknowledgements of the Shareholders, Pawnbroker or any one of them contained in
this Agreement or any certificates or documents delivered by them or any one of
them pursuant to this Agreement shall survive the Completion and shall continue
in full force and effect thereafter for the benefit of the Acquiror. If any of
the representations, warranties or acknowledgements given by the Shareholders,
Pawnbroker or any one of them is found to be untrue or there is a breach of any
covenant or agreement in this Agreement on the part of the Shareholders,
Pawnbroker or any one of them, the Shareholders and Pawnbroker shall jointly and
severally indemnify and save harmless the Acquiror from and against any and all
liability, claims, debts, demands, suits, actions, penalties, fines, losses,
costs (including legal fees, disbursements and taxes as charged on a lawyer and
own client basis), damages and expenses of any kind whatsoever which may be
brought or made against the Acquiror by any person, firm or corporation of any
kind whatsoever or which may be suffered or incurred by the Acquiror, directly
or indirectly, arising out of or as a consequence of any such misrepresentation
or breach of warranty, acknowledgement, covenant or agreement. Without in any
way limiting the generality of the foregoing, this shall include any loss of any
kind whatsoever which may be suffered or incurred by the Acquiror, directly or
indirectly, arising out of any material assessment or reassessment levied upon
Pawnbroker for tax, interest and/or penalties relating to any period of business
operations up to and including the Closing Date and all claims, demands, costs
(including legal fees, disbursements and taxes as charged on a lawyer and own
client basis) and expenses of any kind whatsoever in respect of the foregoing.
5.2 Notwithstanding the Completion of the transactions contemplated under this
Agreement, the representations, warranties and acknowledgements of the Acquiror
contained in this Agreement or any certificates or documents delivered by the
Acquiror pursuant to this Agreement shall survive the
16
<PAGE>
Completion and shall continue in full force and effect thereafter for the
benefit of the Shareholders and Pawnbroker. If any of the representations,
warranties or acknowledgements given by the Acquiror is found to be untrue or
there is a breach of any covenant or agreement in this Agreement on the part of
the Acquiror, then the Acquiror shall indemnify and save the Shareholders and
Pawnbroker harmless from and against any and all liability, claims, debts,
demands, suits, actions, penalties, fines, losses, costs (including legal fees,
disbursements and taxes as charged on a lawyer and own client basis), damages
and expenses of any kind whatsoever which may be brought or made against the
Shareholders or Pawnbroker by any person, firm or corporation of any kind
whatsoever or which may be suffered or incurred by the Shareholders or
Pawnbroker, directly or indirectly, arising out of or as a consequence of any
such misrepresentation or breach of warranty, acknowledgement, covenant or
agreement.
6. CLOSING
6.1 At the Time of Closing, the Shareholders shall deliver to the solicitors
for the Acquiror:
(a) a certified true copy of the resolutions of the directors of
Pawnbroker evidencing that the directors of the Pawnbroker have
approved this Agreement and all of the transactions of Pawnbroker
contemplated hereunder, specifically referring to:
(i) the exchange and transfer of the Pawnbroker Shares from the
Shareholders to the Acquiror as provided for in this
Agreement;
(ii) the cancellation of the share certificates (the "Old Share
Certificates") representing the Pawnbroker Shares held as
set forth in paragraph B of the recitals to this Agreement;
and
(iii) the issuance of a new share certificate (the "New Share
Certificate") representing the Pawnbroker Shares registered
in the name of the Acquiror;
(b) the Old Share Certificates;
(c) the New Share Certificate;
(d) the Pawnbroker Solicitor Opinion;
(e) a certificate of confirmation from each of the Shareholders
substantially in the form of Schedule G to this Agreement; and
(f) any other materials that are, in the opinion of the solicitors for the
Acquiror, reasonably required to complete the transactions
contemplated under this Agreement.
6.2 At the Time of Closing, the Acquiror shall deliver to the solicitors for
the Shareholders:
(a) certified true copies of the resolutions of the directors and, if
shareholder approval is required, of the shareholders of the Acquiror,
evidencing that the directors and, as applicable, the shareholders, of
the Acquiror have approved this Agreement and all of the transactions
of the Acquiror contemplated hereunder;
(b) share certificates representing the Digital Shares registered in the
names of the Shareholders as provided for in paragraph 1.2 of this
Agreement;
17
<PAGE>
(c) the Digital Solicitor Opinion; and
(d) a certificate of confirmation signed by a director or officer of the
Acquiror substantially in the form of Schedule H to this Agreement.
7. GENERAL
7.1 Time and each of the terms and conditions of this Agreement shall be of the
essence of this Agreement and any waiver by the parties of this paragraph 7.1 or
any failure by them to exercise any of their rights under this Agreement shall
be limited to the particular instance and shall not extend to any other instance
or matter in this Agreement or otherwise affect any of their rights or remedies
under this Agreement.
7.2 The Schedules to this Agreement incorporated by reference and the recitals
to this Agreement constitute a part of this Agreement.
7.3 This Agreement constitutes the entire Agreement between the parties hereto
in respect of the matters referred to herein and there are no representations,
warranties, covenants or agreements, expressed or implied, collateral hereto
other than as expressly set forth or referred to herein.
7.4 The headings in this Agreement are for reference only and do not constitute
terms of the Agreement.
7.5 The provisions contained in this Agreement which, by their terms, require
performance by a party to this Agreement subsequent to the Closing Date of this
Agreement, shall survive the Closing Date of this Agreement.
7.6 No alteration, amendment, modification or interpretation of this Agreement
or any provision of this Agreement shall be valid and binding upon the parties
hereto unless such alteration, amendment, modification or interpretation is in
written form executed by the parties directly affected by such alteration,
amendment, modification or interpretation.
7.7 Whenever the singular or masculine is used in this Agreement the same shall
be deemed to include the plural or the feminine or the body corporate as the
context may require.
7.8 The parties hereto shall execute and deliver all such further documents and
instruments and do all such acts and things as any party may, either before or
after the Closing Date, reasonably require in order to carry out the full intent
and meaning of this Agreement.
7.9 Any notice, request, demand and other communication to be given under this
Agreement shall be in writing and shall be delivered by hand to the appropriate
party at the address as first set out above or to such other addresses or by
such other means as may be designated in writing by the parties hereto in the
manner provided for in this paragraph, and shall be deemed to have been received
on the date of delivery by hand, or if delivered by e-mail or telecopy, then on
the date transmission completes.
7.10 This Agreement shall be subject to, governed by, and construed in
accordance with the laws of the State of Nevada and the federal laws of the
United States of America pertaining thereto.
18
<PAGE>
7.11 This Agreement may be signed by the parties in as many counterparts as may
be deemed necessary, each of which so signed shall be deemed to be an original,
and all such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals as of the
Effective Date:
SIGNED, SEALED & DELIVERED )
by JOSEPH SCHLADER in the presence of: )
)
/s/ Tracee Carmate )
- ----------------------------------------) /s/ Joseph Schlader
Signature of Witness ) -----------------------------------
) JOSEPH SCHLADER
Name: Tracee Carmate )
Address: 4146 Fancas Dr. )
Napa, CA 94558 )
Occupation: Hotel Hospitality )
SIGNED, SEALED & DELIVERED )
by CHERYL SCHLADER in the presence of: )
)
/s/ Tracee Carmate )
- ----------------------------------------) /s/ Cheryl Schlader
Signature of Witness ) -----------------------------------
) CHERYL SCHLADER
Name: Tracee Carmate )
Address: 4146 Fancas Dr. )
Napa, CA 94558 )
Occupation: Hotel Hospitality )
SIGNED, SEALED & DELIVERED )
by WILLIAM GALINE in the presence of: )
)
/s/ John Fowler )
- ----------------------------------------) /s/ William Galine
Signature of Witness ) -----------------------------------
) WILLIAM GALINE
Name: John Fowler )
Address: 333 Holcomb Ave. )
Reno, NV )
Occupation: Attorney )
19
<PAGE>
THE CORPORATE SEAL of )
PAWNBROKER.COM INC. )
was hereunto affixed in the presence )
of its authorized signatory(ies): )
) c/s
- --------------------------------------- )
Name: --------------------------------- )
Title: -------------------------------- )
)
- --------------------------------------- )
Name: --------------------------------- )
Title: -------------------------------- )
THE CORPORATE SEAL of )
DIGITAL SIGN CORPORATION )
was hereunto affixed in the presence )
of its authorized signatory(ies): )
) c/s
/s/ Doug McLeod )
- --------------------------------------- )
Name: Doug McLeod )
Title: President )
20
<PAGE>
SCHEDULE A
Pawnbroker Solicitor Opinion
----------------------------
(letterhead of solicitors for the Shareholders and Pawnbroker)
- --, 199--
- ----------------------------
c/o Campney & Murphy
Barristers and Solicitors
P.O. Box 48800
2100-1111 West Georgia Street
Vancouver, B.C. V7X 1K9
Attention: -----------------
Dear Sirs:
Re: Share Exchange Agreement (the "Agreement") made effective as of the 14 day
of May, 1999 between Joseph Schlader, Cheryl Schlader and William Galine
(collectively the "Shareholders"), Pawnbroker.com, Inc. ("Pawnbroker") and
Digital Sign Corporation (the "Acquiror")
We are the solicitors for the Shareholders and for Pawnbroker. We provide this
opinion pursuant to subparagraphs 2.1(c) and 6.1(f) of the Agreement. We have
also acted as counsel for Pawnbroker and the Shareholders in connection with the
negotiation, execution and completion of the Agreement.
We have considered such questions of law and examined such statutes and
regulations, corporate records, certificates and other documents and have made
such other examinations, searches and investigations as we have considered
necessary for the purpose of the opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or as
photocopies.
Based on and subject to the foregoing, we are of the opinion that:
1. Pawnbroker is a company duly incorporated and validly existing under the
laws of the State of Nevada. Pawnbroker is in good standing with respect to
the filing of annual reports with the ----- Registrar of Companies for the
State of Nevada.
<PAGE>
2. To the best of our knowledge, Pawnbroker has all requisite corporate power
and authority to conduct the business now carried on by it, and to own its
property and assets as described in the Agreement and Pawnbroker has all
requisite corporate power and authority to enter into and to perform its
obligations under the Agreement.
3. All necessary steps and corporate action and proceedings have been taken to
authorize the execution and delivery of the Agreement by Pawnbroker.
4. To the best of our knowledge, neither the execution and delivery of, nor
the performance of its obligations under the Agreement by Pawnbroker will
conflict with or constitute a breach or default under the constating
documents of Pawnbroker or any commitment, agreement or other instrument to
which Pawnbroker is a party or by which it is bound.
5. To the best of our knowledge, there are no claims, judgement, actions,
suits, litigation, proceedings or investigations, actual, pending or
threatened against Pawnbroker which might materially affect any business,
properties, assets, prospects or conditions, financial or otherwise, of
Pawnbroker or which could result in any material liability to Pawnbroker.
6. The authorized capital of Pawnbroker consists of ----- common shares of
which only 1,000 common shares (the "Pawnbroker Shares") are validly
authorized, created, allotted, issued and outstanding, and, to the best of
our knowledge, are fully paid for and non-assessable, as at the date
hereof.
7. All necessary steps and corporate action and proceedings have been taken to
effect the valid transfer of the Pawnbroker Shares to the Acquiror as
contemplated under the Agreement. The Acquiror is the registered owner of
the Pawnbroker Shares on the books and records of Pawnbroker.
The opinion expressed is subject to the qualification that enforceability of the
Agreement may be limited by applicable bankruptcy, insolvency or other laws
affecting creditors' rights generally, and that equitable remedies such as the
remedies of specific performance or injunction are in the discretion of the
court from which they are sought.
Yours truly,
- -----------------------------
Per:
- -----------------------------
-2-
<PAGE>
SCHEDULE B
Digital Solicitor Opinion
-------------------------
(letterhead of solicitors for the Acquiror)
- -----, 199-
- ----------------------------
c/o ------------------------
Attorneys at Law
- ----------------------------
Attention: Mr. John Fowler
Dear Sirs:
Re: Share Exchange Agreement (the "Agreement") made effective as of the 14 day
of May, 1999 between Joseph Schlader, Cheryl Schlader and William Galine
(collectively the "Shareholders"), Pawnbroker.com, Inc. ("Pawnbroker") and
Digital Sign Corporation (the "Acquiror")
We are the solicitors the Acquiror. We provide this opinion pursuant to
subparagraphs2.2(b) and 6.2(c) of the Agreement. We have acted as counsel for
the Acquiror in connection with the negotiation, execution and completion of the
Agreement.
We have considered such questions of law and examined such statutes and
regulations, corporate records, certificates and other documents and have made
such other examinations, searches and investigations as we have considered
necessary for the purpose of the opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or as
photocopies.
Based on and subject to the foregoing, we are of the opinion that:
1. The Acquiror is a company duly incorporated and validly existing under the
laws of the State of Delaware. The Acquiror is in good standing with
respect to the filing of annual reports with the ----- Registrar of
Companies for the State of Delaware.
2. The Acquiror has all requisite corporate power and authority to enter into
and to perform its obligations under the Agreement.
3. All necessary steps and corporate action and proceedings have been taken to
authorize the execution and delivery of the Agreement by the Acquiror.
<PAGE>
4. To the best of our knowledge, neither the execution and delivery of, nor
the performance of its obligations under the Agreement by the Acquiror will
conflict with or constitute a breach of or default under the constating
documents of the Acquiror or any commitment, agreement or other instrument
to which the Acquiror is a party or by which it is bound.
5. As at the Effective Date of the Agreement, the authorized capital of the
Acquiror consisted of common shares without par value of which 38,499,.000
were validly authorized, created, allotted, issued and outstanding, and, to
the best of our knowledge, fully paid for and non-assessable.
6. All necessary steps and corporate action and proceedings have been taken to
effect the valid issuance of the Digital Shares to the Shareholders as
contemplated under the Agreement.
The opinion expressed is subject to the qualification that enforceability of the
Agreement may be limited by applicable bankruptcy, insolvency or other laws
affecting creditors' rights generally, and that equitable remedies such as the
remedies of specific performance or injunction are in the discretion of the
court from which they are sought.
Yours truly,
- ----------------------------
Per:
- ----------------------------
-2-
<PAGE>
SCHEDULE C
Pawnbroker Assets
-----------------
All rights, title and interest in and to all tangible and intangible property
associated with the business (the "Business") carried on at, through or in
association with either or both of the internet domain names "Pawnbroker.com"
and "Pawnbrokers.com" (the "Domain Names"), and all related internet website
development (collectively, the "Website"), including without limitation:
(i) the contractual right to maintain registration of the Domain
Names with Internic (Network Solutions Inc.);
(ii) all URL's associated with the Domain Names or the Website;
(iii) all databases, books and records relating to the Business
including, without limitation, all recorded information relating
to customers of the Business, and advertisers on and visitors to
the Website;
(iv) copyright in all graphics and text displayed at the Website;
(v) copyright in all customized (non-retail) software relating to the
Website or used in the Business;
(vi) all trade-mark and trade name rights that the Shareholder may
have anywhere in the world in respect of the Business, the
Website or either of the Domain Names;
(vii) all goodwill associated with the Business, the Website or either
of the Domain Names; and
(viii) all incidental furniture and fixtures used in the Business.
Permitted Encumbrances
----------------------
NIL.
<PAGE>
SCHEDULE D
Pawnbroker Directors, Officers, Employees, Contractors and Consultants
----------------------------------------------------------------------
<TABLE>
Name and Address Relationship Compensation Arrangement
- ---------------------------------------------------- -------------------------- --------------------------------------
<S> <C> <C>
Joseph Schlader, 3085 Windermere Way, Sparks, Director and President None.
Nevada, 89431
- ---------------------------------------------------- -------------------------- --------------------------------------
Cheryl Schlader, 3085 Windermere Way, Sparks, Director and Vice None.
Nevada, 89431 President
- ---------------------------------------------------- -------------------------- --------------------------------------
William Galine, 4332 Amberwood Avenue, Reno, Director and Secretary None.
Nevada, 89509
- ---------------------------------------------------- -------------------------- --------------------------------------
</TABLE>
<PAGE>
SCHEDULE E
Pawnbroker Material Contracts
-----------------------------
1. (Computer Equipment Lease)
2. (Premises Lease); and
3. (Telephone Lease).
-2-
<PAGE>
Draft #2: May 12/99: 695325
SCHEDULE F
Acquiror Directors, Officers, Employees, Contractors and Consultants
--------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------- -------------------------- --------------------------------------
<S> <C> <C> <C>
Name and Address Relationship Compensation Arrangement
- ---------------------------------------------------- -------------------------- --------------------------------------
---------------- ---------------- ----------------
- ---------------------------------------------------- -------------------------- --------------------------------------
---------------- ---------------- ----------------
- ---------------------------------------------------- -------------------------- --------------------------------------
---------------- ---------------- ----------------
- ---------------------------------------------------- -------------------------- --------------------------------------
---------------- ---------------- ----------------
- ---------------------------------------------------- -------------------------- --------------------------------------
---------------- ---------------- ----------------
- ---------------------------------------------------- -------------------------- --------------------------------------
</TABLE>
<PAGE>
SCHEDULE G
Certificate of Confirmation
---------------------------
Pursuant to subparagraph 6.1(e) of the Share Exchange Agreement made effective
as of the 14 day of May, 1999 (the "Agreement") between Joseph Schlader, Cheryl
Schlader and William Galine (collectively the "Shareholders"), Pawbroker.com,
Inc. and Digital Sign Corporation (the "Acquiror"), the undersigned Shareholder
hereby confirms to the Acquiror that the representations and warranties of the
Shareholders contained in the Agreement or contained in any certificates or
documents delivered by them or any of them pursuant to the Agreement are true
and correct in every respect as of the Time of Closing of the Agreement being
11:00 o'clock a.m. local time in Vancouver, B.C. on the 16 day of June, 1999.
Dated at --------, this 16th day of June, 1999.
------------------------------------------
-31-
<PAGE>
SCHEDULE H
Certificate of Confirmation
---------------------------
Pursuant to subparagraph 6.2(d) of the Share Exchange Agreement made effective
as of the 14 day of May, 1999 (the "Agreement") between Joseph Schlader, Cheryl
Schlader and William Galine (collectively the "Shareholders"), Pawbroker.com,
Inc. and Digital Sign Corporation (the "Acquiror"), the Acquiror confirms to the
Shareholders that the representations and warranties of the Acquiror contained
in the Agreement or contained in any certificates or documents delivered by it
pursuant to the Agreement are true and correct in every respect as of the Time
of Closing of the Agreement, being 11:00 o'clock a.m. local time in Vancouver,
B.C. on the 16th day of June, 1999.
Dated at Vancouver, British Columbia, this 16th day of June, 1999.
Digital Sign Corporation
Per:
---------------------------------
----------------------, Director
EXHIBIT 2.4
ADDENDUM
THIS ADDENDUM MADE EFFECTIVE AS OF 11 JUNE 1999 AMENDS THE AGREEMENT AND PLAN OF
REORGANIZATION MADE EFFECTIVE AS OF 14 MAY 1999 (the "Agreement"),
BETWEEN: JOSEPH SCHLADER ("Mr. Schlader"), of
3085 Windermere Way, Sparks, Nevada, 89431
CHERYL SCHLADER ("Ms. Schlader"), of
3085 Windermere Way, Sparks, Nevada, 89431
WILLIAM GALINE ("Mr. Galine"), of
4332 Amberwood Avenue, Reno, Nevada, 89509
(individually, a "Shareholder" and collectively, the "Shareholders");
AND: PAWNBROKER.COM INC., a corporation incorporated under
the laws of the State of Nevada having a place of business at
701 Ryland Avenue, Reno, Nevada, U.S.A., 89502
("Pawnbroker");
AND: PAWNBROKER.COM INC. (formerly DIGITAL SIGN CORPORATION),
a company incorporated under the laws of the State of Delaware
having a place of business at 688 - 6 Ishikawa, Kanagawa,
Japan, 252 0815
(the "Acquiror");
WHEREAS:
A. The Shareholders, Pawnbroker and the Acquiror entered into the Agreement on
18 May 1999, and have since agreed to amend certain terms of the Agreement;
NOW THEREFORE THIS ADDENDUM (this "Addendum") WITNESSES that in consideration of
the mutual covenants and agreements herein contained, the parties hereto do
covenant and agree as follows:
1. SHARE EXCHANGE
1.1 Paragraph 1.1 of the Agreement is hereby amended to provide that the
Shareholders shall transfer all of the Pawnbroker Shares to the Acquiror, and
the Acquiror agrees to acquire all of the Pawnbroker Shares, in exchange for
6,240,000 voting common shares of the Acquiror (the "Digital Shares") with an
aggregate value of US$1,500,096 (at the deemed price of US$0.2404 per Digital
Share).
<PAGE>
1.2 Paragraph 1.2 of the Agreement is hereby amended to provide that the
Digital Shares shall be issued by the Acquiror to the Shareholders as follows:
Mr. Schlader as to 1,591,200 Digital Shares
Ms. Schlader as to 1,591,200 Digital Shares
Mr. Galine as to 3,057,600 Digital Shares
Total: 6,240,000 Digital Shares
========================
1.3 Paragraph 1.4 of the Agreement is hereby amended to provide that the
transactions contemplated under the Agreement shall be completed (the
"Completion") at the offices of the Acquiror's solicitors, Messrs. Campney &
Murphy, 2100 - 1111 West Georgia Street, Vancouver, British Columbia, or at such
other place as may be agreed between the parties, at 11:00 o'clock a.m. local
time in Vancouver, B.C., or at such other time as may be agreed between the
parties, (the "Time of Closing") on 23 June 1999, or on such other date as may
be agreed between the parties, (the "Closing Date").
2. CONDITIONS PRECEDENT
2.1 Subparagraph 2.1(a) of the Agreement is hereby amended to provide that the
Acquiror's obligation to carry out the terms of the Agreement and to complete
its transactions contemplated under the Agreement is subject to the fulfilment
to the satisfaction of the Acquiror of the condition that:
(a) on or before 23 June 1999, the Acquiror shall have been able to
complete the Acquiror's Investigation (defined below) with results to
its reasonable satisfaction;
and the fulfilment to the satisfaction of the Acquiror of each of the other
conditions listed in paragraph 2.1 of the Agreement.
2.2 Subparagraph 2.2(a) of the Agreement is hereby amended to provide that the
Shareholders' respective obligations to carry out the terms of the Agreement and
to complete their respective transactions contemplated under the Agreement are
subject to the fulfilment to the satisfaction of the Shareholders of the
condition that:
(a) on or before 23 June 1999, the Acquiror shall have restructured or
otherwise altered its share capital so that the Acquiror's authorized
capital is sufficient to permit issuance of the Digital Shares, and so
that upon issuance of the Digital Shares the Acquiror's issued share
capital will be 15,614,750 common shares (excluding the Acquiror's
common shares to be issued in the course of the Financing defined
below);
and the fulfilment to the satisfaction of the Shareholders of each of the other
conditions listed in paragraph 2.2 of the Agreement.
3. COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS
3.1 Subparagraph 3.4(e) of the Agreement is hereby amended to provide that
prior to the Closing Date, the Acquiror will use its reasonable best efforts to
undertake a financing (the "Financing") to raise US$3,000,000 for working
capital purposes.
-2-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 Subparagraphs 4.4(c) and 4.4(h) of the Agreement are hereby amended to
provide that, in order to induce the Shareholders to enter into this Agreement
and complete their respective transactions contemplated hereunder, the Acquiror
represents and warrants to the Shareholders that:
(c) prior to the Closing Date, the Acquiror will effect a repurchase and
cancellation of some of the Outstanding Shares and a 4:1 rollback of
the Outstanding Shares, so that on the Closing Date the Acquiror will
have 9,374,750 common shares issued and outstanding; and
(h) the Certificate of Incorporation of the Acquiror is that filed on 13
February 1998 with the Secretary of State of Delaware and there are no
other documents amending such certificate which have been filed or
contemplated except the Certificate of Designation reducing the number
of issued and outstanding common shares of the Acquiror to 9,374,750
immediately before the Closing Date.
5. GENERAL
5.1 Schedules A, B, G and H to this Addendum are hereby substituted for
Schedules A, B, G and H to the Agreement, respectively.
5.2 All terms of the Agreement not specifically amended by this Addendum shall
continue in full force and effect, unamended, subject to any further agreement
in writing between the parties.
5.3 This Addendum may be signed by the parties in as many counterparts as may
be deemed necessary, each of which so signed shall be deemed to be an original,
and all such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals as of 11
June 1999:
SIGNED, SEALED & DELIVERED )
by JOSEPH SCHLADER in the presence of: )
)
/s/ John Fowler )
- ----------------------------------------) /s/ John Schlader
Signature of Witness ) -----------------------------------
) JOSEPH SCHLADER
Name: --------------------------------- )
Address: ------------------------------ )
- ----------------------------------------)
Occupation: --------------------------- )
-3-
<PAGE>
SIGNED, SEALED & DELIVERED )
by CHERYL SCHLADER in the presence of: )
)
/s/ John Fowler )
- ----------------------------------------) /s/ Cheryl Schlader
Signature of Witness ) -----------------------------------
) CHERYL SCHLADER
Name: --------------------------------- )
Address: ------------------------------ )
- ----------------------------------------)
Occupation: --------------------------- )
SIGNED, SEALED & DELIVERED )
by WILLIAM GALINE in the presence of: )
)
/s/ John Fowler )
- ----------------------------------------) /s/ William Galine
Signature of Witness ) -----------------------------------
) WILLIAM GALINE
Name: --------------------------------- )
Address: ------------------------------ )
- ----------------------------------------)
Occupation: --------------------------- )
THE CORPORATE SEAL of )
PAWNBROKER.COM INC. )
was hereunto affixed in the presence )
of its authorized signatory(ies): )
) c/s
/s/ Joseph Schlader )
- --------------------------------------- )
Name: Joseph Schlader )
Title: President )
)
/s/ William Galine )
- ----------------------------------------)
Name: William Galine )
Title: Secretary )
THE CORPORATE SEAL of )
PAWNBROKER.COM INC. (formerly) )
DIGITAL SIGN CORPORATION )
was hereunto affixed in the presence )
of its authorized signatory(ies): )
) c/s
/s/ Doug McLeod )
- --------------------------------------- )
Name: Doug McLeod )
Title: President )
)
- --------------------------------------- )
Name: --------------------------------- )
Title: -------------------------------- )
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<PAGE>
SCHEDULE A
Pawnbroker Solicitor Opinion
----------------------------
(letterhead of solicitors for the Shareholders and Pawnbroker)
- --------, 199-
Pawnbroker.com, Inc.
(formerly
c/o Campney & Murphy
Barristers and Solicitors
P.O. Box 48800
2100-1111 West Georgia Street
Vancouver, B.C. V7X 1K9
Attention: -----------------------
Dear Sirs:
Re: Agreement and Plan of Reorganization (the "Agreement") made effective
as of 14 May, 1999, as amended by Addendum made effective as of 11 June
1999 (the "Addendum"), between Joseph Schlader, Cheryl Schlader and
William Galine (collectively the "Shareholders"), Pawnbroker.com, Inc.,
a Nevada corporation ("Pawnbroker"), and Pawnbroker.com, Inc., a
Delaware corporation (formerly Digital Sign Corporation) (the
"Acquiror")
We are the attorneys for the Shareholders and for Pawnbroker. We provide this
opinion pursuant to subparagraphs 2.1(c) and 6.1(f) of the Agreement. We have
also acted as counsel for Pawnbroker and the Shareholders in connection with the
negotiation, execution and completion of the Agreement and the Addendum.
In connection with this letter, we have examined the following documents only:
1. Articles of Incorporation for Pawnbroker as filed with the Nevada Secretary
of State's Office on April 22, 1999;
2. Bylaws of Pawnbroker as adopted by the Board of Directors on April 26,
1999;
3. Minutes of the Organizational Meeting of the Board of Directors of
Pawnbroker dated April 26, 1999;
4. Stock Certificates numbered 1, 2 and 3 for the common stock of Pawnbroker
evidencing the shares of Pawnbroker" common stock issued to Joseph
Schlader, Cheryl Schlader and William Galine;
5. a copy of the Agreement as executed by the Shareholders, Pawnbroker and
Acquiror;
6. a copy of the Addendum as executed by the Shareholders, Pawnbroker and
Acquiror;
<PAGE>
7. Resolutions of the Board of Directors of Pawnbroker dated ____________
authorizing the execution, delivery and performance of the conditions of
the Agreement and other matters related thereto; and
8. Resolutions of the Board of Directors of Pawnbroker dated ____________
authorizing the execution, delivery and performance of the conditions of
the Addendum and the Agreement as amended thereby.
In rendering this opinion, we have assumed legal capacity of all individuals to
execute all documents in their individual capacities and the genuineness of the
signatures and the authenticity of all documents submitted to us as originals.
We have assumed the conformity to authentic original documents of all documents
submitted to us as copies. We have assumed the due authorization, execution and
delivery of the Agreement and the Addendum by the Acquiror.
We have not conducted independent investigations or inquiries to determine the
existence of matters, actions, proceedings, items, documents, facts, judgments,
suits, litigation or investigations or the like and have made no independent
search of the records of any court, arbitrator or governmental authority.
Therefore, when we state that a matter is "to the best of our knowledge", the
knowledge is the actual knowledge of John P. Fowler of this firm without any of
the investigations described in the preceding sentence.
Based on and subject to the foregoing, we are of the opinion that, under Nevada
law:
1. Pawnbroker is a company duly incorporated, validly existing and in good
standing under the laws of the State of Nevada.
2. To the best of our knowledge, Pawnbroker has all requisite corporate power
and authority to conduct the business now carried on by it, and to own its
property and assets as described in the Agreement and Pawnbroker has all
requisite corporate power and authority to enter into and to perform its
obligations under the Agreement, as amended by the Addendum.
3. All necessary steps and corporate action and proceedings have been taken to
authorize the execution and delivery of the Agreement and the Addendum by
Pawnbroker.
4. To the best of our knowledge, neither the execution and delivery of, nor
the performance by Pawnbroker of its obligations under the Agreement, as
amended by the Addendum, will conflict with or constitute a breach or
default under the articles of incorporation or bylaws of Pawnbroker or any
commitment, agreement or other instrument to which Pawnbroker is a party or
by which it is bound.
5. To the best of our knowledge, there are no claims, judgement, actions,
suits, litigation, proceedings or investigations, actual, pending or
threatened against Pawnbroker which might materially affect any business,
properties, assets, prospects or conditions, financial or otherwise, of
Pawnbroker or which could result in any material liability to Pawnbroker.
6. The authorized capital of Pawnbroker consists of 25,000 shares of common
stock of which only 1,000 common shares (the "Pawnbroker Shares") are
validly issued and outstanding, and, to the best of our knowledge, the
Pawnbroker Shares are fully paid for and non-assessable, as of the date
hereof.
-2-
<PAGE>
7. All necessary steps and corporate action and proceedings have been taken to
effect the valid transfer of the Pawnbroker Shares to the Acquiror as
contemplated under the Agreement as amended by the Addendum. The Acquiror
is the registered owner of the Pawnbroker Shares on the books and records
of Pawnbroker.
We have not examined, and do not opine as to, the laws of any jurisdiction other
than the State of Nevada. This opinion is being furnished to you solely for your
use and no other person other than you may rely on this opinion in any manner.
This opinion is rendered as of the date hereof and we have undertaken no, and
hereby disclaim any, obligation to advise you of any changes in, or any new
development which might affect, any matters or opinions set forth in this
letter.
Very truly yours,
MARSHALL HILL CASSAS & de LIPKAU
By: ----------------------------------
John P. Fowler
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<PAGE>
SCHEDULE B
Digital Solicitor Opinion
-------------------------
(letterhead of solicitors for the Acquiror)
- ----------, 199-
- -------------------------------
Attorneys at Law
- -------------------------------
Attention: Mr. John Fowler
Dear Sirs:
Re: Agreement and Plan of Reorganization (the "Agreement") made effective
as of 14 May 1999, as amended by Addendum made effective as of 11 June
1999 (the "Addendum") between Joseph Schlader, Cheryl Schlader and
William Galine (collectively, the Shareholders"), Pawnbroker.com, Inc.,
a Nevada corporation ("Pawnbroker") and Pawnbroker.com Inc., a Delaware
corporation (formerly Digital Sign Corporation) (the "Acquiror")
Dear Sirs:
We have acted as counsel for Pawnbroker.com, Inc. (formerly Digital Sign
Corporation) a Delaware corporation (the "Acquiror"), in connection with the
acquisition of all of the issued and outstanding shares of Pawnbroker.com, Inc.,
a Nevada corporation ("Pawnbroker"), from Joseph Schlader, Cheryl Schlader and
William Galine (collectively the "Shareholders"), pursuant to an Agreement and
Plan of Reorganization by and among the Acquiror, Pawnbroker and the
Shareholders effective as of the 14th day of May, 1999 (the "Agreement"), as
amended by Addendum made effective as of the 11th day of June, 1999 (the
"Addendum"). We are rendering this opinion at the request of our client and as
contemplated by subparagraphs 2.2(b) and 6.2(c) of the Agreement.
In so acting, we have examined the following documents, instruments and
certificates:
1. the Agreement, which provides that it is governed by the laws of
Nevada;
2. the Addendum;
3. a Certificate of Good Standing dated June __, 1999 with respect to the
Acquiror by the Secretary of State of the State of Delaware;
4. the Certificate of Incorporation of the Acquiror, as amended,
certified as of June __, 1999 by the Secretary of State of the State
of Delaware; and
5. a certificate of an Officer of the Acquiror, a copy of which has been
provided to Pawnbroker and the Shareholders;
and we have reviewed and relied upon such other certificates, documents, records
and materials, and have made such other investigations of law, as we have deemed
necessary for purposes of rendering this opinion.
In rendering the opinions expressed below, we have assumed with your permission
and without independent verification:
(a) the genuineness of all signatures, the authenticity of all documents,
certificates and records submitted to us as originals or copies, the
exact conformity with the executed
<PAGE>
original of all documents, certificates and records submitted to us as
copies and the completeness and accuracy as of the date of this
opinion letter of the information contained in such documents,
certificates and records;
(b) that the representations and warranties as to factual matters made in
the Agreement are true, complete and accurate;
As to questions of fact material to this opinion letter, we have relied without
independent verification solely upon the representations and recitals contained
in the Agreements and upon the documents, instruments and certificates submitted
to us.
Based upon and subject to the foregoing and further subject to the
qualifications set forth below, we are of the opinion that:
1. The Acquiror is a corporation duly incorporated and validly existing under
the laws of the State of Delaware. The Acquiror is in good standing with
respect to the filing of annual reports with the Secretary of State for the
State of Delaware.
2. The Acquiror has all requisite corporate power and authority to enter into
and to perform its obligations under the Agreement as amended by the
Addendum.
3. The execution and delivery of the Agreement and the Addendum by the
Acquiror, and the performance of its obligations thereunder, have been duly
authorized by all necessary corporate action on the part of the Acquiror.
4. The execution and delivery of and the performance by the Acquiror of the
Acquiror's obligations under the Agreement, as amended by the Addendum,
will not conflict with the Certificate of Incorporation or Bylaws of the
Acquiror.
5. As of May 14, 1999, the authorized capital stock of the Acquiror consisted
of seventy million (70,000,000) shares, which are divided twenty million
(20,000,000) Preferred shares with a par value of $0.00001 and fifty
million (50,000,000) Common shares with a par value of $0.00001.
6. The Common stock of the Acquiror to be issued to the Shareholders have been
duly authorized and, upon issuance, delivery and receipt of the
consideration as described in the Agreement, will be validly issued, fully
paid and non-assessable.
We do not express any opinions in this letter concerning any laws other than the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America. We express no opinion regarding any federal or state
securities laws. The opinions expressed above are rendered as of the date of
this letter, without any obligation to update this letter or otherwise to advise
you or any other person or entity of any matters (including, but not limited to,
any subsequently enacted, published or reported laws, rules, regulations or
judicial decisions having retroactive effect) which may come to our attention
after the date of this letter, even though matters may affect a legal analysis
or conclusion, or factual information in this opinion letter. This opinion
letter is furnished to you solely for your use in connection with the
transactions contemplated by the Agreement. This opinion letter may not be used
or relied upon by you for any other purpose, and may not be used or relied upon
by any other person or entity for any purpose, in each case without our prior
written consent.
Very truly yours,
-2-
<PAGE>
PAWNBROKER.COM, INC.
(formerly DIGITAL SIGN CORPORATION)
Secretary's Certificate
-----------------------
The undersigned, _________, being the Secretary of PAWNBROKER.COM, INC.
(formerly DIGITAL SIGN CORPORATION), a Delaware corporation (the "Corporation"),
provides this Certificate in connection with the acquisition of all of the
issued and outstanding shares of Pawnbroker.com, Inc., a Nevada corporation
("Pawnbroker"), from Joseph Schlader, Cheryl Schlader and William Galine
(collectively the "Shareholders"), pursuant to an Agreement and Plan of
Reorganization by and among the Acquiror, Pawnbroker and the Shareholders
effective as of the 14th day of May, 1999 (the "Agreement"), as amended by
Addendum effective as of the 11th day of June, 1999. The undersigned understands
that the law firm of Dorsey & Whitney LLP will be relying upon this Certificate
in issuing its opinion letter with respect to the transactions.
The undersigned DOES HEREBY CERTIFY that:
1. Attached hereto as Exhibit A is a true and correct copy of the
authorizing resolutions duly and unanimously adopted by the Board of
Directors of the Corporation on __________. Such resolutions have not been
amended, modified or revoked and are in full force and effect on the date
of this Certificate.
2. There has been no amendment or other modification to the Certificate of
Incorporation of the Corporation since __________ and such Certificate of
Incorporation, as therefore amended, are in full force and effect on the
date of this Certificate.
3. Attached hereto as Exhibit B is a true, correct and complete copy of the
Bylaws of the Corporation, including any and all amendments thereto, and
such Bylaws are in full force and effect on the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on June ___,
1999.
--------------------------------------
-------------------, Secretary
-3-
<PAGE>
PAWNBROKER.COM, INC.
(formerly DIGITAL SIGN CORPORATION)
CERTIFICATE OF INCUMBENCY
AND SIGNATURE OF OFFICERS
The undersigned, __________, the _________ of Pawnbroker.com, Inc. (formerly
Digital Sign Corporation) a Delaware corporation (the "Corporation"), does
hereby certify that each person named below is a duly elected and appointed
officer of the Corporation holding the position set forth opposite the name of
each person, and that the signature set forth opposite the name of each person
below is the genuine signature of said officer:
Name Office Signature
- ---- ------ ---------
- ------------------ President -----------------------
- ------------------ Secretary -----------------------
- ------------------ Treasurer -----------------------
IN WITNESS WHEREOF, the undersigned has signed this certificate as of this ____
day of June, 1999.
---------------------------------
The undersigned, ____________, the Secretary of the Corporation, does hereby
certify that ____________ is, and has been at all times material hereto, the
duly elected and qualified President of the Corporation and that the signature
written above in the foregoing certificate is his genuine signature.
IN WITNESS WHEREOF, the undersigned has signed this certificate as of this ____
day of June, 1999.
--------------------------------------
-------------------, Secretary
-4-
<PAGE>
PAWNBROKER.COM, INC.
(formerly DIGITAL SIGN CORPORATION)
President's Certificate
-----------------------
The undersigned, _________, being the President of PAWNBROKER.COM, INC.
(formerly DIGITAL SIGN CORPORATION), a Delaware corporation (the "Corporation
"), provides this Certificate in connection with the acquisition of all of the
issued and outstanding shares of Pawnbroker.com, Inc., a Nevada corporation
("Pawnbroker"), from Joseph Schlader, Cheryl Schlader and William Galine
(collectively the "Shareholders"), pursuant to an Agreement and Plan of
Reorganization by and among the Acquiror, Pawnbroker and the Shareholders
effective as of the 14th day of May, 1999 (the "Agreement"), as amended by
Addendum effective as of the 11th day of June, 1999. The undersigned understands
that the law firm of Dorsey & Whitney LLP will be relying upon this Certificate
in issuing its opinion letter with respect to the transactions.
The undersigned DOES HEREBY CERTIFY that:
1. The representations and warranties of the Corporation set forth in the
Agreement and Plan of Reorganization, as amended, are true and correct
on the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on June ___,
1999.
--------------------------------------
-------------------, President
-5-
<PAGE>
SCHEDULE G
Certificate of Confirmation
---------------------------
Pursuant to subparagraph 6.1(e) of the Agreement and Plan of Reorganization made
effective as of the 14 day of May, 1999 (the "Agreement"), as amended by the
Addendum thereto made effective as of the 11 day of June 1999 (the "Addendum"),
between Joseph Schlader, Cheryl Schlader and William Galine (individually, a
"Shareholder"), Pawnbroker.com, Inc. (a Nevada company) ("Pawnbroker") and
Pawnbroker.com, Inc. (formerly Digital Sign Corporation, a Delaware company)
(the "Acquiror"), the undersigned Shareholder hereby confirms to the Acquiror
that the representations and warranties of Pawnbroker and the Shareholders
contained in the Agreement or contained in any certificates or documents
delivered by it pursuant to the Agreement are true and correct in every respect
as of the Time of Closing of the Agreement, being 11:00 o'clock a.m. local time
in Vancouver, B.C.
on the 23rd day of June, 1999.
Dated at ---, this 23rd day of June, 1999.
--------------------------------------
------------------------
<PAGE>
SCHEDULE H
Certificate of Confirmation
---------------------------
Pursuant to subparagraph 6.2(d) of the Agreement and Plan of Reorganization made
effective as of the 14 day of May, 1999 (the "Agreement"), as amended by the
Addendum thereto made effective as of the 11 day of June 1999 (the "Addendum"),
between Joseph Schlader, Cheryl Schlader and William Galine (collectively the
"Shareholders"), Pawnbroker.com, Inc. (a Nevada company) and Pawnbroker.com,
Inc. (formerly Digital Sign Corporation, a Delaware company) (the "Acquiror"),
the Acquiror confirms to the Shareholders that the representations and
warranties of the Acquiror contained in the Agreement or contained in any
certificates or documents delivered by it pursuant to the Agreement are true and
correct in every respect as of the Time of Closing of the Agreement, being 11:00
o'clock a.m. local time in Vancouver, B.C. on the 23rd day of June, 1999.
Dated at Vancouver, British Columbia, this 23rd day of June, 1999.
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
Per:
---------------------------------
--------------------, Director
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/13/1998
981059025 - 2857263
CERTIFICATE OF INCORPORATION
OF
DIGITAL SIGN CORPORATION
---------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is DIGITAL SIGN CORPORATION.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware at such address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is seventy million, which are divided
into twenty million Preferred shares of a par value of one-one thousandth of a
cent ($0.00001) each and fifty million Common shares of a par value of one-one
thousandth of a cent ($0.00001) each.
Subject to the provisions of Section 151 of the General Corporation Law of
the State of Delaware, authority is expressly granted to the Board of Directors
of the corporation to issue the Preferred shares of the corporation, from time
to time, in one or more series and to fix the number of shares to be included in
each series, the distinctive serial designation, the rate or rates of
preferential cumulative, non-participating dividends payable in cash annually,
semi-annually, or quarterly, the times of payment of and the dates from which
such dividends shall be cumulative, the price or prices at which the same may be
redeemed, which shall be not less than the par value thereof, plus arrearages,
if any, the notice of redemption, the amount and terms of any sinking or
purchase fund, if any, for the purchase or redemption thereof, provided such
sinking fund is payable only out of funds legally available therefor, the
-1-
<PAGE>
terms, conditions, rights, privileges, and other provisions, if any, respecting
the conversion of any or all series of Preferred shares into Common shares, and
the preferential amount or amounts which shall be paid to the holders thereof in
the event of the liquidation, dissolution, or winding up of the corporation,
whether voluntary or involuntary, which shall be not less than the par value
thereof, plus arrearages, if any.
Whenever full dividends as aforesaid upon all shares of all series of
Preferred shares which are issued and outstanding for all past annual dividend
periods shall have been paid, without interest, and whenever full dividends upon
said shares as aforesaid for the then current annual dividend period shall have
been declared and either paid or a sum sufficient for the payment thereof set
aside in full, without interest, the Board of Directors may declare, set aside,
or pay additional cash dividends, and/or may declare, set aside or pay stock
dividends of the authorized but unissued Common shares of the corporation and/or
its treasury Common shares, if any, and/or may make distributions of bonds or
property of the corporation, including the shares or bonds of other
corporations. The holders of record of the issued and outstanding Common shares
shall be entitled in respect of said Common shares exclusively to receive any
such additional cash dividends which may be declared and/or any such
distributions which may be made, each issued and outstanding Common share
entitling the holder of record thereof to receive an equal proportion of said
dividends and/or distributions. Any reference to "distributions" in this
paragraph contained shall not be deemed to include any distributions made in
connection with any liquidation, dissolution, or winding up of the corporation,
whether voluntary or involuntary; nor shall any such reference to
"distributions" in relation to issued and outstanding shares be deemed to limit,
curtail, or divest the authority of the Board of Directors to make any proper
distributions, including distributions of authorized but unissued Common shares,
in relation to its treasury Common shares, if any.
Each issued and outstanding Common share shall entitle the holder thereof
to full voting power. Except as any provision of law may otherwise require, no
share of any series of Preferred shares shall entitle the holder thereof to any
voting power, to participate in any meeting of stockholders, or to have notice
of any meeting of stockholders.
No holder of any of the shares of the stock of the corporation, whether now
or hereafter authorized and issued, shall be entitled as of right to purchase or
subscribe for any unissued stock of any class, or any additional shares of any
class to be issued by reason of any increase of the authorized capital stock of
any class of the corporation, or bonds, certificates of indebtedness,
debentures, or other securities convertible into stock of any class of the
corporation, or carrying any right to purchase stock of any class of the
corporation, but any such unissued stock or any such additional authorized issue
of any stock or of other securities convertible into stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations, or associations,
and upon such terms, as may be deemed advisable by the Board of Directors in the
exercise of its discretion.
-2-
<PAGE>
FIFTH: The name and the mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
EDWARD F. MYERS 505 CAMINO ELEVADO
BONITA, CALIFORNIA 91902
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss. 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
ss. 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss. 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the Bylaws of the
corporation may be
-3-
<PAGE>
exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation
for staggered terms pursuant to the provisions of subsection (d) of ss. 141
of the General Corporation Law of the State of Delaware shall be set forth
in an initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote of the corporation unless provisions for such classification shall be
set forth in this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of ss. 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of ss. 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ss. 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
-4-
<PAGE>
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on February 10, 1998
/s/ Edward F. Myers
----------------------------------------
EDWARD F. MYERS, Incorporator
-5-
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DIGITAL SIGN CORPORATION
Pursuant to Section 242 of the Delaware Corporation Law, Digital Sign
Corporation, a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, acting by consent in
lieu of a special meeting, duly adopted resolutions on the 9 day of June, 1999,
setting forth proposed amendments to the Certificate of Incorporation of the
Corporation, declaring said amendments to be advisable and recommending approval
of such amendment by the shareholders of the Corporation. The resolutions
setting forth the proposed amendments are as follows:
RESOLVED that, upon shareholder approval, the Certificate of Incorporation
of the Corporation be amended to change the name of the Corporation to
PAWNBROKER.COM, INC. by amending the FIRST paragraph as follows:
FIRST: The name of the corporation (hereafter called the corporation)
is PAWNBROKER.COM, INC.
RESOLVED that, upon approval of a majority of the shareholders of the
Corporation, the Certificate of Incorporation of the Corporation be amended
by adding the following paragraph:
TWELFTH: The 38,499,000 shares of issued and outstanding common shares
of the Corporation, with a par value of $0.00001, either issued and
outstanding or held by the Corporation as treasury stock, immediately
prior to June 10, 1999 at 5:00 P.M. (Eastern Standard Time) shall be
automatically reclassified and changed (without any further act) into
9,624,750 fully-paid and non-assessable shares of Common Stock of the
Corporation, with a par value of $0.00001, without increasing or
decreasing the amount of stated capital or paid in surplus of the
Corporation, provided that no fractional shares shall be issued. The
fractional share interests that occur as a result of the foregoing
reclassification and change shall be conglomerated by the transfer
agent of the company and the shares resulting form such conglomeration
shall be sold by the transfer agent and the net proceeds received from
such sale shall be allocated and distributed among the holders of such
fractional interests in shares as their interests appear.
1
<PAGE>
SECOND: A majority of the shareholders of the Corporation, acting by
consent in lieu of a special meeting, duly authorized and adopted this
Certificate of Amendment to the Certificate of Incorporation of the Corporation
and written notice of the adoption of the amendment has been given as provided
in Section 228 of the General Corporation Law of the State of Delaware to every
shareholder entitled to such notice.
THIRD: Said resolution was duly adopted in accordance with the provisions
of Section 242 of the Delaware General Corporation Law.
FOURTH: The capital of the Corporation will not be reduced by reason of
such amendment.
DATED this 9th day of June, 1999.
By: /s/ Doug McLeod
------------------------------------
Doug McLeod
Title: President
City of Tokyo )
) ss.
Country of Japan )
On June 9, 1999, personally appeared before me, a Consul of Canada, Doug
McLeod, President of the Corporation, who acknowledged that he executed the
above instrument.
/s/ R.P. Abrahamber
----------------------------------------
Signature of Notary Counsul of Canada
Tokyo, Japan
2
EXHIBIT 3.3
BYLAWS
OF
DIGITAL SIGN CORPORATION
(a Delaware corporation)
------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall
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<PAGE>
be uncertificated shares. Within a reasonable time after the issuance or
transfer of any uncertificated shares, the corporation shall send to the
registered owner thereof any written notice prescribed by the General
Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock property
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting,
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<PAGE>
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by the General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action. In
order that the corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
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<PAGE>
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, provided, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
-4-
<PAGE>
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority `and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his
-5-
<PAGE>
ability. The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him or
them. Except as otherwise required by subsection (e) of Section 231 of the
General Corporation Law, the provisions of that Section shall not apply to the
corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the
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members thereof. The use of the phrase "whole board" herein refers to the total
number of directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of = = persons = =. Thereafter the
number of directors constituting the whole board shall be at least one. Subject
to the foregoing limitation and except for the first Board of Directors, such
number may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be = =. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of
the President, or of a majority of the directors in office.
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<PAGE>
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place -have been fixed. Written, oral,
or any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board may designate one or more directors as alternate members of any
committee, who may
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<PAGE>
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another -member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any power or authority the delegation of which is prohibited by Section 141 of
the General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may
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be removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the Bylaws of a Delaware corporation, as in effect on the date hereof.
Dated: Feb. 14, 1998 /s/ Beth N. Myers
----------------------------------------
Secretary of
DIGITAL SIGN CORPORATION
(SEAL)
-10-
EXHIBIT 10.1
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
1. Purchase and Sale of Shares
The undersigned (the "Purchaser"), hereby subscribes for and agrees to purchase
- ------- shares (the "Shares") in the capital stock of Digital Signs Corporation,
a Delaware corporation (the "Issuer") at a price of US$0.05 per Share to be
recorded in the name of the Purchaser at the address set out below. Payment for
the Shares is attached.
2.0 Representations, Warranties and Acknowledgments of the Purchaser
The Purchaser acknowledges, represents and warrants as of the date of this
Agreement that:
2.1 No prospectus has been provided to the Purchaser by the Issuer in
connection with the issuance of the Shares and that the Issuer is relying upon
an exemption(s) from prospectus requirements of the Securities Act (British
Columbia) (the "Act") and the Securities Rules (British Columbia) (the "Rules").
2.2 The Purchaser recognizes that it is restricted from using most of the
remedies available under the Act and Rules.
2.3 The Purchaser may not receive information that might otherwise be required
to be provided under the Act and Rules.
2.4 The Issuer is relieved from certain obligations that might otherwise apply
under the Act and Rules.
2.5 The Purchaser acknowledges receipt of an Offering Memorandum dated February
20, 1998 (the "Offering Memorandum" - Exhibit A).
2.6 No person has made to the Purchaser any written or oral representations:
(a) that any person will resell or repurchase the Shares;
(b) that any person will refund the purchase price of the Shares;
(c) as to the future price or value of the Shares;
(d) that the Shares will be listed and posted for trading on a stock
exchange or that application has been made to list and post the Shares
for trading on a stock exchange.
2.7 The Shares were not offered or distributed to the Purchaser through an
advertisement in printed media of general and regular paid circulation, radio or
television.
2.8 The Shares purchased hereby are not qualified for resale in the United
States of America and the Purchaser hereby undertakes not to knowingly resell
the Shares to any resident or citizen of the United States of America prior to
lawful registration or qualification of the Shares or subject to lawful
exemptions to these requirements.
2.9 The Purchaser has no knowledge of a "material fact" or "material change",
as those terms are defined in the Act, in the affairs of the Issuer that has not
been generally disclosed to the public, save knowledge of this particular
transaction.
<PAGE>
Page 2 of 4
2.10 The Purchaser is not a "control person" of the Issuer, as defined in the
Act, and will not become a "control person" of the Issuer by virtue of the
purchase of the Shares pursuant to this subscription.
2.11 The Purchaser is a:
(a) director, senior officer or employee of the Issuer, or a director,
senior officer or employee of an affiliate of the Issuer;
(b) spouse, parent, brother, sister or child of a director or officer of
the Issuer;
(c) person already holding shares of the Issuer;
(d) spouse, parent, brother, sister or child of a person already holding
shares of the Issuer;
(e) company, all of the voting securities of which are beneficially owned
by any combination of the persons referred to in (a) to (d) above;
(f) sophisticated purchaser (as defined in the Offering memorandum).
2.12 The Purchaser has the legal capacity and competence to enter into and
execute this agreement and to take all actions required hereunder.
2.13 The representations, warranties and acknowledgments of the Purchaser
contained in this Section will survive the Closing (as hereinafter defined).
3.0 Representations, Warranties and Acknowledgments of the Issuer
The Issuer acknowledges, represents and warrants as of the date of this
Agreement that:
3.1 It is a valid and subsisting corporation duly incorporated and is in good
standing under the laws of the jurisdictions in which it is incorporated.
3.2 It is the beneficial owner of the properties, businesses and assets
referred to in the Offering Memorandum.
3.3 The Offering Memorandum is, in all material respects, accurate and omits no
facts, the omission of which makes items in the Offering Memorandum misleading
or incorrect.
3.4 The issuance and sale of the Shares by the Issuer does not and will not
conflict with or result in any breach of any of the terms, conditions, or
provisions of its constituting documents or any agreements or instruments to
which the Issuer is a party.
3.5 This Agreement and the Offering Memorandum have been duly authorized by all
necessary corporate action on the part of the Issuer and constitutes a valid and
binding obligation of the Issuer upon acceptance of this Agreement by any of the
members of its board of directors.
<PAGE>
Page 3 of 4
3.6 The Shares will, when issued, be fully paid and non-assessable shares of
the Issuer and will be issued free and clear of all liens, charges and
encumbrances of any kind whatsoever, subject only to the re-sale restrictions
under applicable securities laws.
4.0 Undertaking
The Purchaser agrees to complete, execute and deliver to the Issuer one of the
following:
1. Form 20A (IP) Acknowledge of Individual Purchaser; or
2. Form 20A (NIP) Acknowledge of Purchaser that is not an Individual.
5.0 Hold Period
5.1 The Purchaser further acknowledges that:
(a) the Shares to be issued under an exemption from the prospectus and
registration requirements of the Act will be subject to a hold period
and may not be traded for twelve months from the date that the Issuer
becomes a reporting issuer in the Province of British Columbia, unless
another statutory exemption can be relied upon or if the Shares are
qualified under a prospectus at a later date (the "Expiry Date"):
(b) at present, the Issuer is not a reporting issuer in British Columbia;
(c) details relating to re-sale restrictions applicable to the Shares are
as set out in the Offering Memorandum.
5.2 Within ten (10) days of an initial trade of the Shares by the Purchaser
after the Expiry Date, the Purchaser covenants and agrees to file with the
Statutory Filing Department of the British Columbia Securities Commission, of
#1100-865 Hornby Street, Vancouver, British Columbia, V6Z 2H4, one (1) of the
following reports:
(a) a report in the form attached hereto as Appendix "A" (the "Initial
Trade Report"); or
(b) the report required under the laws of the jurisdiction in which the
Issuer carries on business or in which the Issuer is incorporated,
organized or continued, provided that the report requires
substantially the same information as is required in the Initial Trade
Report (the "Purchaser's Report").
5.3 Where the Purchaser has filed an Initial Trade Report or the Purchaser's
Report with respect to the Shares, the Purchaser shall not be required to file a
further report in respect of additional trades of the Shares acquired on the
same date and under the same exemption as the Shares that are the subject of the
Initial Trade Report or the Purchaser's Report.
6.0 Closing
On or before June 20, 1998, the Issuer will confirm whether or not the within
Agreement is acceptable, whereupon the Issuer will deliver to the Purchaser
certificate(s) representing the Shares, registered in the name of the Purchaser.
<PAGE>
Page 4 of 4
7.0 Withdrawal of Subscription and Contractual Rights of Action
The contractual rights of action described in the Offering Memorandum in
connection with the Offering (as described in the Offering Memorandum) are
hereby incorporated by reference in this Agreement and are hereby granted by the
Issuer to the Purchaser.
8.0 Miscellaneous
8.1 Time shall be considered to be of the essence for the purposes of this
Agreement.
8.2 Except as expressly provided in this Agreement or as set forth in the
Offering Memorandum, this Agreement contains the entire agreement between the
parties with respect to the Shares and there are no other terms, conditions,
representations or warranties whether expressed, implied, or written by statute,
by common law, by the Issuer, by the Purchaser or by anyone else.
8.3 The parties to this Agreement may amend this Agreement only in writing and
with the consent of each of the parties hereto.
8.4 This Agreement shall enure to the benefit of and shall be binding upon the
parties to this Agreement and their respective successors and permitted assigns.
8.5 This Agreement shall be interpreted in accordance with the laws of the
Province of British Columbia, Canada.
Dated at ------ this ----- day of ----------------------, 1998.
- ---------------------------- ----------------------------------------
Witness Subscriber's Signature
----------------------------------------
Name of Subscriber (Please Print)
----------------------------------------
Street Address
----------------------------------------
City, Province, Postal Code
ACCEPTED this ----- day of ----------------------, 1998.
Ditigal Signs Corporation
Per: ---------------------------------
Authorized Signatory
EXHIBIT 10.2
CONTRIBUTION AGREEMENT
DIGITAL SIGN CORPORATION
This Contribution Agreement (the "Agreement") is entered into as of May 19,
1999, by and between Cameron Woodbridge ("Shareholder"), and Digital Sign
Corporation, a Delaware corporation ("Company").
A. Shareholder currently holds 1,000,000 shares of the Company's issued
and outstanding common shares (the "Common Shares").
B. The Common Shares were issued to Shareholder in consideration for Two
Hundred and Fifty Dollars ($250.00) (the "Consideration").
C. Shareholder desires to contribute to the Company the Common Shares in
return for the Consideration paid and the Company desires to accept
such contribution under the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Contribution. Shareholder hereby agrees to contribute the Common
Shares to the Company for Two Hundred and Fifty Dollars ($250.00) and
the Company hereby agrees to accept such contribution by the
Shareholder and to pay Shareholder Two Hundred and Fifty Dollars
($250.00) as full consideration for the Common Shares.
2. Governing Law. This Agreement shall be construed and enforced in
accordance with the federal laws of the United States and the internal
laws of the State of Washington, without regard to the conflicts of
law rules of such state.
3. Construction. Whenever the singular number is used in this Agreement
and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine
and neuter genders and vice versa.
4. Headings. The headings in this Agreement are inserted for convenience
only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provisions
hereof.
5. Severability. If any provision of this Agreement or the application
thereof to any Person or circumstance shall be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement and the
application thereof shall not be affected and shall be enforceable to
the fullest extent permitted by law.
1
<PAGE>
6. Heirs, Successors and Assigns. Each of the covenants, terms,
provisions and agreements contained in this Agreement shall be binding
upon and inure to the benefit of the parties hereto and, to the extent
permitted by this Agreement, their respective heirs, legal
representatives, successors and assigns.
7. Creditors. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditors of the Company.
8. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which shall constitute
one and the same instrument. Delivery of an executed counterpart of
this Agreement via facsimile shall be effective as delivery of a
manually executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
day first written above.
DIGITAL SIGN CORPORATION
By: /s/ Doug McLeod
------------------------------------
Its: President
-----------------------------------
SHAREHOLDER
/s/ Cameron Woodbridge
----------------------------------------
2
EXHIBIT 10.3
SUBSCRIPTION AGREEMENT
THIS AGREEMENT MADE EFFECTIVE AS OF THE 14th DAY OF JUNE, 1999 (the "Effective
Date").
BETWEEN:
PAWNBROKER.COM, INC. (formerly Digital Sign Corporation)
688 - 6 Ishikawa
Kanagawa
Japan 252 0815
(the "Company")
AND:
THE PARTY NAMED AS PURCHASER BELOW
(the "Purchaser")
WHEREAS:
A. The Purchaser wishes to subscribe for 1,300,000 units, where each unit
consists of one common share and one-half of one non-transferable share purchase
warrant of the Company (the "Securities");
B. It is the intention of the parties to this Agreement that this subscription
will be made pursuant to appropriate exemptions (the "Exemptions") from the
registration and prospectus or equivalent requirements of all rules, policies,
notices, orders and legislation of any kind whatsoever (collectively the
"Securities Rules") of all jurisdictions applicable to this subscription;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained, the receipt of which is hereby
acknowledged, the parties covenant and agree with each other (the "Agreement")
as follows:
1. Representations and Warranties of the Purchaser
1.1 The Purchaser represents and warrants to the Company, and acknowledges that
the Company is relying on these representations and warranties to, among other
things, ensure that it is complying with all of the applicable Securities Rules,
that:
(a) the Purchaser is purchasing a sufficient number of Securities such
that the aggregate acquisition cost to the Purchaser of such
Securities is not less than $97,000, if the Purchaser is a resident of
British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward
Island, Newfoundland or an International Jurisdiction, or $150,000 if
the Purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova
Scotia, and the Purchaser is:
<PAGE>
(i) purchasing such Securities as principal for its own account and
not for the benefit of any other person; or
(ii) deemed to be acting as principal by virtue of it being:
A. a trust company or insurer which is authorized to carry on
business in B.C. under the Financial Institutions Act
(British Columbia) and which is acting as agent or trustee
for accounts that are fully managed by it within the meaning
of ss. 74(1)(a) of the Securities Act (British Columbia (the
"Act") and NIN #97/11 issued by the B.C. Securities
Commission (the "Commission"); or
B. a portfolio manager within the meaning of ss. 1(1) of the
Act which is carrying on business in B.C. and which is
registered or exempt from registration under the Act and
which is acting as agent for accounts that are fully managed
by it within the meaning of ss. 74(1)(b) of the Act and NIN
#97/11; or
C. a trust company, insurer or portfolio manager within the
meaning of BOR #97/4 issued by the Commission which is
acting, in the case of a trust company or insurer, as agent
or trustee or, in the case of a portfolio manager, as agent,
for accounts that are fully managed by it within the meaning
of BOR #97/4and NIN #97/11;
and the Purchaser is also deemed to be acting as principal under
the analogous provisions of any other Securities Rules having
application;
(b) the Purchaser has not been formed, created, established or
incorporated for the purpose of permitting the purchase of the
Securities without a prospectus by groups of individuals whose
individual share of the aggregate acquisition cost for such Securities
is less than $97,000, if the beneficial purchaser is a resident of
British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward
Island, Newfoundland or an International Jurisdiction, or $150,000 if
the beneficial purchaser is a resident of Saskatchewan, Ontario,
Quebec or Nova Scotia;
(c) the Purchaser is resident of an "International Jurisdiction" (which
means a country other than Canada or the United States) and the
Purchaser further represents and warrants that:
(i) the Purchaser is knowledgeable of, or has been independently
advised as to, the applicable Securities Rules of the
International Jurisdiction which would apply to this
subscription, if there are any;
(ii) the Purchaser is purchasing the Securities pursuant to Exemptions
under the Securities Rules of that International Jurisdiction or,
if such is not applicable, the Purchaser is permitted to purchase
the Securities under the applicable Securities Rules of the
International Jurisdiction without the need to rely on
Exemptions; and
-2-
<PAGE>
(iii) the applicable Securities Rules do not require the Company to
make any filings or seek any approvals of any kind whatsoever
from any regulatory authority of any kind whatsoever in the
International Jurisdiction; and
the Purchaser will, if requested by the Company, deliver to the
Company a certificate or opinion of local counsel from the
International Jurisdiction which will confirm the matters
referred to in subparagraphs (ii) and (iii) above to the
satisfaction of the Company, acting reasonably;
(d) [intentionally left blank]
(e) the Purchaser acknowledges that the Company is relying on the
Exemptions in order to complete the trade and distribution of the
Securities and the Purchaser is aware of the criteria of the
Exemptions to be met by the Purchaser, and if applicable, the
Purchaser meets those criteria;
(f) the Purchaser acknowledges that because this subscription is being
made pursuant to the Exemptions:
(i) the Purchaser is restricted from using certain of the civil
remedies available under the applicable Securities Rules;
(ii) the Purchaser may not receive information that might otherwise be
required to be provided to the Purchaser under the applicable
Securities Rules if the Exemptions were not being used; and
(iii) the Company is relieved from certain obligations that would
otherwise apply under the applicable Securities Rules if the
Exemptions were not being used;
(iv) no securities commission, stock exchange or similar regulatory
authority has reviewed or passed on the merits of the Securities;
(v) there is no government or other insurance covering the
Securities; (vi) there are risks associated with the purchase of
the Securities;
(vii) there are restrictions on the Purchaser's ability to resell the
Securities and it is the responsibility of the Purchaser to find
out what those restrictions are and to comply with them before
selling the Securities.
(g) the Securities are not being subscribed for by the Purchaser as a
result of any material information about the Company's affairs that
has not been publicly disclosed;
(h) the offer and sale of these Securities was not accompanied by an
advertisement and the Purchaser was not induced to purchase these
Securities as a result of any advertisement made by the Company;
(i) if the Purchaser is a corporation, the Purchaser is a valid and
subsisting corporation, has the necessary corporate capacity and
authority to execute and deliver this Agreement and to observe and
perform its covenants and obligations hereunder and has taken all
necessary corporate action in respect thereof, or, if the Purchaser is
a partnership,
-3-
<PAGE>
syndicate, trust or other form of unincorporated organization, the
Purchaser has the necessary legal capacity and authority to execute
and deliver this Agreement and to observe and perform its covenants
and obligations hereunder and has obtained all necessary approvals in
respect thereof, and, in either case, upon the Company executing and
delivering this Agreement, this Agreement will constitute a legal,
valid and binding contract of the Purchaser enforceable against the
Purchaser in accordance with its terms and neither the agreement
resulting from such acceptance nor the completion of the transactions
contemplated hereby conflicts with, or will conflict with, or results,
or will result, in a breach or violation of any law applicable to the
Purchaser, any constating documents of the Purchaser or any agreement
to which the Purchaser is a party or by which the Purchaser is bound;
(j) the Purchaser is not, and was not at any time that it purchased the
Securities or received an offer to purchase the Securities pursuant to
this subscription, a "U.S. Person" as defined in Regulation S under
the United States Securities Act of 1933, as amended (the "U.S.
Securities Act"), which definition includes, but is not limited to, an
individual resident in the United States, an estate or trust of which
any executor or administrator or trustee, respectively, is a U.S.
person, and any partnership or corporation organized or incorporated
under the laws of the United States;
(k) the Purchaser did not receive any term sheet, subscription form or
other offering materials in connection with this subscription in the
United States, and did not execute or deliver any such subscription
form or other materials in the United States;
(l) no offers of Securities were made by any person to the Purchaser while
the Purchaser was in the United States; and
(m) the Purchaser is not acquiring Securities, directly or indirectly, for
the account or benefit of a U.S. Person or a person in the United
States.
1.2 The Company represents and warrants to the Purchaser, and acknowledges that
the Purchaser is relying on these representations and warranties in entering
into this Agreement, that:
(a) the Company is a valid and subsisting corporation duly incorporated
and in good standing under the laws of Delaware;
(b) the Company is not a reporting issuer in British Columbia and any
Securities issued to the Purchaser that are or become subject to the
laws of British Columbia will be subject to an indefinite hold period
in British Columbia unless an exemption from the registration and
prospectus requirements of the Securities Act is available. Such an
exemption may not be available;
(c) the Company's subsidiaries (the "Subsidiaries"), if any, are valid and
subsisting corporations and in good standing under the laws of the
jurisdictions in which they were incorporated;
(d) the common shares of the Company are eligible for quotation on the
N.A.S.D. OTC Bulletin Board ("OTC");
-4-
<PAGE>
(e) upon their issuance, the Shares (as defined below) will be validly
issued and outstanding fully paid and non-assessable common shares of
the Company registered as directed by the Purchaser, free and clear of
all trade restrictions (except as may be imposed by operation of the
applicable Securities Rules) and, except as may be created by the
Purchaser, liens, charges or encumbrances of any kind whatsoever;
(f) upon their issuance, the Warrants (as defined below) will be validly
created, issued and outstanding, registered as directed by the
Purchaser, and, upon their issuance, the shares issued on the exercise
of the Warrants will be validly issued and outstanding fully paid and
non-assessable common shares of the Company registered as directed by
the Purchaser, and both will be free and clear of all trade
restrictions (except as may be imposed by operation of the applicable
Securities Rules) and, except as may be created by the Purchaser,
liens, charges or encumbrances of any kind whatsoever;
(g) the Company and its Subsidiaries, if any, hold all licences and
permits that are required for carrying on their business in the manner
in which such business has been carried on and the Company and its
Subsidiaries, if any, have the corporate power and capacity to own the
assets owned by them and to carry on the business carried on by them
and they are duly qualified to carry on business in all jurisdictions
in which they carry on business;
(h) all prospectuses, exchange offering prospectuses, offering
memorandums, filing statements, information circulars, material change
reports, shareholder communications, press releases and other
disclosure documents of the Company including, but not limited to,
financial statements, contain no untrue statement of a material fact
as at the date thereof nor do they omit to state a material fact
which, at the date thereof, was required to have been stated or was
necessary to prevent a statement that was made from being false or
misleading in the circumstances in which it was made;
(i) to the best of its knowledge, and except as publicly disclosed, there
are no material actions, suits, judgments, investigations or
proceedings of any kind whatsoever outstanding, pending or threatened
against or affecting the Company or its Subsidiaries, if any, at law
or in equity or before or by any Federal, Provincial, State, Municipal
or other governmental department, commission, board, bureau or agency
of any kind whatsoever and, to the best of the Company's knowledge,
there is no basis therefor;
(j) the Company has good and sufficient right and authority to enter into
this Agreement and complete its transactions contemplated under this
Agreement on the terms and conditions set forth herein; and
(k) to the best of its knowledge, the execution and delivery of this
Agreement, the performance of its obligations under this Agreement and
the completion of its transactions contemplated under this Agreement
will not conflict with, or result in the breach of or the acceleration
of any indebtedness under, or constitute default under, the constating
documents of the Company or any indenture, mortgage, agreement, lease,
licence or other instrument of any kind whatsoever to which the
Company is a party or by which it is bound, or any judgment or order
of any kind whatsoever of any Court or administrative body of any kind
whatsoever by which it is bound.
-5-
<PAGE>
2. Subscription
2.1 The Purchaser hereby subscribes the subscription funds (the "Subscription
Funds") referred to below for and agrees to take up the units (a "Unit" or the
"Units") referred to below, where each Unit consists of one common share with a
par value of U.S. $0.00001 in the capital stock of the Company (a "Share" or the
"Shares") and one-half of one non-transferable share purchase warrant (a
"Warrant" or the "Warrants"), at a price of U.S. $2.31 per Unit. Each whole
Warrant will entitle the Purchaser to subscribe for one additional common share
of the Company at a price of U.S. $2.31 per share at any time up to 5:00 p.m.
local time in Vancouver, B.C. on the first anniversary of the Closing Date, and
thereafter at a price of U.S. $2.90 per share at any time up to 5:00 p.m. local
time on the second anniversary of the Closing Date.
2.2 On or before the 14th day of June, 1999, the Purchaser shall deliver the
Subscription Funds for the Securities subscribed for in the form of solicitor's
trust cheque, certified cheque, bank draft, money order or wire transfer payable
to "Campney & Murphy In Trust" as the solicitors for an on behalf of the
Company. The Company will be entitled to use the Subscription Funds immediately
upon the issuance of the certificates representing Securities to the Purchaser
on the Closing Date. The Purchaser hereby confirms that upon the Company
advising Campney & Murphy that it is holding such certificates for immediate
delivery to the Purchaser, Campney & Murphy is hereby irrevocably authorized and
directed to release and deliver the Subscription Funds, together with any
accrued interest thereon, to the Company or for use as directed by the Company
without prior notice to, consent of or action by the Purchaser and that Campney
& Murphy can rely on this irrevocable direction as if it was a party to this
Agreement.
3. Covenants, Agreements and Acknowledgments
3.1 The Purchaser covenants and agrees with the Company to hold and not sell,
transfer or in any manner dispose of the Shares comprising the Units or any
shares acquired on the exercise of the Warrants comprising the Units unless the
sale, transfer or disposition is made in accordance with all applicable
Securities Rules.
3.2 The Purchaser acknowledges and agrees that the Shares comprising the Units
and any shares acquired on the exercise of the Warrants comprising the Units
will be subject to such trade restrictions as may be imposed by operation of the
applicable Securities Rules, and the share certificate or certificates
representing the Shares comprising the Units and any shares acquired on the
exercise of the Warrants comprising the Units will bear such legends as may be
required by the applicable Securities Rules. The Purchaser further acknowledges
and agrees that it is the Purchaser's obligation to comply with the trade
restrictions in all of the applicable jurisdictions and the Company offers no
advice as to those trade restrictions.
3.3 The Purchaser acknowledges that:
(a) the Securities have not been registered under the U.S. Securities Act
and are "restricted securities" within the meaning of Rule 144 under
the U.S. Securities Act and may only be resold in accordance with the
provisions of Regulation S under the U.S. Securities Act, pursuant to
registration under the U.S. Securities Act, or pursuant to an
available exemption from such registration. The Purchaser understands
that the Company has no obligation or present intention of filing a
registration statement under the U.S. Securities Act in respect of the
Securities;
-6-
<PAGE>
(b) hedging transactions involving the Securities may not be conducted
unless in compliance with the U.S. Securities Act;
(c) there may be material tax consequences to the Purchaser of an
acquisition or disposition of Securities. The Company gives no opinion
and makes no representation with respect to the tax consequences to
the Purchaser under United States, state, local or foreign tax law of
the Purchaser's acquisition or disposition of such securities;
(d) the certificates evidencing the Securities issued in this subscription
will bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED ONLY (i)
TO THE COMPANY; (ii) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
REGULATION S UNDER THE 1933 ACT; (iii) IN ACCORDANCE WITH RULE 144
UNDER THE 1933 ACT; OR (iv) IN A TRANSACTION THAT IS OTHERWISE EXEMPT
FROM REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS, PROVIDED, PRIOR TO ANY SUCH SALE, TRANSFER OR ASSIGNMENT, THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL, IN FORM ACCEPTABLE
TO THE COMPANY, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.";
(e) the Company is required to refuse to register any transfer of the
Securities not made in accordance with the provisions of Regulation S
under the U.S. Securities Act, pursuant to registration under the U.S.
Securities Act, or pursuant to an available exemption from such
registration; and
(f) any person who exercises a Warrant will be required to provide to the
Company either:
(i) written certification that it is not a U.S. Person and that such
Warrant is not being exercised within the United States or on
behalf of, or for the account or benefit of, a U.S. Person; or
(ii) a written opinion of counsel or other evidence satisfactory to
the Company to the effect that the Warrants and the common shares
issuable on the exercise of the Warrants have been registered
under the 1933 Act and applicable state securities laws or are
exempt from registration thereunder.
3.4 The Company covenants and agrees with the Purchaser to file any documents
necessary to be filed under the applicable Securities Rules with respect to this
subscription within the required time.
4. [Intentionally left blank]
-7-
<PAGE>
5. Closing
5.1 The completion of the subscription contemplated under this Agreement shall
occur on or before July 15, 1999 or such later date agreed to in writing by the
parties hereto (the "Closing Date") immediately preceding the acquisition by the
Company of the issued shares of Pawnbroker.com (a Nevada corporation). The
Company shall issue to the Purchaser, no later than the Closing Date, a share
certificate or certificates representing the Shares and a warrant certificate or
certificates representing the Warrants comprising the Units as provided for
below by the Purchaser. Upon the Company advising Campney & Murphy that it is
holding such certificates for immediate delivery to the Purchaser, Campney &
Murphy is irrevocably authorized and directed by the parties hereto to release
and deliver the Subscription Funds, together with any accrued interest thereon,
to the Company or for use as directed by the Company without prior notice to,
consent of or action by the Purchaser.
6. General
6.1 For the purposes of this Agreement, time is of the essence.
6.2 The parties hereto shall execute and deliver all such further documents and
instruments and do all such acts and things as may, either before or after the
execution of this Agreement, be reasonably required to carry out the full intent
and meaning of this Agreement.
6.3 This Agreement shall be subject to, governed by and construed in accordance
with the laws of Delaware. 6.4 This Agreement may not be assigned by either
party hereto. 6.5 This Agreement may be signed by the parties in as many
counterparts as may be deemed necessary, each of which so signed shall be deemed
to be an original, and all such counterparts together shall constitute one and
the same instrument.
IN WITNESS WHEREOF the parties have executed this written Agreement effective as
of the Effective Date.
PAWNBROKER.COM, INC.
Per: /s/ Doug McLeod
--------------------------------
Authorized Signatory
-8-
<PAGE>
TO BE COMPLETED BY THE PURCHASER:
A. Name and Address (Note: Cannot be a U.S. Address) The name and address (to
establish the Purchaser's jurisdiction of residence for the purpose of
determining the applicable Securities Rules) of the purchaser (the "Purchaser")
is as follows:
Packard Financial Group Inc.
--------------------------------------------
Name
11 Old Parham Road
P.O. Box 1531
--------------------------------------------
Street Address
--------------------------------------------
St. John
Antigua
--------------------------------------------
Country
B. Registration Instructions (Note: Cannot be a U.S. Address) The name and
address of the person in whose name the Purchaser's Securities are to be
registered is as follows (if the name and address is the same as was inserted in
paragraph A above, then insert "N/A"):
--------------------------------------------
Name
--------------------------------------------
Street Address
--------------------------------------------
--------------------------------------------
City and Province
--------------------------------------------
Country
--------------------------------------------
Postal Code
-9-
<PAGE>
C.Delivery Instructions (Note: Cannot be a U.S. Address) The name and address of
the person to whom the certificates representing the Purchaser's Securities
referred to in paragraph A above are to be delivered is as follows (if the name
and address is the same as was inserted in paragraph A above, then insert
"N/A"):
--------------------------------------------
Name
--------------------------------------------
Street Address
--------------------------------------------
--------------------------------------------
City and Province
--------------------------------------------
Country
--------------------------------------------
Postal Code
D. Subscription Amount The minimum is Cdn. $97,000 if the Purchaser is a
resident (as per the address inserted in paragraph A above) of British Columbia,
Alberta, Manitoba. New Brunswick, Prince Edward Island, Newfoundland or an
International Jurisdiction, or Cdn. $150,000 if the Purchaser is a resident of
Saskatchewan, Ontario, Quebec or Nova Scotia.:
Subscription Funds: U.S. $3,003,000
Number of Units: 1,300,000 Units (where each Unit consists of
one share and one-half of one share purchase
warrant. Each whole share purchase warrant
will entitle the Purchaser to subscribe for
one additional common share of the Company on
the terms set forth in paragraph 2.1 of this
Subscription Agreement).
Note: The number of Units must equal the Subscription Funds divided by
price of U.S. $2.31 per Unit.
TO BE COMPLETED AND SIGNED BY THE PURCHASER:
PACKARD FINANCIAL GROUP INC.
- ----------------------------------------
Name of the "Purchaser" - use the name
inserted in paragraph A above.
Per: ---------------------------------
Signature of Purchaser
---------------------------------
Title (if applicable)
-10-
EXHIBIT 10.4
650,000 Common Shares Void after
Par Value of U.S. $0.00001 June 22, 2001
SHARE PURCHASE WARRANT
PAWNBROKER.COM, INC.
(the "Company")
This is to certify that, for value received, Packard Financial Group Inc. (the
"Warrant Holder") of 11 Old Parham Road, P.O. Box 1531, St. John, Bermuda has
the right to purchase from the Company, upon and subject to the terms and
conditions hereinafter referred to, 650,000 common shares having a par value of
U.S.$0.00001 per share (the "Shares") in the capital of the Company. The Shares
may be purchased at a price of:
1. U.S. $2.31 per Share at any time up to 5:00 p.m. local time in Blaine,
Washington on June 23, 2000 and
2. U.S.$2.90 per Share at any time up to 5:00 p.m. local time in Blaine,
Washington on June 22, 2001.
The right to purchase the Shares may be exercised in whole or in part, by the
Warrant Holder only, at the prices set forth above (the "Exercise Price") within
the times set forth above by:
(a) completing and executing the Subscription Form attached hereto for the
number of the Shares which the Warrant Holder wishes to purchase, in
the manner therein indicated;
(b) surrendering this Warrant Certificate, together with the completed
Subscription Form, to Signature Stock Transfer, Inc., (the "Transfer
Agent"); and
(c) paying the appropriate Exercise Price, in United States funds, for the
number of the Shares of the Company subscribed for, either by
certified cheque or bank draft or money order payable to the Company
in Blaine, Washington or such other address as the Company may advise
by written notice to the address of the Warrant Holder set forth
above.
Upon surrender and payment, the Company shall issue to the Warrant Holder or to
such other person or persons as the Warrant Holder may direct, the number of the
Shares subscribed for and will deliver to the Warrant Holder, at the address set
forth on the subscription form, a certificate or certificates evidencing the
number of the Shares subscribed for. If the Warrant Holder subscribes for a
number of Shares which is less than the number of Shares permitted by this
warrant, the Company shall forthwith cause to be delivered to the Warrant Holder
a further Warrant Certificate in respect of the balance of Shares referred to in
this Warrant Certificate not then being subscribed for.
In the event of any subdivision of the common shares of the Company (as such
common shares are constituted on the date hereof) into a greater number of
common shares while this warrant is outstanding, the number of Shares
represented by this warrant shall thereafter be deemed to be subdivided in like
manner and the Exercise Price adjusted accordingly, and any subscription by the
Warrant Holder for Shares hereunder shall be deemed to be a subscription for
common shares of the Company as subdivided.
<PAGE>
In the event of any consolidation of the common shares of the Company (as such
common shares are constituted on the date hereof) into a lesser number of common
shares while this warrant is outstanding, the number of Shares represented by
this warrant shall thereafter be deemed to be consolidated in like manner and
the Exercise Price adjusted accordingly, and any subscription by the Warrant
Holder for Shares hereunder shall be deemed to be a subscription for common
shares of the Company as consolidated.
In the event of any capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation at any time while this warrant is outstanding, the Company shall
thereafter deliver at the time of purchase of the Shares hereunder the number of
common shares the Warrant Holder would have been entitled to receive in respect
of the number of the Shares so purchased had the right to purchase been
exercised before such capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation.
If at any time while this, or any replacement, warrant is outstanding:
(a) the Company proposes to pay any dividend of any kind upon its common shares
or make any distribution to the holders of its common shares;
(b) the Company proposes to offer for subscription pro rata to the holders of
its common shares any additional shares of stock of any class or other
rights;
(c) the Company proposes any capital reorganization or classification of its
common shares or the merger or amalgamation of the Company with another
corporation; or
(d) there is a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
The Company shall give to the Warrant Holder at least seven days prior written
notice (the "Notice") of the date on which the books of the Company are to close
or a record is to be taken for such dividend, distribution or subscription
rights, or for determining rights to vote with respect to such reorganization,
reclassification, consolidation, merger, amalgamation, dissolution, liquidation
or winding-up. The Notice shall specify, in the case of any such dividend,
distribution or subscription rights, the date on which holders of common shares
of the Company will be entitled to exchange their common shares for securities
or other property deliverable upon any reorganization, reclassification,
consolidation, merger, amalgamation, sale, dissolution, liquidation or
winding-up, as the case may be. Each Notice shall be delivered by hand,
addressed to the Warrant Holder at the address of the Warrant Holder set forth
above or at such other address as the Warrant Holder may from time to time
specify to the Company in writing.
The holding of this Warrant Certificate or the Warrants represented hereby does
not constitute the Warrant Holder a member of the Company.
Nothing contained herein confers any right upon the Warrant Holder or any other
person to subscribe for or purchase any Shares of the Company at any time
subsequent to 5:00 p.m. local time in Blaine, Washington on June 22, 2001 and
from and after such time, this Warrant and all rights hereunder will be void.
The Warrants represented by this Warrant Certificate are non-transferable. Any
common shares issued pursuant to this Warrant will bear the following legend:
-2-
<PAGE>
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED ONLY (i) TO THE COMPANY; (ii)
OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE 1933
ACT; (iii) IN ACCORDANCE WITH RULE 144 UNDER THE 1933 ACT; OR (iv) IN A
TRANSACTION THAT IS OTHERWISE EXEMPT FROM REGISTRATION UNDER THE 1933 ACT
AND APPLICABLE STATE SECURITIES LAWS, PROVIDED, PRIOR TO ANY SUCH SALE,
TRANSFER OR ASSIGNMENT, THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL, IN FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH
REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT."
Time will be of the essence hereof.
This Warrant Certificate is not valid for any purpose until it has been signed
by the Company.
IN WITNESS WHEREOF, the Company has caused this warrant certificate to be signed
by one of its directors as of the 23rd day of June, 1999.
PAWNBROKER.COM, INC.
Per:
/s/ Doug McLeod
- -------------------------------
Doug McLeod
President & Director
-3-
<PAGE>
SUBSCRIPTION FORM
To: Pawnbroker.com, Inc. (the "Company")
And to: The directors thereof.
Pursuant to the Share Purchase Warrant made the -- day of ------------, 1999,
the undersigned hereby subscribes for and agrees to take up * common shares
having a par value of U.S.$0.00001 (the "Shares") in the capital of the Company,
at a price of U.S. $* per Share for the aggregate sum of $* (the "Subscription
Funds"), and encloses herewith a certified cheque, bank draft or money order
payable to the Company in full payment of the Shares.
The undersigned hereby requests that:
(a) the Shares be allotted to the undersigned;
(b) the name and address of the undersigned as shown below be entered in the
registers of members and allotments of the Company;
(c) the Shares be issued to the undersigned as fully paid and non-assessable
common shares of the Company; and
(d) a share certificate representing the Shares be issued in the name of the
undersigned.
Dated this ----- day of ---------------, 19--.
DIRECTION AS TO REGISTRATION:
(Name and address exactly as you wish them to appear on your share certificate
and in the register of members.)
Full Name(1): ------------------------------------------------------------------
Full Address: -----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Signature of Subscriber(1): ----------------------------------------------------
Signature of Subscriber(1) guaranteed by:
If the name above differs from
the name of the Subscriber, then
please complete the following
guarantee:
-----------------------------------------
Authorized Signature Number
NOTE: The signature to this subscription form must correspond with the name as
recorded on the warrant certificate in every particular without alteration or
enlargement or any change whatever. The signature of the person executing this
power must be guaranteed in a manner satisfactory to the Company's transfer
agent.
-1-
EXHIBIT 10.5
85 KEYSTONE LEASE
1. PARTIES. This lease, dated for reference purpose only, April 1, 1999, is made
by and between The Kowalski Family Trust dated September 6, 1991, herein called
Landlord, and Pacific Pawnbrokers, Inc., herein called Tenant.
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain commercial space, herein called Premises, having an area
of approximately 1,050 square feet at the address 85 Keystone, Suite "F", Reno,
Nevada 89503. Said Lease is subject to the terms, covenants, and conditions
herein set forth and the Tenant covenants as a material part of the
consideration of this Lease to keep and perform each and all of said terms,
covenants, and conditions.
3. TERM. The term of this Lease shall be for three (3) years, commencing on the
15th day of April, 1999, and ending on the 14th day of April, 2002.
4. POSSESSION.
4a. If the Landlord for any reason whatsoever cannot deliver possession of
said Premises to the Tenant at the commencement of the term hereof, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for any
loss or damage resulting therefrom, nor shall the expiration date of the above
term be in any way extended, but in that event, all rent shall be abated during
the period between the commencement of said term and the time when Landlord
delivers possession.
4b. In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be subject to
all the provisions of this Lease. Said early possession shall not advance the
termination date hereinabove provided.
5. RENT. The total rent commitment for the Premises shall be FORTY SEVEN
THOUSAND TWO HUNDRED FIFTY DOLLARS ($**47,250.00**), which Tenant agrees shall
be payable to Landlord, without prior notice or demand in the amount of ONE
THOUSAND THREE HUNDRED TWELVE AND 50/100 DOLLARS($**1,312.50**) on or before the
first day of the first full calendar month of the term hereof and a like sum on
or before the first day of each and every successive calendar month thereafter
during the term hereof, except that the first month's rent shall be paid upon
the execution hereof. Rent for any period during the term hereof which is for
less than one (1) month shall be a prorated portion of the monthly installment
herein, based upon a thirty (30) day month. Said rental shall be paid to
Landlord, without deduction or offset in lawful money of the United States of
America, which shall be legal tender at the time of payment, at Box 70278, Reno,
Nevada 89502, or to such other person or at such other place as Landlord may
from time to time designate in writing.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of ONE THOUSAND
THREE HUNDRED TWELVE AND 50/100 DOLLARS ($**1,312.50**). Said sum shall be held
by Landlord as security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provision relating to the payment of
rent, Landlord may (but shall not be required to) use, apply or retain all or
any part of this security deposit for the payment of any rent or any other sum
in default, or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used or applied, Tenant shall
within five (5) days after written demand therefore, deposit cash with Landlord
in an amount sufficient to restore the security deposit to its original amount
and Tenant's failure to do so shall be a material breach of this Lease. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be returned
to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) at the expiration of the Lease term. In the event of termination of
Landlord's Interest in this Lease, Landlord shall transfer said deposit to
Landlord's successor in interest.
7. OPERATING EXPENSE ADJUSTMENTS. For the purposes of this Article, the
following terms are defined as follows:
Base Year: The calendar year in which this Lease term commences
(provided, however, that the Base Year shall in no event be
earlier than the first full calendar year following the date
of initial occupancy by the first occupant of said
Building). For the purposes of this Lease the Base Year
shall be considered to be 1999.
Comparison Year: Each calendar year of the term after the Base Year.
Direct Expenses: All direct costs of operation and maintenance, as determined
by standard accounting practices, and shall include the
following costs by way of illustration, but not limited to:
real property taxes and assessments; rent taxes; gross
receipt taxes; (whether assessed against the Landlord or
assessed against the Tenant and collected by the Landlord,
or both); sewer charges; fire, theft, public liability and
extended coverage insurance premiums; costs premiums; costs
incurred in the management of the Building, accounting fees,
security, expenses, utilities; air-conditioning and heating;
supplies; materials; equipment; and tools; including
maintenance costs, and upkeep of all parking and common
areas. ("Direct Expenses" shall not include depreciation on
the Building of which the Premises are a part or equipment
therein, loan payments, executive salaries or real estate
brokers' commissions.)
If the Direct Expenses paid or incurred by the Landlord for the Comparison
Year on account of the operation or maintenance of the Building of which the
Premises are a part are in excess of the Direct Expenses paid or incurred for
the Base Year, then the Tenant shall pay 11.8% of the increase. This percentage
is that portion of the total rentable area of the Building occupied by the
Tenant hereunder. Landlord shall endeavor to give to Tenant on or before the
first day of March of each year following the respective Comparison Year a
statement of the increase in rent payable by Tenant hereunder, but failure by
Landlord to give such statement by said date shall not constitute a waiver by
Landlord of its right to require an increase in rent. Upon receipt of the
statement for the first Comparison Year, Tenant shall pay in full the total
amount of increase due for the first Comparison Year, and in addition for the
then current year, the amount of any such increase shall be used as an estimate
for said current year and this amount shall be divided into twelve (12) equal
monthly installments and Tenant shall pay to Landlord, concurrently with the
regular monthly rent payment next due following the receipt of such statement,
an amount equal to one (1) monthly installment multiplied by the number of
months from January in the calendar year in which said statement is submitted to
the month of such payment, both months inclusive. Subsequent installments shall
be payable concurrently with the regular monthly rent payments for the balance
of that calendar year and shall continue until the next Comparison Year's
statement is rendered. If the next or any succeeding Comparison Year results in
a greater increase in Direct Expenses, then upon receipt of the statement from
the Landlord, Tenant shall pay a lump sum equal to such total increase in Direct
Expenses over Base Year, less the total of the monthly installments of estimated
increases paid in the previous calendar year for which comparison is then being
made to the Base Year; and the estimated monthly installments to be paid for the
next year, following said Comparison Year, shall be adjusted to reflect such
increase. If in any Comparison Year the Tenant's share of Direct Expenses is
less than the preceding year, then upon receipt of Landlord's statement, any
overpayment made by Tenant on the monthly installment basis provided above shall
be credited towards the next monthly rent falling due and the estimated monthly
installments of Direct Expenses to be paid shall be adjusted to reflect such
lower Direct Expenses for the most recent Comparison Year.
Even though the term has expired and the Tenant vacated the Premises, when
the final determination is made of Tenant's share of Direct Expenses for the
year in which this lease terminates, Tenant shall immediately pay any increase
due over the estimated expenses paid and conversely any overpayment made in the
event said expenses decrease shall be immediately rebated by Landlord to Tenant.
Notwithstanding anything contained in this Article, the rent payable by
Tenant shall in no event be less than the rent specified in Article 5
hereinabove.
8. USE. Tenant shall use the premises for general office purposes and shall not
use or permit the Premises to be used for any other purpose without prior
written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the Premises
nor bring or keep anything therein which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents, or cause cancellation of any of the insurance policies covering said
Building or any part thereof or any of its contents. Tenants shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit nor suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH THE LAW. Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statue, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statues, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force, and
with the requirement of any board of fire insurance underwriters or other
similar bodies now or hereafter constituted, relating to or affecting the
conditions, use or occupancy of the Premises, excluding structural changes not
related to or affected by Tenant's improvements or acts. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant, whether Landlord be a party thereto or not, that Tenant has violated any
law, statute, ordinance or governmental rule, regulation or requirement, shall
be conclusive of that fact as between the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without written consent of Landlord first had and obtained and any alterations,
additions or improvements to or of said Premises, including, but not limited to,
wall covering, paneling and built-in cabinet work, but excepting movable
furniture and trade fixtures, shall on the expiration of the term become a part
of the realty and belong to the Landlord and shall be surrendered with the
Premises. In the event that Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand of Landlord, given at least thirty (30) days prior to the end of
the term, at Tenant's sole cost and expense, forthwith and with all due
diligence remove any alterations, additions or improvements made by Tenant,
designated by Landlord to be removed, and Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Premises
caused by such removal.
11. REPAIRS
11a. By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and repair.
Tenant shall, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good condition and repair, damage thereto from causes beyond the
reasonable control of Tenant and ordinary wear and tear excepted. Tenant shall
upon the expiration or sooner termination of this Lease hereof surrender the
Premises to the Landlord in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of Tenant excepted. Except as
specifically provided in an addendum, if any, to this Lease, Landlord shall have
no obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that Landlord has
made no representations to Tenant respecting the condition of the Premises or
the building except as specifically herein set forth.
11b. Notwithstanding the provisions of Article 11a hereinabove, Landlord
shall repair and maintain the structural portions of the Building, including the
basic plumbing and electrical systems installed or furnished by Landlord, unless
such maintenance and repairs are caused in part or in whole by the act, neglect,
fault or omission of any duty by the Tenant, its agents, servants, employees or
invitees, in which case Tenant shall pay to Landlord the reasonable cost of such
maintenance and repairs. Landlord shall not be liable for any failure to make
any such repairs or to perform any maintenance unless such failure shall persist
for an unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in Article 21
hereof, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building or the Premises, or in or to fixtures, appurtenances and equipment
therein. Tenant waives the right to make repairs at Landlord's expense under any
law, statute or ordinance now or hereafter in effect.
12. LIENS. Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require, at Landlord's
sole option, that Tenant shall provide to Landlord, at Tenant's sole cost and
expense, a
Page 1 of 4
85 KEYSTONE Initials: JS
----
<PAGE>
lien and completion bond in an amount equal to one and one-half (1-1/2) times
any and all estimated costs of any improvements, additions, or alterations in
the Premises, to insure Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or nay right or privilege appurtenant thereto, or suffer any
other person (the employees, agents, servants and invitees of Tenant excepted)
to occupy or use the said Premises, or any portion thereof, without the written
consent of Landlord first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting, occupation
or use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. Any such assignment
or subletting without such consent shall be void, and shall, at the option of
the Landlord, constitute a default under this Lease. Lessor shall be entitled to
receive any additional rent paid by a sub lessee over and above the amount of
rent specified herein to be paid by Lessee.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work or other thing done,
permitted or suffered by the Tenant in or about the Building, and shall further
indemnify and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from and against all costs, attorney's fees, expenses and
liabilities incurred in or about any such claim or any action or proceeding
brought thereon, and, in any case, action or proceeding brought against Landlord
by reason of any such claim. Tenant, upon notice from Landlord, shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant
as material part of the consideration to the Landlord hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises, from
any cause other than Landlord's negligence, and Tenant hereby waives all claims
in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees. Landlord or its agents shall not be liable for interference with the
lights or other incorporeal hereditament, loss of business by Tenant, nor shall
Landlord be liable for any latent defect in the Premises or in the Building.
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties each party
shall obtain any special endorsements, if required by their insurer to evidence
compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rated A+, AAA or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancelable or
subject to reduction of coverage except after ten (10) days' prior written
notice to Landlord.
17. SERVICES AND UTILITIES. Provided that tenant is not in default hereunder,
Landlord agrees to furnish to the Premises during reasonable hours of generally
recognized business days, to be determined by Landlord at his sole discretion,
and subject to the rules and regulations of the Building which the Premises are
a part, electricity for normal lighting and fractional horsepower office
machines, heat and air conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises, and janitorial service. Landlord
shall also maintain and keep lighted the common areas, common entries and toilet
rooms in the Building of which the Premises are a part. Landlord shall not be
liable for, and Tenant shall not be entitled to any reduction of rental by
reason of Landlord's failure to furnish any of the foregoing when such failure
is caused by accident, breakage, repairs, strike, lockouts or other labor
disturbances or labor disputes of any character, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be
liable under any circumstances for a loss of or injury to property, however
occurring, through or in connection with or incidental to failure to furnish any
of the foregoing. Wherever heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost of installation, and the cost of
operation and maintenance thereof shall be paid by Tenant to Landlord upon
demand by Landlord.
Tenant will not, without consent of Landlord, use any apparatus or device
in the Premises, including, but not without limitation thereto, electronic data
processing machines, punch card machines, and machines using in excess of 120
volts, which will in any way increase the amount of electricity usually
furnished or supplied for the use of the Premises as general office space, nor
connect with electric current except through existing electrical outlets in the
Premises, any apparatus or devise for the purpose of using electric current if
Tenant shall require water or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office space.
Tenant shall first procure the written consent of Landlord who may refuse, to
the use thereof and Landlord may cause a water meter or electrical current meter
to be installed in the Premises, so as to measure the amount of water and
electric current consumed for any such use. The cost of any such meters and of
installation, maintenance and repair thereof shall be paid for by the Tenant and
Tenant agrees to pay to Landlord promptly upon demand therefore by Landlord for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility furnishing the same,
plus any additional expense incurred in keeping account of the water and
electric current so consumed. If a separate meter is not installed, such excess
cost for such water and electric current will be established by an estimate made
by a utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises, except that which has been paid
for by Landlord, and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make reasonable modifications to said
rules. The additions and modifications to those rules shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules by any other
tenants or occupants.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord such occupancy shall be a tenancy from month to month at a
rental in the amount of the last monthly rental, plus all other charges payable
hereunder and upon all the terms hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the
right to enter the Premises, inspect the same, supply any service to be provided
by Landlord to Tenant hereunder, to submit said Premises to prospective
purchasers or tenants, to post notices of non-responsibility, and to alter,
improve or repair the Premises and any portion of the Building of which the
Premises are a part that Landlord may deem necessary or desirable, without
abatement of rent and may for that purpose erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby, and further providing that the business of the Tenant shall not
be interfered with unreasonably. Tenant hereby waives any claims for damages or
for any injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet employment of the Premises, and any other loss
occasioned thereby. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all the doors in, upon and
about the Premises, excluding Tenant's vaults, safes and files, and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open said doors in an emergency in order to obtain entry to the Premises without
liability to Tenant except for any failure to exercise due care for Tenant's
property. Any entry to the Premises obtained by Landlord by any of said means or
otherwise shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Tenant from the Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises of the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same, and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
In the event the Premises or the Building of which the Premises are a part
are damaged as a result of any cause other than the perils covered by fire and
extended coverage Insurance, the Landlord shall forthwith repair the same,
provided the extent of the destruction be less than ten percent(10%) of the then
full replacement cost of the Premises or the Building of which the Premises are
a part. In the event the destruction of the Premises or the Building is to an
extent greater than ten percent(10%) of the full replacement cost, the Landlord
shall have the option (1) to repair or restore such damage, this Lease
continuing in full force and effect but the rent to be proportionately reduced
as hereinabove in the Article provided, or (2) give notice to Tenant at any time
within sixty (60) days after such damage terminating this Lease as of the date
specified in such notice, which date shall be no less then thirty (30) and not
more than sixty (60) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and the
rent, reduced by a proportionate amount based upon the extent, if any, to which
such damage materially interfered with the business carried on by the Tenant in
the Premises, shall be paid up to date of said such termination.
Notwithstanding anything to the contrary contained in the Article, Landlord
shall not have any obligation whatsoever to repair, reconstruct or restore the
Premises when the damage resulting from any casualty covered under this Article
occurs during the last twelve (12) months of the term of this Lease or any
extension thereof.
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Tenant.
The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
23a.The vacating or abandonment of the Premises by Tenant.
23b. The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof by
Landlord to Tenant.
23c.The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23b. above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
23d. The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Tenant of a petition
to have Tenant adjudged bankrupt, or a petition or reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days) or the appointment
of a trustee or a receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days of the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged in thirty (30) days.
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24. REMEDIES IN DEFAULT. In the event of any such material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24a. Terminate Tenant's right to possession of the Premises by any lawful
means. In which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, any real
estate commission actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this Lease. Unpaid installments of rent or other sums shall
bear interest from the date due at the rate of eighteen percent(18%) per annum.
In the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (a) taking possession of the premises and recovering from Tenant the
amount specified in this paragraph, or (b) proceeding under the provisions of
the following Article 24b.
24b. Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
24c.Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decision of the State of Nevada.
25. EMINENT DOMAIN. If more than twenty-five percent(25%) of the Premises shall
be taken or appropriated by any public or quasi-public authority under the power
of eminent domain, either party hereto shall have the right, at its option, to
terminate this Lease, and Landlord shall be entitled to any and all income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such public or quasi-public use or purpose, and Tenant shall
have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five percent(25%) of the Premises
is taken, and neither party elects to terminate as herein provided, the rental
thereafter to be paid shall be equitably reduced. If any part of the Building
other than the Premises may be so taken or appropriated, Landlord shall have the
right at its option to terminate this Lease and shall be entitled to the entire
award as above provided.
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing, (a) certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such medication and certifying that this Lease as so modified, is in full
force and effect), and the date which the rental and other charges are paid in
advance, if any and (b) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of the Landlord hereunder, or specifying such
defaults if any are claimed. Any such statement may be relied upon by an
prospective purchaser or encumbrancer of all or any portion of the real property
of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other tenants or
occupants of the Building the parking facilities of the Building, subject to
rules and regulations which may be established by Landlord.
28. AUTHORITY OF PARTIES. Corporate Authority. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation, in accordance with a duly adopted resolution of the board
of directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
29. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii)Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord. All notices and demands by the Tenant to the Landlord shall be sent by
United States Mail, postage prepaid, addressed to John and Barbara Kowalski, C/O
Nevada Commercial Group, Box 70278, Reno, Nevada 89510, or to such other person
or place as the Landlord may from time to time designate in a notice to the
Tenant.
(iv)Joint Obligation. If there is more than one Tenant, the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not part of this Lease and shall have no effect upon
the construction or interpretation of any part hereof.
(vi)Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) Recordation. Neither Landlord nor Tenant shall record this Lease or
a short form memorandum hereof without the prior written consent of the other
party.
(ix)Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charges. Tenant hereby acknowledges that the late payment by
Tenant to Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designee by the 10th day of the calendar
month in which it is due, then Tenant shall pay to Landlord a late charge equal
to eighteen percent(18%) of such overdue amount. The parties hereby agree that
such late charges represent a fair and reasonable estimate of the cost that
Landlord will incur by reason of the late payment by Tenant. Acceptance of such
late charges by the Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
(xi)Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(xii) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
(xiii) Attorneys' Fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale, and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv)Subordination, Attornment. Upon request of the Landlord, Tenant will in
writing subordinate its rights hereunder to the lien of any first mortgage, or
first deed of trust to any bank, insurance company or other lending institution,
now or hereafter in force against the land and Building of which the Premises
are a part, and upon any building hereafter placed upon the land of which the
Premise are a part, and to all advances made or hereafter to be made upon the
security thereof.
In the event any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, the Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
The provision of the Article to the contrary notwithstanding, and so long
as Tenant is not in default hereunder, this Lease shall remain in full force and
effect for the full term hereof.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal, shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
(xviii) Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) Choice of Law. This Lease shall be governed by the laws of the State
of Nevada.
(xx) Signs and Auctions. Tenant shall not place any sign upon the Premises
or Building or conduct any auction thereon without Landlord's prior written
consent.
30. RENTAL ESCALATION. On the "Adjustment Date", which is the Commencement Date
plus the "Adjustment Period", the monthly rental, hereinabove established, shall
be adjusted every twelve (12) months (Adjustment Period) after the Commencement
Date of this Lease based on the percentage increases in the U.S. Department of
Labor Consumer's Price Index for U.S. City Average All Urban Consumers, All
items, as measured over the period of time beginning two (2) months prior to the
Commencement Date and continuing through two (2) months prior to the Adjustment
Date. Subsequent adjustments shall be based upon the increase in the CPI over
that period of time beginning two (2) months prior to the previous adjustment
date and continuing through two (2) months prior to the next "Adjustment Date".
However, in no event shall the monthly rental or total rental be less than the
amount of monthly and total rental set forth herein.
31. BROKER REPRESENTATION/PARTICIPATION. Landlord and Tenant acknowledge that
Grubb & Ellis/ Nevada Commercial Group represents Landlord exclusively and that
Premier Properties represents Tenant exclusively.
32. MISCELLANEOUS. 1) Tenant shall have the right to acquire additional
adjacent suite consisting of approximately 578 SF no later
than January 1, 2000.
2) Landlord agrees to clean and deliver the Premises to
Tenant on or about April 2, 1999.
33. NOTICES. In connection with any notices to be sent to Tenant under the
Lease, such notice shall not be effective and shall not be deemed to have been
received by Tenant unless, in addition to the copy to be sent to Tenant at the
Premises, a copy is sent to and received by: ---------------------------------.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their signatures. No representation or
recommendation is made as to the legal sufficiency, legal effect, or tax
consequences of this Lease or the transactions relating thereto.
Address: 85 Keystone, Suite "F" TENANT:
Reno, NV 89503 PACIFIC PAWNBROKERS, INC.
Date: -------------- By: /s/ Joseph Schader
------------------------------------
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85 KEYSTONE Initials: JS
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Its:
-----------------------------------
Address: P.O. Box 70278 LANDLORD:
Reno, NV 89502 THE KOWALSKI FAMILY TRUST DATED
SEPTEMBER 6, 1991
Date: -------------- By:
------------------------------------
John Kowalski, Trustee
The Kowalski Family Trust Dated
September 6, 1991
By:
------------------------------------
Barbara Kowalski, Trustee and
Property Manager
The Kowalski Family Trust Dated
September 6, 1991
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RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside
or inside of the Building without the written consent of Landlord first had
and obtained, and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to and at
the expense of Tenant.
Only approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the Premises provided, however, that Landlord may furnish and
install a Building standard window covering at all exterior windows. Tenant
shall not without prior written consent of Landlord cause or otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees,
shall have caused it.
5. Tenant shall not overload the floor of the premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same
into or out of the Building shall be done at such time and in such manner
as Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought
into the Building and also the times and manner of moving the same in and
out of the Building. Safes or other heavy objects shall, if considered
necessary by Landlord, stand on supports of such thickness as is necessary
to properly distribute the weight. Landlord will not be responsible for
loss of or damage to any such safe or property from any cause and all
damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or
other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those have
business therein, nor shall any animals or birds be brought in or kept in
or about the Premises or the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper objectionable or immoral
purposes.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method
of heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of the Landlord. The location of telephones,
call boxes and other office equipment affixed to the Premises shall be
subject to the approval of Landlord.
11. On Saturdays, Sundays, legal holidays, and on other days between the hours
of 6:00 P.M. and 8:00 A.M. the following day, access to the Building or to
the halls, corridors, elevators or stairways in the Building or to the
Premises may be refused unless the person seeking access is known to the
person of employee of the Building in charge and has a pass or is properly
identified. The Landlord shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of any
person. In case of invasion, mob, riot, public excitement, or other
commotion, the Landlord reserves the right to prevent access to the
Building during the continuance of the same by closing the doors or
otherwise, for the safety of the tenants and protection of property in the
Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs. or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
13. No vending machine of any description shall be installed, maintained or
operated upon the Premises without the written consent of the Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building
of which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without written consent of Landlord. Tenant shall not use the name of the
Building in connection with or in promotion or advertising the business of
Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the Building and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants in such
manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
EXHIBIT 10.6
DESIGN AND DEVELOPMENT AGREEMENT
This DEVELOPMENT ASSISTANCE AGREEMENT (this "Agreement"), dated
- --------------, 1999, is made and entered into by and between PAWNBROKER.COM., a
Nevada corporation (hereinafter referred to as "Pawnbroker"), and BANSHEE, INC.,
a Nevada corporation (hereinafter referred to as "Banshee").
Banshee and Pawnbroker, intending to be legally bound, hereby agree as
follows:
Section 1
GENERAL
This Agreement sets forth the terms and conditions under which (1) Banshee
agrees to complete the Project (as defined herein below), and (2) Pawnbroker
agrees to provide the Assistance Resources (as defined herein below) to help
Banshee accomplish the Project. The Project consists of two broad phase items
described below.
Section 2
THE PROJECT
Banshee agrees to complete the following Project:
2.1 Work to Be Completed. Item 1) Design and development of a web site with
Oracle backend database, design and implementation of Pawnbroker.Com network
technology; and Item 2) Design and development of a compact disk ("CD"),
containing multimedia sales presentation, software and tutorial.
2.2 Completion Criteria. Pawnbroker may make a reasonable determination
that each milestone is complete, based on standard industry products.
Milestone No. Work/Items to be Completed Completion Date
- ------------- -------------------------- ---------------
1. 1) Design Phase 07/02
1) Hardware Require 04/29
2) Network Topo 05/18
3) Website 06/08
i) Browser 04/27
ii) 2D Page Layout 05/26
1
<PAGE>
Milestone No. Work/Items to be Completed Completion Date
- ------------- -------------------------- ---------------
iii) 3D Page Layout 06/08
4) Oracle 07/02
i) Schema 06/28
2) Production 08/24
1) WAN Complete 06/29
2) Website
i) Site Server 07/09
ii) COM Server 07/13
iii) TRANS Server 07/16
iv) DHTML 07/21
v) JAVA 08/24
3) 3rd party Integration 08/09
4) Database 08/11
i) Widget 07/12
ii) Subscriber 07/14
iii) Buyer Tables 07/19
iv) Law Enforcement 07/21
v) Widget 07/26
vi) Schema 07/28
vii) AP/AR 08/11
3) Alpha Phase 08/23
1) Bug Scrub 08/20
2) Demo 08/23
4) Beta Phase 09/01
1) Final Bug 08/30
2) System Attack 09/01
5) Site Online
II CD-ROM - Milestones to be decided upon 06/24
completion of Design Phase
2
<PAGE>
Completion of a Milestone shall occur when Banshee demonstrates to Pawnbroker
that the Work and/or Items to Be Completed for such Milestone meet the
Completion Criteria and Pawnbroker has delivered Banshee's signed, written
certification that such Completion Criteria are met. Completion of the Project
shall occur upon completion of all Milestones.
2.3 Compliance. Banshee warrants that (1) it owns all intellectual property
rights comprised by the Items to Be Completed or otherwise needed for it to
conduct the Project and perform its obligations under this Agreement, or has the
authority to do so without infringing the rights of any third party or creating
any financial obligation to any third party, and (2) the completion of the
Project and the Banshee's performance of its obligations under this Agreement
will be in compliance with all applicable governmental laws, statutes,
ordinances, administrative orders, rules, and regulations.
2.4. Progress Reviews. Banshee shall permit Pawnbroker to conduct progress
reviews at Banshee's place of business at reasonable times and upon reasonable
notice.
Section 3
PAWNBROKER ASSISTANCE
Pawnbroker shall provide the following Assistance Resources to Banshee, and
Banshee agrees to use and apply the Assistance Resources solely to complete the
Project.
3.1 Funds. Pawnbroker agrees to provide Banshee with funding, to be used
solely to complete the Project, on the following basis:
Amount Date
- ------ ----
$100,000.00 Upon initial funding
$100,000.00 07/15/99
$45,000.00 Upon completion of Project
TOTAL VALUE: $245,000.00 Cash
3.2 Cumulative Value. The Cumulative Value of Assistance Resources shall
equal the value specified in Section 3.1 hereof for each item provided by
Pawnbroker, including applicable interest and other related charges.
3.3 Delays. If Pawnbroker fails to provide assets or delays in providing
items required in a timely manner, the Project time will slip by the same amount
of time. This paragraph will not
3
<PAGE>
severe the obligations of either party pursuant to this agreement.
Section 4
FURTHER ASSURANCES
4.1 Ownership. Upon completion, the project will be owned by Pawnbroker.
4.2 Maintenance. Maintenance is further defined in a separate service
agreement entered into between Banshee and Pawnbroker. Banshee will provide
support for sixty (60) days upon delivery.
4.3 Demonstration Copies. Banshee shall provide Pawnbroker with one (1)
copy of a demonstration version of all the Product components in executable
form, accompanied by demonstration instructions, for use by Pawnbroker in its
discretion.
4.4 Training. Banshee shall provide Pawnbroker with reasonable amounts of
training for Pawnbroker personnel and marketing assistance with respect to
complementary products that may be offered by Pawnbroker. Such training shall be
provided without charge for the first thirty (30) days of training sessions
attended by up to two (2) people, and thereafter shall be subject to Banshee's
standard charges or as provided for in a separate agreement entered into between
Banshee and Pawnbroker.
4.5 Marketing Rights. Banshee acknowledges that Pawnbroker will market the
Product to the public. For example, the web site will be accessed by the public
and access will be places as intended by the design. In addition, Pawnbroker
will mass produce and mail the CD at its own expense. Both parties may market
the product and advertise, as is beneficial to each party's respective business,
and as is consistent with that party's respective rights under this agreement.
Section 5
LICENSE
Pawnbroker hereby grants Banshee broad, exclusive and transferable license
to the Project, its components, related discoveries, designs and technologies.
Pawnbroker shall not permit the Project, or any part thereof to be disclosed to
others, except as intended by this agreement. The Project shall be trademarked
and labeled with appropriate copyright notices. Pawnbroker's obligations under
this paragraph survive any termination of this agreement.
Section 6
ADMINISTRATION
6.1 Principal Contacts. Pawnbroker and Banshee each designate by name the
following to
4
<PAGE>
serve as principal contact for purposes of the Project and this Agreement.
Banshee: Jason Pratt Carson Valley Business Park
2561 Business Parkway, Unit B
Minden, NV 89423
Pawnbroker: Joe Schlader ----------------------------------------
----------------------------------------
6.2 Costs and Charges. Except as expressly provided in this Agreement,
Banshee shall not be entitled to any payment, cost reimbursement, or other
assistance or compensation from Pawnbroker for the Project, the preparation of
the Items to Be Completed, or the commitments made hereunder. Except as
otherwise specified in this Agreement, each party shall bear all its own
expenses incurred in rendering performance, including facilities, work space,
computers and computer time, utilities, management, clerical, reproduction
services, supplies, and the like.
6.3 Termination. This Agreement may be terminated only
1. By Pawnbroker for its convenience, provided that, if termination
results in the loss of any Assistance Resources and the Project is
consequently not completed, Pawnbroker shall forfeit any right to
repayment or compensation;
2. By Pawnbroker upon the default of Banshee or Banshee's failure to
complete the Project by at least 11/01/99; or
3. By mutual agreement of the parties.
6.4 Limitations. Neither party shall be entitled to indirect, incidental,
or consequential damages, including lost profits based on any breach or default
under this Agreement. In no event shall Pawnbroker be liable under this
Agreement to Banshee, its successors, and assigns for damages exceeding the
amounts payable and as yet unpaid by Pawnbroker under this Agreement.
6.5 Freedom of Action. Nothing in this Agreement shall be construed to
prohibit or restrict either party from independently developing or acquiring and
marketing materials and/or programs that are competitive with the Product.
6.6 Independent Contractor. Banshee is and shall remain an independent
contractor with respect to all Work. Neither Banshee nor any employee of Banshee
shall be considered an employee or agent of Pawnbroker for any purpose.
6.7 No Assignment. Banshee may not sell, transfer, assign, or subcontract
any right or obligation set forth in this Agreement, without the prior written
consent of Pawnbroker. Any act in derogation of the foregoing shall be null and
void.
5
<PAGE>
6.8 Governing Law. The validity, construction, and performance of this
Agreement will be governed by the substantive law of the State of Nevada.
6.9 Amendments in Writing. No amendment, modification, or waiver of any
provision of this Agreement shall be effective unless it is set forth in a
writing that refers to the provisions so affected and is executed by an
authorized representative of the party accepting any such waiver, or, in the
case of an amendment or modification, by authorized representatives of both
parties. No failure or delay by either party in exercising any right, power, or
remedy will operate as a waiver of any such right, power, or remedy.
6.10 Entire Understanding. PAWNBROKER AND BANSHEE ACKNOWLEDGE THAT NOTHING
IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY PERSON OR
ENTITY, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR LIABILITIES UNDER OR BY REASON OF
THE TERMS OF THIS AGREEMENT. BANSHEE REPRESENTS AND WARRANTS THAT, IN ENTERING
INTO THIS AGREEMENT, IT DOES NOT AND WILL NOT RELY ON ANY PROMISES, INDUCEMENTS,
OR REPRESENTATIONS MADE BY PAWNBROKER WITH RESPECT TO THE SUBJECT MATTER OF THIS
AGREEMENT, NOR ON THE EXPECTATION OF ANY OTHER BUSINESS DEALINGS WITH
PAWNBROKER, NOW OR IN THE FUTURE, AND THAT PAWNBROKER HAS GIVEN NO ASSURANCE AND
HAS UNDERTAKEN NO RESPONSIBILITY WITH RESPECT TO ANY PROMOTION OR MARKETING OF
THE PRODUCT OR ANY PORTION OR COMBINATION THEREOF WITH OTHER MATERIALS, DEVICES,
OR SERVICES.
/////
/////
/////
/////
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized representatives.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
BANSHEE, INC. PAWNBROKER.COM
By: ----------------------------- By: /s/ Joseph Schader
-------------------------------
Title: -------------------------- Title: President
----------------------------
6
EXHIBIT 10.7
DATED: June 25, 1999
PAWNBROKER.COM, INC.
- and -
IRG INVESTOR RELATIONS GROUP LTD.
<PAGE>
THIS CONSULTING AGREEMENT made as of the 25th day of June 1999.
BETWEEN:
PAWNBROKER.COM, INC. of
85 Keystone, Suite F
Reno, Nevada 89503
(hereinafter referred to as the "Corporation") OF THE FIRST PART
IRG INVESTOR RELATIONS GROUP LTD. of
4th Floor, 1286 Homer Street
Vancouver, B.C.
V6B 2Y5
(hereinafter referred to as the "Consultant") OF THE SECOND PART
WHEREAS the Corporation wishes to retain the Consultant for its business and the
Consultant has agreed to provide such services to the Corporation.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained and for other good and valuable
consideration, it is hereby agreed by and between the parties as follows:
ARTICLE 1
Definitions
1.1 For the purpose of this Agreement, "Consulting Services" shall mean the
corporate and investor relations services relating to the business, products,
and services of the Corporation to be provided by the Consultant, and in
particular but without restricting the generality of the foregoing, includes
arranging broker and analyst meetings, contacts, arranging attendance or
representation of the Corporation at conferences of analysts and, subject to the
control and direction of the Corporation, preparing corporate and product
related materials for distribution to brokers, analysts, and investment
advisers, and distributing same to brokers, analysts and investment advisors.
The Consultant shall provide such materials to individuals upon request and the
Corporation agrees to provide the Consultant with sufficient materials to fulfil
these requests and to defray all attendant costs.
1.2 The terms "subsidiaries", "associates" and "affiliated corporations" as
used in this Agreement shall have the meanings ascribed thereto in the Company
Act of British Columbia.
<PAGE>
ARTICLE 2
Engagement of the Consultant and Its Duties
2.1 The Corporation hereby engages the services of the Consultant and the
Consultant hereby accepts the engagement of its services by the Corporation,
subject to the terms and conditions hereinafter contained and subject to
obtaining the necessary regulatory approval hereto.
2.2 The Consultant shall provide the Consulting Services to the Corporation in
such manner as the Corporation and the Consultant may reasonably agree, and
shall devote such of its time as is necessary to properly render the Consulting
Services to the Corporation, and all its effort, skills, attention and energies
during that time to the performance of its duties as herein set forth.
2.3 The Corporation acknowledges that it is aware of the Consultant's many
outside activities, duties and financial interests and agrees that the
performance of such activities and duties and involvement of such financial
interests will not be construed as a breach of this Agreement, provided that the
Consultant provides the Consulting Services on a basis which does not impair the
activities and business interests of either the Corporation or the Consultant.
2.4 In providing the Consulting Services, the Consultant will be relying upon
information received from the Corporation, and will so disclose this fact in all
communications. The Corporation agrees to provide the Consultant with such
information, financial records, documents and product information as may
facilitate the performance of the Consulting Services by the Consultant.
2.5 In the event of any misstatements, misrepresentations or omissions in
information as provided by the Corporation to the Consultant and as utilized by
the Consultant in the performance of the Consulting Services that may result in
liability to the Consultant, the Corporation agrees to indemnify and save
harmless the Consultant against any such claims or liabilities.
2.6 The Consultant agrees that it will perform the Consulting Services in
accordance with all applicable laws including, but not limited to the Securities
Exchange Commission Acts of 1933 and 1934, its rules and regulations, and the
rules and policies of the NASD Stock Quotation Service and the NASDAQ STOCK
EXCHANGE as applicable.
2.7 The Consultant agrees to indemnify and save the Corporation harmless with
respect to any claim, suit, proceedings or judgement, whether regulatory or of a
court of competent jurisdiction arising from any breach of the Agreement by the
Consultant.
<PAGE>
2.8 The term of this Agreement shall be for a period of one (1) year commencing
on the 1st day of July 1999 and with an option for an additional year at terms
and conditions as mutually agreed upon. The indemnities provided herein at
sections 2.5 and 2.7 will survive the termination of this Agreement.
2.9 Notwithstanding section 2.8, either party may terminate this Agreement by
providing the other party with at least 30 days written notice.
2.10 The Consultant shall at all times be an independent contractor and not the
servant or agent of the Corporation. No partnership, joint venture or agency
will be created or will be deemed to be created by this Agreement or by any
action of the parties under this Agreement. The Consultant is not an agent,
servant or employee of the Corporation, nor shall it represent itself to have
any such relationship with the Corporation. The Consultant shall be an
independent contractor with control over the manner and means of its
performance. Neither the Consultant nor its employees or agents shall be
entitled to rights or privileges applicable to employees of the Corporation
including, but not limited to, liability insurance, group insurance, pension
plans, holiday paid vacation and other benefit plans which may be available from
time to time between the Corporation and its employees.
2.11 The Consultant shall be responsible for the management of its employees and
without limiting the generality of the foregoing, shall be responsible for
payment to the proper authorities of all unemployment insurance premiums, Canada
Pension Plan contributions, Worker's Compensation premiums and all other
employment expenses for all of the Consultant's employees. The Consultant shall
be responsible for deduction and remittance of all income tax due from itself
and its employees.
ARTICLE 3
Compensation
3.1 The Corporation agrees to pay the Consultant, in consideration of the
provision by the Consultant of the Consulting Services to the Corporation, the
sum of twenty thousand (US$20,000) United States Dollars per month with the
first month's fee due and payable upon execution of this Agreement. Thereafter,
the monthly fee of US$20,000 is payable in advance of the month in which
services are to be rendered.
3.2 The Corporation further agrees to pay the Consultant the sum of one hundred
thousand ($100,000) United States Dollars upon execution of this Agreement. It
is agreed that the payment represent an advance towards expenses to be incurred
pursuant to the public relations program including reasonable disbursements
which will include travel and accommodation expenses, printing and mailing
costs, long-distance charges, outside services, and all other out-of-pocket
expenses incurred by the Consultant in the performance of its obligations
pursuant to this Agreement, provided that the Consultant will not incur any
single expenditure that exceeds US$5,000 without obtaining the prior written
consent of the Corporation. The Consultant agrees to provide the Corporation
with support documentation for the disbursements and expenses incurred where
procurable. A monthly accounting will be provided of the expenses incurred and
paid from the advance. Any amount of the advance not utilized is fully
refundable net of any unreimbursed costs at the termination of this Agreement.
<PAGE>
3.3 The Corporation agrees to grant to the Consultant, or its designate, upon
terms and conditions as determined by the various Regulatory Authorities
governing the Corporation, the sole and exclusive right and option to purchase
all or any part of four hundred thousand (400,000) common shares of its capital
as fully paid and non-assessable shares, exercisable at the market price post
reverse split on the first day of trading of the newly consolidated shares for a
period of one year from the date of execution of this Agreement.
3.4 250,000 options are exercisable at any time during the term of this
Agreement and shall vest immediately. 150,000 shares shall vest in equal amounts
of 50,000 at such time that the Corporation successfully obtains financing in
increments of $5,000,000 such that the total option of 150,000 shares shall vest
once the Corporation successfully obtains funding in the amount of $15,000,000.
3.5 The Corporation shall cause to be filed, as soon as practicable, a
Registration Statement on Form S-8 or a demand registration statement under Form
S-3 as applicable, to ensure that the shares to be issued under the provisions
of this Option shall be freely tradable.
ARTICLE 4
Confidentiality
4.1 The Consultant will not, directly or indirectly, use, disseminate,
disclose, communicate, divulge, reveal, publish, use for its own benefit, copy,
make notes of, input into a computer data base or preserve in any way any
confidential information relating to the Corporation or its subsidiaries,
associates or affiliated corporations whether during the term of this Agreement
or thereafter, unless it first received written permission to do so from an
authorized officer of the Corporation.
4.2 For the purposes of this Agreement, "confidential information" is
information disclosed to or acquired by the Consultant relating to the business
of the Corporation, or its subsidiaries, associates or affiliated corporations,
their projects or the personal affairs of their directors, officers and
shareholders, including information developed or gathered by the Consultant
which has not been approved by the Corporation for public dissemination.
Confidential information does not include information in the public domain,
information released from the provisions of this Agreement by written
authorization of an authorized officer of the Corporation, information which is
part of the general skill and knowledge of the Consultant and does not relate
specifically to the business of the Corporation, and information which is
authorized by the Corporation to be disclosed in the ordinary course or is
required by law or applicable regulatory policy to be disclosed.
<PAGE>
ARTICLE 5
Miscellaneous
5.1 Any notice required or permitted to be given hereunder shall be given by
hand delivery, facsimile transmission or by registered mail, postage prepaid,
addressed to the parties at their respective addresses as previously set forth
and any such notices given by hand delivery or by facsimile transmission shall
be deemed to have been received on the date of delivery or transmission and if
given by prepaid registered mail, shall be deemed to have been received on the
third business day immediately following the date of mailing. The parties shall
be entitled to give notice of changes of addresses from time to time in the
manner hereinbefore provided for the giving of notice.
5.2 Time shall be the essence of this Agreement.
5.3 The provisions of this Agreement shall inure to the benefit of and be
binding upon the Corporation and the Consultant and their respective successors
and assigns. This Agreement shall not be assignable by the Consultant.
5.4 This Agreement constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties hereto in connection with the subject
matter hereof. No supplement, modification, waiver or termination of this
Agreement shall be binding, unless executed in writing by the parties to be
bound thereby.
5.5 This Agreement shall be governed by the laws of British Columbia and
Nevada.
IN WITNESS WHEREOF this Agreement has been executed by the parties.
) PAWNBROKER.COM, INC.
)
)
) Per: /s/ Joseph Schader
)
) Authorized Signatory
)
)
) IRG INVESTOR RELATIONS GROUP LTD.
)
)
) Per:
)
) Authorized Signatory
EXHIBIT 10.8
PAWNBROKER.COM, Inc.
1999 STOCK OPTION PLAN
This 1999 Stock Option Plan (the "Plan") provides for the grant of options
to acquire shares of common stock, $0.00001 par value (the "Common Stock"), of
Pawnbroker.com, Inc., a Delaware corporation (the "Company"). Stock options
granted under this Plan that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), are referred to in this Plan as
"Incentive Stock Options." Incentive Stock Options and stock options that do not
qualify under Section 422 of the Code ("Non-Qualified Stock Options") granted
under this Plan are referred to collectively as "Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees and consultants of the Company and such other persons as the Plan
Administrator shall select in accordance with Section 3 below, to encourage such
persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in the hiring of new
employees and to provide an equity incentive to consultants and other persons
selected by the Plan Administrator.
2. ADMINISTRATION.
This Plan shall be administered initially by the Board of Directors of the
Company (the "Board"), except that the Board may, in its discretion, establish a
committee composed of two (2) or more members of the Board or two (2) or more
other persons to administer the Plan, which committee (the "Committee") may be
an executive, compensation or other committee, including a separate committee
especially created for this purpose. The Committee shall have the powers and
authority vested in the Board hereunder (including the power and authority to
interpret any provision of the Plan or of any Option). The members of any such
Committee shall serve at the pleasure of the Board. A majority of the members of
the Committee shall constitute a quorum, and all actions of the Committee shall
be taken by a majority of the members present. Any action may be taken by a
written instrument signed by all of the members of the Committee and any action
so taken shall be fully effective as if it had been taken at a meeting. The
Board or, if applicable, the Committee is referred to herein as the "Plan
Administrator."
The Plan shall be administered by the Board or by the Committee which, for
the purposes hereof, shall be composed of two (2) or more members of the Board
who are "Non-Employee Directors" (as defined below), and, as applicable, outside
directors. The term "outside director" shall have the meaning assigned to it
under Section 162(m) of the Code (as amended from time to time) and the
regulations (or any successor regulations) promulgated thereunder ("Section
162(m) of the Code"). The term "Non-Employee Director" shall have the meaning
assigned to it under Rule 16b-3 (as amended from time to time) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any
successor rule or regulatory requirement.
Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to (i) construe and interpret this Plan; (ii) define the terms used
in the Plan; (iii) prescribe, amend and rescind the rules and regulations
relating to this Plan; (iv) correct any defect, supply any omission or reconcile
any inconsistency in this Plan; (v) grant Options under this Plan; (vi)
determine the individuals to whom Options shall be granted under this Plan and
whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option;
(vii) determine the time or times at which Options shall be granted under this
Plan; (viii) determine the number of shares of Common Stock subject to each
Option, the exercise price of each Option, the duration of each Option and the
times at which each Option shall become exercisable; (ix) determine all other
terms and conditions of the Options; and (x) make all other determinations and
interpretations necessary and advisable for the administration of the Plan. All
decisions, determinations and interpretations made by the Plan
-1-
<PAGE>
Administrator shall be binding and conclusive on all participants in the Plan
and on their legal representatives, heirs and beneficiaries.
The Board or, if applicable, the Committee may delegate to one or more
executive officers of the Company the authority to grant Options under this Plan
to employees of the Company who, on the Date of Grant, are not subject to
Section 16 of the Exchange Act with respect to the Common Stock
("Non-Insiders"), and are not "covered employees" as such term is defined for
purposes of Section 162(m) of the Code ("Non-Covered Employees"), and in
connection therewith the authority to determine: (i) the number of shares of
Common Stock subject to such Options; (ii) the duration of the Option; (iii) the
vesting schedule for determining the times at which such Option shall become
exercisable; and (iv) all other terms and conditions of such Options. The
exercise price for any Option granted by action of an executive officer or
officers pursuant to such delegation of authority shall not be less than the
fair market value per share of the Common Stock on the Date of Grant. Unless
expressly approved in advance by the Board or the Committee, such delegation of
authority shall not include the authority to accelerate vesting, extend the
period for exercise or otherwise alter the terms of outstanding Options. The
term "Plan Administrator" when used in any provision of this Plan other than
Sections 2, 5(f), 5(m), and 11 shall be deemed to refer to the Board or the
Committee, as the case may be, and an executive officer who has been authorized
to grant Options pursuant thereto, insofar as such provisions may be applied to
persons that are Non-Insiders and Non-Covered Employees and Options granted to
such persons.
3. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the time
the Option is granted, is an employee of the Company or any Related Corporation
(as defined below) ("Employees"). Non-Qualified Stock Options may be granted to
Employees and to such other persons other than directors who are not Employees
as the Plan Administrator shall select. Options may be granted in substitution
for outstanding Options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization between
such other corporation and the Company or any subsidiary of the Company. Options
also may be granted in exchange for outstanding Options. Any person to whom an
Option is granted under this Plan is referred to as an "Optionee." Any person
who is the owner of an Option is referred to as a "Holder."
As used in this Plan, the term "Related Corporation" shall mean any
corporation (other than the Company) that is a "Parent Corporation" of the
Company or "Subsidiary Corporation" of the Company, as those terms are defined
in Sections 424(e) and 424(f), respectively, of the Code (or any successor
provisions) and the regulations thereunder (as amended from time to time).
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire up to a
total of two million (2,000,000) shares of the Company's authorized but
unissued, or reacquired, Common Stock. The number of shares with respect to
which Options may be granted hereunder is subject to adjustment as set forth in
Section 5(m) hereof. In the event that any outstanding Option expires or is
terminated for any reason, the shares of Common Stock allocable to the
unexercised portion of such Option may again be subject to an Option granted to
the same Optionee or to a different person eligible under Section 3 of this
Plan; provided however, that any canceled Options will be counted against the
maximum number of shares with respect to which Options may be granted to any
particular person as set forth in Section 3 hereof.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be evidenced by a written
agreement approved by the Plan Administrator (the "Agreement"). Agreements may
contain such provisions, not inconsistent with this Plan, as the
-2-
<PAGE>
Plan Administrator in its discretion may deem advisable. All Options also shall
comply with the following requirements:
(a) Number of Shares and Type of Option.
Each Agreement shall state the number of shares of Common Stock to
which it pertains and whether the Option is intended to be an Incentive Stock
Option or a Non-Qualified Stock Option. In the absence of action to the contrary
by the Plan Administrator in connection with the grant of an Option, all Options
shall be Non-Qualified Stock Options. The aggregate fair market value
(determined at the Date of Grant, as defined below) of the stock with respect to
which Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (granted under this Plan and all other Incentive Stock
Option plans of the Company, a Related Corporation or a predecessor corporation)
shall not exceed $100,000, or such other limit as may be prescribed by the Code
as it may be amended from time to time. Any portion of an Option which exceeds
the annual limit shall not be void but rather shall be a Non-Qualified Stock
Option.
(b) Date of Grant.
Each Agreement shall state the date the Plan Administrator has deemed
to be the effective date of the Option for purposes of this Plan (the "Date of
Grant").
(c) Option Price.
Each Agreement shall state the price per share of Common Stock at
which it is exercisable. The exercise price shall be fixed by the Plan
Administrator at whatever price the Plan Administrator may determine in the
exercise of its sole discretion; provided that the per share exercise price for
an Incentive Stock Option or any Option granted to a "covered employee" as such
term is defined for purposes of Section 162(m) of the Code ("Covered Employee")
shall not be less than the fair market value per share of the Common Stock at
the Date of Grant as determined by the Plan Administrator in good faith;
provided further, that with respect to Incentive Stock Options granted to
greater-than-ten percent (> 10%) shareholders of the Company (as determined with
reference to Section 424(d) of the Code), the exercise price per share shall not
be less than one hundred ten percent (110%) of the fair market value per share
of the Common Stock at the Date of Grant as determined by the Plan Administrator
in good faith; and, provided further, that Options granted in substitution for
outstanding options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization
involving such other corporation and the Company or any subsidiary of the
Company may be granted with an exercise price equal to the exercise price for
the substituted option of the other corporation, subject to any adjustment
consistent with the terms of the transaction pursuant to which the substitution
is to occur.
(d) Duration of Options.
At the time of the grant of the Option, the Plan Administrator shall
designate, subject to paragraph 5(g) below, the expiration date of the Option,
which date shall not be later than ten (10) years from the Date of Grant in the
case of Incentive Stock Options; provided, that the expiration date of any
Incentive Stock Option granted to a greater-than-ten percent ( > 10%)
shareholder of the Company (as determined with reference to Section 424(d) of
the Code) shall not be later than five (5) years from the Date of Grant. In the
absence of action to the contrary by the Plan Administrator in connection with
the grant of a particular Option, and except in the case of Incentive Stock
Options as described above, all Options granted under this Section 5 shall
expire ten (10) years from the Date of Grant.
(e) Vesting Schedule.
No Option shall be exercisable until it has vested. The vesting
schedule for each Option shall be specified by the Plan Administrator at the
time of grant of the Option prior to the provision of services with respect to
which such Option is granted; provided, that if no vesting schedule is specified
at the time of grant, the Option shall vest according to the following schedule:
-3-
<PAGE>
Number of Years Percentage of Total
Following Date of Grant Option Vested
- ------------------------------------- ----------------------------------
One 20%
Two 40%
Three 60%
Four 80%
Five 100%
The Plan Administrator may specify a vesting schedule for all or any
portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives shall
be expressed in terms of one or more of the following: return on equity, return
on assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the
Company's performance relative to its internal business plan. Performance
objectives may be in respect of the performance of the Company as a whole
(whether on a consolidated or unconsolidated basis), a Related Corporation, or a
subdivision, operating unit, product or product line of either of the foregoing.
Performance objectives may be absolute or relative and may be expressed in terms
of a progression or a range. An Option that is exercisable (in full or in part)
upon the achievement of one or more performance objectives may be exercised only
following written notice to the Optionee and the Company by the Plan
Administrator that the performance objective has been achieved.
(f) Acceleration of Vesting.
The vesting of one or more outstanding Options may be accelerated by
the Plan Administrator at such times and in such amounts as it shall determine
in its sole discretion.
(g) Term of Option.
Vested Options shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (i) the
expiration of the Option, as designated by the Plan Administrator in accordance
with Section 5(d) above; (ii) the date of an Optionee's termination of
employment or contractual relationship with the Company or any Related
Corporation for cause (as determined in the sole discretion of the Plan
Administrator); (iii) the expiration of three (3) months from the date of an
Optionee's termination of employment or contractual relationship with the
Company or any Related Corporation for any reason whatsoever other than cause,
death or Disability (as defined below) unless, in the case of a Non-Qualified
Stock Option, the exercise period is extended by the Plan Administrator until a
date not later than the expiration date of the Option; or (iv) the expiration of
one year from termination of an Optionee's employment or contractual
relationship by reason of death or Disability (as defined below) unless, in the
case of a Non-Qualified Stock Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option. Upon the death of an Optionee, any vested Options held by the Optionee
shall be exercisable only by the person or persons to whom such Optionee's
rights under such Option shall pass by the Optionee's will or by the laws of
descent and distribution of the state or county of the Optionee's domicile at
the time of death and only until such Options terminate as provided above. For
purposes of the Plan, unless otherwise defined in the Agreement, "Disability"
shall mean medically determinable physical or mental impairment which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months or that can be expected to result in death (within the meaning of Section
22(e)(3) of the Code). The Plan Administrator shall determine whether an
Optionee has incurred a Disability on the basis of medical evidence acceptable
to the Plan Administrator. Upon making a determination of Disability, the Plan
Administrator shall, for purposes of the Plan, determine the date of an
Optionee's termination of employment or contractual relationship.
-4-
<PAGE>
Unless accelerated in accordance with Section 5(f) above, unvested
Options shall terminate immediately upon termination of employment of the
Optionee by the Company for any reason whatsoever, including death or
Disability. For purposes of this Plan, transfer of employment between or among
the Company and/or any Related Corporation shall not be deemed to constitute a
termination of employment with the Company or any Related Corporation. For
purposes of this subsection, employment shall be deemed to continue while the
Optionee is on military leave, sick leave or other bona fide leave of absence
(as determined by the Plan Administrator). The foregoing notwithstanding,
employment shall not be deemed to continue beyond the first ninety (90) days of
such leave, unless the Optionee's re-employment rights are guaranteed by statute
or by contract.
(h) Exercise of Options.
Options shall be exercisable, in full or in part, at any time after
vesting, until termination. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. No portion of
any Option for less than One Hundred (100) shares (as adjusted pursuant to
Section 5(m) below) may be exercised; provided, that if the vested portion of
any Option is less than One Hundred (100) shares, it may be exercised with
respect to all shares for which it is vested. Only whole shares may be issued
pursuant to an Option, and to the extent that an Option covers less than one (1)
share, it is unexercisable.
Options or portions thereof may be exercised by giving written notice
to the Company, which notice shall specify the number of shares to be purchased,
and be accompanied by payment in the amount of the aggregate exercise price for
the Common Stock so purchased, which payment shall be in the form specified in
Section 5(i) below. The Company shall not be obligated to issue, transfer or
deliver a certificate of Common Stock to the Holder of any Option, until
provision has been made by the Holder, to the satisfaction of the Company, for
the payment of the aggregate exercise price for all shares for which the Option
shall have been exercised and for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee or in the case of a Non-Qualified
Stock Option, transferee who takes title to such Option in the manner permitted
by subsection 5(k) hereof.
(i) Payment upon Exercise of Option.
Upon the exercise of any Option, the aggregate exercise price shall be
paid to the Company in cash or by certified or cashier's check. In addition, the
Holder may pay for all or any portion of the aggregate exercise price by
complying with one or more of the following alternatives:
(1) by delivering to the Company shares of Common Stock previously
held by such Holder, or by the Company withholding shares of Common Stock
otherwise deliverable pursuant to exercise of the Option, which shares of Common
Stock received or withheld shall have a fair market value at the date of
exercise (as determined by the Plan Administrator) equal to the aggregate
exercise price to be paid by the Optionee upon such exercise;
(2) by delivering a properly executed exercise notice together with
irrevocable instructions to a broker promptly to sell or margin a sufficient
portion of the shares and deliver directly to the Company the amount of sale or
margin loan proceeds to pay the exercise price; or
(3) by complying with any other payment mechanism approved by the
Plan Administrator at the time of exercise.
Notwithstanding the foregoing, without the prior written consent of
the Plan Administrator, a Holder shall not surrender, or attest to the ownership
of, shares of Common Stock in payment of the exercise price if such action would
cause the Company to recognize compensation expense (or additional compensation
expense) with respect to any option for financial reporting purposes.
-5-
<PAGE>
(j) Rights as a Shareholder.
A Holder shall have no rights as a shareholder with respect to any
shares covered by an Option until such Holder becomes a record holder of such
shares, irrespective of whether such Holder has given notice of exercise. No
rights shall accrue to a Holder and no adjustments shall be made on account of
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights declared on, or created in, the
Common Stock for which the record date is prior to the date the Holder becomes a
record holder of the shares of Common Stock covered by the Option, irrespective
of whether such Holder has given notice of exercise.
(k) Transfer of Option.
Options granted under this Plan and the rights and privileges
conferred by this Plan may not be transferred, assigned, pledged or hypothecated
in any manner (whether by operation of law or otherwise) other than by will, by
applicable laws of descent and distribution or (except in the case of an
Incentive Stock Option) pursuant to a qualified domestic relations order, and
shall not be subject to execution, attachment or similar process; provided
however, that any Agreement may provide or be amended to provide that a
Non-Qualified Stock Option to which it relates is transferable without payment
of consideration to immediate family members of the Optionee or to trusts or
partnerships or limited liability companies established exclusively for the
benefit of the Optionee and the Optionee's immediate family members. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any
Option or of any right or privilege conferred by this Plan contrary to the
provisions hereof, or upon the sale, levy or any attachment or similar process
upon the rights and privileges conferred by this Plan, such Option shall
thereupon terminate and become null and void.
(l) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such shares shall
comply with all relevant provisions of law, including, without limitation,
Section 162(m) of the Code, any applicable state securities laws, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder
and the requirements of any stock exchange or automated inter-dealer quotation
system of a registered national securities association upon which such shares
may then be listed, and such issuance shall be further subject to the approval
of counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of such
shares. The inability of the Company to obtain from any regulatory body the
authority deemed by the Company to be necessary for the lawful issuance and sale
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan, shall
relieve the Company of any liability with respect to the non-issuance or sale of
such shares.
As a condition to the exercise of an Option, the Plan
Administrator may require the Holder to represent and warrant in writing at the
time of such exercise that the shares are being purchased only for investment
and without any then-present intention to sell or distribute such shares. At the
option of the Plan Administrator, a stop-transfer order against such shares may
be placed on the stock books and records of the Company, and a legend indicating
that the stock may not be pledged, sold or otherwise transferred unless an
opinion of counsel is provided stating that such transfer is not in violation of
any applicable law or regulation, may be stamped on the certificates
representing such shares in order to assure an exemption from registration. The
Plan Administrator also may require such other documentation as may from time to
time be necessary to comply with federal and state securities laws.
(2) The Holder shall pay to the Company by certified or cashier's
check, promptly upon exercise of an Option or, if later, the date that the
amount of such obligations becomes determinable, all applicable federal, state,
local and foreign withholding taxes that the Plan Administrator, in its
discretion, determines to result upon exercise of an Option or from a transfer
or other disposition of shares of Common Stock acquired upon exercise of an
Option or otherwise related to an Option or shares of Common Stock acquired in
connection with an Option. Upon approval of the Plan Administrator, a Holder may
satisfy such obligation by complying with one or more of the following
alternatives selected by the Plan Administrator:
-6-
<PAGE>
(A) by delivering to the Company shares of Common Stock
previously held by such Holder or by the Company withholding
shares of Common Stock otherwise deliverable pursuant to the
exercise of the Option, which shares of Common Stock received or
withheld shall have a fair market value at the date of exercise
(as determined by the Plan Administrator) equal to any
withholding tax obligations arising as a result of such exercise,
transfer or other disposition;
(B) by executing appropriate loan documents approved by the
Plan Administrator by which the Holder borrows funds from the
Company to pay any withholding taxes due under this Paragraph 2,
with such repayment terms as the Plan Administrator shall select;
or
(C) by complying with any other payment mechanism approved
by the Plan Administrator from time to time.
Notwithstanding the foregoing, without the prior written consent
of the Plan Administrator, a Holder shall not surrender, or attest to the
ownership of, shares of Common Stock in payment of the exercise price if such
action would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to any option for financial reporting
purposes.
(3) The issuance, transfer or delivery of certificates of Common
Stock pursuant to the exercise of Options may be delayed, at the discretion of
the Plan Administrator, until the Plan Administrator is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met and that the Holder has paid or
otherwise satisfied any withholding tax obligation as described in (2) above.
(m) Stock Dividend or Reorganization.
(1) If (i) the Company shall at any time be involved in a transaction
described in Section 424(a) of the Code (or any successor provision) or any
"corporate transaction" described in the regulations thereunder; (ii) the
Company shall declare a dividend payable in, or shall subdivide or combine, its
Common Stock or (iii) any other event with substantially the same effect shall
occur, the Plan Administrator shall, subject to applicable law, with respect to
each outstanding Option, proportionately adjust the number of shares of Common
Stock subject to such Option and/or the exercise price per share so as to
preserve the rights of the Holder substantially proportionate to the rights of
the Holder prior to such event, and to the extent that such action shall include
an increase or decrease in the number of shares of Common Stock subject to
outstanding Options, the number of shares available under Section 4 of this Plan
shall automatically be increased or decreased, as the case may be,
proportionately, without further action on the part of the Plan Administrator,
the Company, the Company's shareholders, or any Holder.
(2) In the event that the presently authorized capital stock of the
Company is changed into the same number of shares with a different par value, or
without par value, the stock resulting from any such change shall be deemed to
be Common Stock within the meaning of the Plan, and each Option shall apply to
the same number of shares of such new stock as it applied to old shares
immediately prior to such change.
(3) If the Company shall at any time declare an extraordinary
dividend with respect to the Common Stock, whether payable in cash or other
property, the Plan Administrator may, subject to applicable law, in the exercise
of its sole discretion and with respect to each outstanding Option,
proportionately adjust the number of shares of Common Stock subject to such
Option and/or adjust the exercise price per share so as to preserve the rights
of the Holder substantially proportionate to the rights of the Holder prior to
such event, and to the extent that such action shall include an increase or
decrease in the number of shares of Common Stock subject to outstanding Options,
the number of shares available under Section 4 of this Plan shall automatically
be increased or decreased, as the case may be, proportionately, without further
action on the part of the Plan Administrator, the Company, the Company's
shareholders, or any Holder.
-7-
<PAGE>
(4) The foregoing adjustments in the shares subject to Options shall
be made by the Plan Administrator, or by any successor administrator of this
Plan, or by the applicable terms of any assumption or substitution document.
(5) The grant of an Option 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, to merge, consolidate or dissolve,
to liquidate or to sell or transfer all or any part of its business or assets.
6. EFFECTIVE DATE; TERM.
Incentive Stock Options may be granted by the Plan Administrator from time
to time on or after the date on which this Plan is adopted (the "Effective
Date") through the day immediately preceding the tenth anniversary of the
Effective Date. Non-Qualified Stock Options may be granted by the Plan
Administrator on or after the Effective Date and until this Plan is terminated
by the Board in its sole discretion. Termination of this Plan shall not
terminate any Option granted prior to such termination. Any Incentive Stock
Options granted by the Plan Administrator prior to the approval of this Plan by
the shareholders of the Company in accordance with Section 422 of the Code shall
be granted subject to ratification of this Plan by the shareholders of the
Company within twelve (12) months before or after the Effective Date. Any Option
granted by the Plan Administrator to any Covered Employee prior to the approval
of this Plan by the shareholders of the Company in accordance with such Code
provision shall be granted subject to ratification of this Plan by the
shareholders of the Company within twelve (12) months before or after the
Effective Date. If such shareholder ratification is sought and not obtained, all
Options granted prior thereto and thereafter shall be considered Non-Qualified
Stock Options and any Options granted to Covered Employees will not be eligible
for the exclusion set forth in Section 162(m) of the Code with respect to the
deductibility by the Company of certain compensation.
7. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
8. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Whether or not any Options are to be granted under this Plan shall be
exclusively within the discretion of the Plan Administrator, and nothing
contained in this Plan shall be construed as giving any person any right to
participate under this Plan. The grant of an Option shall in no way constitute
any form of agreement or understanding binding on the Company or any Related
Company, express or implied, that the Company or any Related Company will employ
or contract with an Optionee for any length of time, nor shall it interfere in
any way with the Company's or, where applicable, a Related Company's right to
terminate Optionee's employment at any time, which right is hereby reserved.
9. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock issued
upon the exercise of Options shall be used for general corporate purposes,
unless otherwise directed by the Board.
10. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as members
of the Board, members of the Plan Administrator shall be indemnified by the
Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of
-8-
<PAGE>
them are a party by reason of, or in connection with, this Plan or any Option
granted under this Plan, and against all amounts paid by them in settlement
thereof (provided that such settlement is approved by independent legal counsel
selected by the Company), except to the extent that such expenses relate to
matters for which it is adjudged that such Plan Administrator member is liable
for willful misconduct; provided, that within fifteen (15) days after the
institution of any such action, suit or proceeding, the Plan Administrator
member involved therein shall, in writing, notify the Company of such action,
suit or proceeding, so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
11. AMENDMENT OF PLAN.
The Plan Administrator may, at any time, modify, amend or terminate this
Plan or modify or amend Options granted under this Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided however, no
amendment with respect to an outstanding Option which has the effect of reducing
the benefits afforded to the Holder thereof shall be made over the objection of
such Holder; further provided, that the events triggering acceleration of
vesting of outstanding Options may be modified, expanded or eliminated without
the consent of Holders. The Plan Administrator may condition the effectiveness
of any such amendment on the receipt of shareholder approval at such time and in
such manner as the Plan Administrator may consider necessary for the Company to
comply with or to avail the Company and/or the Optionees of the benefits of any
securities, tax, market listing or other administrative or regulatory
requirement. Without limiting the generality of the foregoing, the Plan
Administrator may modify grants to persons who are eligible to receive Options
under this Plan who are foreign nationals or employed outside the United States
to recognize differences in local law, tax policy or custom.
Effective Date: -----------------------
PAWNBROKER.COM, INC.
- ---------------------------------------
Secretary
-9-
EXHIBIT 21.1
SUBSIDIARIES
------------
Eriko Internet Inc., a Washington corporation
Pawnbroker.com, Inc., a Nevada corporation
Digital Sign, Inc., a California corporation
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<PERIOD-END> Jun-30-1999
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0
0
<COMMON> 170
<OTHER-SE> 3,086,149
<TOTAL-LIABILITY-AND-EQUITY> 3,209,041
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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