<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------------------
NOTICE OF CHANGE IN MAJORITY OF DIRECTORS PURSUANT TO 14f-1
U.S. PAWN, INC.
Chase A. Caro, Esq.
Caro & Graifman, P.C.
60 East 42nd Street
New York, New York 10165
September 26, 1997
<PAGE>
VOTING SHARES
As reported in the Issuer's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1997, the Issuer had 3,763,912 shares of common stock,
outstanding, no par value, each share entitling the holder to one vote.
Cumulative voting is not permitted.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the holdings of common stock, by each
person (including any "group" as that term is used in section 13(d)(3) of the
Exchange Act) who, as of the date hereof, is known to be the beneficial owner of
more that five percent (5%) of any class of registrant's voting securities.
The following persons are members of a "group" as that term is used in
section 13(d)(3) of the Exchange Act.
Shareholdings
Name and Address Number Percent
- ---------------- ------ -------
Colin, Winthrop & Co., Inc. 9,932 0.26%
500 North Broadway, Suite 159
Jericho, NY 11753
Jack Skidell, President
Shelter Rock Securities Corp. 10,000 0.27%
500 North Broadway, Suite 159
Jericho, NY 11753
Jack Skidell, President
Jack Skidell 16,687 0.44%
500 North Broadway, Suite 159
Jericho, NY 11753
Sidney Gluck 23,500 0.62%
190 E. 72nd Street
New York, New York 10021
Deedee Honigsfeld 25,000 0.67%
969 East End Street
Woodmere, New York 11598
<PAGE>
Rodney Smith 250,000 6.6%
3501 Wynnwood Street
Tyler, TX 75711
Anthony Balestrieri 68,000 1.81%
45 Hansel Road
Murry Hill, NJ 07974
Fred Schoenle 7,500 0.20%
1348 Gates Circle
Yardley, PA 19067
Claudia D. Schoenle 23,500 0.62%
1348 Gates Circle
Yardley, PA 19067
Fred & Claudia Schoenle, jointly 23,000 0.61%
1348 Gates Circle (shared voting power)
Yardley, PA 19067
Gary Mason 18,000 0.48%
7235 Royal Street West
Apartment No. 28
Park City, UT 84060
John Stamm 32,000 0.85%
62-52 80th Road
Flushing, New York 11385
European Community Capital, LTD. 0 0
300 Old Country Road
Suite 241
Mineola, NY 11501
David Stetson 0 0
European Community Capital, LTD.
300 Old Country Road
Suite 241
Mineola, NY 11501
Total for above "group" as that 507,119 13.27%
term is used in section 13(d)(3)
of the Exchange Act
Other persons, not members of the above listed group, who are
beneficial owners of more that five percent (5%) of any class of registrant's
voting securities are listed below:
<PAGE>
Theresa R. O'Neill (6) 306,250 7.5%
2381 Juniper Court
Golden, CO 80401
Melvin Wedgle (1) (2) (4) 607,388 15.1%
7215 Lowell Blvd.
Westminster, CO 80030
(also member of
"management",
see below)
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the holdings of common stock, by each
person who, as of the date hereof, is a director or director-nominee and by all
current directors and officers as a group.
Shareholdings
Name and Address Number Percent
- ---------------- ------ -------
Melvin Wedgle (1) (2) (4) 607,388 15.1%
7215 Lowell Blvd.
Westminster, CO 80030
(current director, remaining)
Gary A. Agron (1) (4) 56,750 1.4%
5445 DTC Parkway, Suite 520
Englewood, CO 80111
(current director, remaining)
Daniel B. Rudden (4) 8,000 *%
1 Sedgwick Drive
Englewood, CO 80111
(current director, resigning)
Stanley M. Edelstein (4) 20,500 *%
4343 South 96th Street
Omaha, NE 68127
(current director, resigning)
Larry M. Snyder (4) (5) 20,500 *%
3300 East 1st Avenue
Denver, CO 80206
<PAGE>
(current director, resigning)
Charles C. Van Gundy 31,750 *%
7215 Lowell Blvd.
Westminster, CO 80030
(director-nominee)
Jack Skidell 16,687 *%
500 North Broadway, Suite 159
Jericho, NY 11753
(director-nominee)
Mark Honigsfeld 0 *%
969 East End Street
Woodmere, New York 11598
(director-nominee)
All officers and 713,138 18.9%
directors as a
group
* less than 1%
(1) Includes currently exercisable stock options to purchase 6,250 shares
as to Mr. Wedgle and 12,500 shares to Mr. Agron all at $2.00 per share
until October 23, 2000.
(2) Includes currently exercisable stock options to purchase 220,000 shares
at 1.81 per share until March 25, 2004.
(3) Includes currently exercisable stock options to purchase 1,250 shares
at $5.12 per share until January 20, 1998, and 10,000 shares at $2.06
per share until March 25, 2005.
(4) Includes currently exercisable stock option plans to purchase 8,000
shares at $1.70 per share until December 28, 2005.
(5) Includes currently exercisable stock options to purchase 12,500 shares
at $4.38 per share until January 16, 2007.
(6) Includes currently exercisable stock options to purchase 6,250 shares
at $2.00 per share until October 23, 2000 and 25,000 shares at $.625
until September 30, 1998.
<PAGE>
CHANGES IN CONTROL
The reporting persons in the group, as that term is used in section
13(d)(3) of the Exchange Act, agree that the present members of the Company's
board of directors are acting in a manner inconsistent with maximizing the
market price of the Company's stock. Accordingly, the above listed reporting
persons have agreed to demand a shareholders meeting and to vote for the removal
of members of the present board of directors, said agreement is not in writing.
As a result of said demand for shareholder meeting, members of the group have
entered into an agreement ("Control Agreement") with the current officers and
directors of the Company, including Melvin Wedgle, current President of the
Company, whereby Messrs. Edelstein, Snyder, and Rudden will resign as members of
the board of directors. It is further agreed that Messrs. Wedgle and Agron, the
remaining two directors, will appoint Messrs. Van Gundy, Skidell, and Honigsfeld
to fill the vacancies created on the board, thereby transferring control of the
company away from present management to control by the group. Mr. Wedgle has
also agreed to resign as President of the Company.
The members of the group, listed above, as that term is used in section
13(d)(3) of the Exchange Act, have acquired control of the Company. The basis of
control is a non-written agreement between members of the group and the current
officers and directors whereby three current directors, Messrs. Edelstein,
Snyder, and Rudden agree to resign as members of the board of directors.
Furthermore Messrs. Wedgle and Agron, the remaining two directors, agree to
appoint Messrs. Van Gundy, Skidell, and Honigsfeld to fill the vacancies created
on the board, thereby transferring control of the company away from present
management to the group.
As a result of the group's actions, the following individuals have been
nominated to the following positions:
Name Title
---- -----
Charles C. Van Gundy President/Director
Jack Skidell Director
Mark Honigsfeld Director
Members of the group, as that term is used in section 13(d)(3) of the
Exchange Act, listed above, were long term investors in of the Company and did
not expend any additional consideration in acquiring control of the Company. The
group filed a 13D on August 21, 1997 stating that they intended to demand a
shareholders meeting and to vote for the removal of members of the current board
of directors. It was the filing of the 13D which led to the nonwritten agreement
between the group and the Company's current officers and directors transferring
control to the group.
The members of the group beneficially own 13.47% of the outstanding
voting securities
<PAGE>
As a result of the group's actions, control is the Company was assumed
from the following individuals who have voluntarily chosen to resign from their
positions as officers and members of the board of directors:
Name Title
---- -----
Daniel B. Rudden Director
Stanley M. Edelstein Director
Larry M. Snyder Director
Melvin Wedgle President
Although Mr. Wedgle has agreed to voluntarily resign from his position
as President, he will retain his position as a member of the board of directors.
No director, officer or affiliate of the registrant, nor any owner of
record of more than five percent of any class of voting securities of the
registrant, or security holder, is a party adverse to the registrant or any of
its subsidiaries nor has a material interest adverse to the registrant or any of
its subsidiaries
IDENTIFICATION OF EXECUTIVE OFFICERS AND DIRECTORS
CURRENT EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as to each current
executive officer and directors' age, all positions held with the Company, and
the year when each person first became an executive officer or director of the
Company.
Name Age Office Officer or
- ---- --- ------ Director Since
--------------
Melvin Wedgle (3) 44 Chief Executive 1980
Officer, President
and Director
Jack Simon 44 Secretary, Chief 1997
Financial Officer
<PAGE>
Stanley M. Edelstein (1) 43 Director 1991
Larry M. Snyder (1) 45 Director 1994
Daniel B. Rudden (2) 49 Director 1989
Gary A. Agron (2) 52 Director 1989
- --------------
(1) last elected in 1996
(2) last elected in 1995
(3) last elected in 1997
All directors are elected to three (3) year terms
Melvin Wedgle has been Chief Executive Officer and President of the
Company since its inception in 1980. He was last appointed to these positions in
1997 for a 1 year term.
Jack Simon has been Secretary and Chief Financial Officer of the
Company since 1997. He was appointed for a 1 year term.
NOMINATED OFFICERS AND DIRECTORS
The following table sets forth information as to each nominated
executive officer and director.
Name Age Office
- ---- --- ------
Charles C. Van Gundy 44 Director, President
Jack Skidell 55 Director
Mark Honigsfeld 43 Director
Aside from Mr. Van Gundy's nomination as President, no other officers
have as of yet been nominated.
The nominated officers and directors have a non-written agreement with
members of the group and the current officers and directors whereby three of the
current directors, Messrs. Edelstein, Snyder, and Rudden agree to resign as
members of the board of directors. Furthermore Messrs. Wedgle and Agron, the
remaining two directors, agree to appoint Messrs. Van Gundy, Skidell, and
Honigsfeld to fill the vacancies created on the board. Messrs. Van Gundy,
Skidell, and Honigsfeld have an agreement with the group to appoint Charles Van
Gundy as President of the Company.
<PAGE>
BUSINESS EXPERIENCE
CURRENT EXECUTIVE OFFICERS AND DIRECTORS
Melvin Wedgle has been Chief Executive Officer and President of the
Company since its inception in 1980. Mr. Wedgle's grandfather and father
operated pawnshops in Denver, Colorado for many years and Mr. Wedgle was
employed in the family pawnshop business from 1970 until 1980. He devotes
substantially all of his time to the Company's affairs.
Stanley M. Edelstein has been employed by The Pacesetter Corporation
("Pacesetter") since 1978 and is currently its Executive Vice President and
Secretary. Pacesetter manufactures and sells home improvement products. Mr.
Edelstein is also responsible for customer service and legal affairs. Mr.
Edelstein holds a Bachelor's degree from the University of Colorado (1975) and a
Master's degree the University of Nebraska (1977). From 1967 to 1975, Mr.
Edelstein was employed in the pawn shop business in Denver, Colorado. He devotes
such time as is necessary to the Company's affairs.
Larry M. Snyder earned his Bachelor of Arts degree from the University
of Colorado in 1973 and his Juris Doctorate degree from the University of San
Francisco School of Law in 1976. Since 1977 he has been engaged in the private
practice of law in Denver, Colorado, and has been general counsel to the Company
since 1988. He devotes such time as is necessary to the Company's affairs.
Gary A. Agron earned his Bachelor of Arts degree from the University of
Colorado in 1966 and his Juris Doctor degree from the University of Colorado
School of Law in 1969. Since 1969, he has been engaged in the private practice
of law in Denver, Colorado, and since 1974, has specialized exclusively in
securities law. Mr. Agron has acted as the Company's securities counsel since
1988. He is a director of Xedar Corporation, a publicly-held high technology
research and development firm and Meadow Valley Corporation, a publicly-held
heavy construction contractor. He devotes such time as is necessary to the
Company's affairs.
Daniel B. Rudden owned and operated 50 Colortyme Rent to Own stores
from 1979 until December 1989 when he sold 45 of the stores to Colortyme, Inc.,
a national franchisor of rent to own stores. Mr. Rudden acted as Colortyme's
president from December 1989 to December 1991. Since December 1991, he owned and
operated seven Colortyme Rent to Own stores in the Denver, Colorado metropolitan
area. In March 1996, he sold all his Colortyme Rent to Own stores to RTO, Inc.
d/b/a Home Choice, a publicly held operator of rent to own stores. Mr. Rudden is
currently a consultant to RTO, Inc. He devotes such time as is necessary to the
Company's affairs.
<PAGE>
NOMINATED EXECUTIVE OFFICERS AND DIRECTORS
Mr. Honigsfeld joined the Compu-Dawn, Inc. ("CDI") as Chairman of the
Board, Secretary and a director in August 1996 and, effective October 1, 1996,
he was elected Chief Executive Officer of the Company. In 1978, he founded
Facelifters Home Systems, Inc. ("FACE"), a cabinet manufacturing and
installation company for which he served as Chief Executive Officer and Chairman
of the Board until April 25, 1996. On such date, FACE, a publicly-traded
company, was acquired a New York Stock Exchange company in a transaction valued
at approximately $70 million to FACE's stockholders. Prior to the merger, FACE's
revenues on an annualized basis approached $50 million. As the founder, Chief
Executive Officer and Chairman of the Board, Mr. Honigsfeld was directly
involved in the planning and development of almost all areas of FACE's business,
including corporate finance, public offerings, investor relations, mergers and
acquisitions, licensing, product design and engineering, sales and marketing,
manufacturing, field installation, customer service, management information
services and management training. Prior to the sale transaction, FACE had
approximately 600 employees and associates representing its products and
services at 28 locations in 14 states, approximately 135 telemarketing
personnel, 180 direct sellers, 120 manufacturing employees and 165 supervisory,
management and administrative personnel. In addition, FACE had working
arrangements with approximately 175 independent contracting companies
nationwide. Mr. Honigsfeld hold a Bachelor of Science Degree in Industrial Arts,
magna cum laude, and a Master of Science Degree in Industrial Arts, with honors,
from City College of the City University of New York.
Charles C.Van Gundy was employed by the Company from January 1992,
until mid 1997, first as its Assistant Controller, and subsequently as its
Controller and Vice President of Accounting, and later as its Vice President and
Chief Financial Officer. Mr. Van Gundy earned his Bachelor of Science degree in
accounting and finance from Metropolitan State College of Denver in 1979, and
subsequently studied law at the University of San Diego School of Law until
1981. From 1982 to 1992 he served as an accounting officer for various mutual
fund, high technology and economic redevelopment organizations.
Jack Skidell is and has been for the past five years, President and
sole shareholder of Colin Winthrop & Co., Inc., a New York based broker dealer,
registered under Section 15 of the Securities Exchange Act of 1934, which is
currently a market maker of the Company's common stock. In addition, Mr. Skidell
is also President of Shelter Rock Securities Corporation, a broker-dealer
registered under Section 15 of the Securities Exchange Act of 1934 which
voluntarily ceased to do business as a broker-dealer in 1990.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Skidell failed to comply with Schedule C, Part I, paragraph (1)(e)
of the NASD's By- Laws in that Colin, Winthrop & Co., Inc. ("CW") violated its
inventory limitation provision.
<PAGE>
Without admitting or denying the allegations, Mr. Skidell and CW consented to a
finding that they violated Article III, Section I of the NASD's Rules of Fair
Practice and consented to a censure and a $1,500 fine. March 3, 1993. NASD, DBCC
No. 10 Complaint No.: C10930034. Mr. Skidell took the corrective measures of
requiring a second principal of CW check the trading positions on an ongoing
basis to ensure that CW does not repeat the oversight.
In addition, Mr. Skidell and CW consented to a censure and a $3,000
fine by the NASD as a result of Mr. Skidell's failure to supervise two customer
accounts, October 25, 1995.
NASD, DBCC No. 10 Complaint No.: C10950064.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
Messrs. Agron and Snyder, current directors of the Company, perform
legal services on the Company's behalf. During fiscal year 1996, Messrs. Agron
and Snyder received legal fees from the Company totaling $21,936 and $16,124
respectively.
The Company leases one of its pawnshop locations from Melvin Wedgle,
its President, at a monthly rental of $6,600. The Company believes the rental
rate is as fair to the Company as rates which could have been obtained in arm's
length transactions with unaffiliated third parties.
The Company was indebted at December 31, 1996 in the aggregate amount
of approximately $838,000 for loans advanced to the Company by shareholders,
employees and by members of Melvin Wedgle's family. These loans are unsecured,
bear interest between 10% and 15% per annum, were used for working capital and
are due on dates ranging from February 1998 to December 1999. The terms of the
loans are believed to be as fair as terms which could have been obtained in
arm's length transactions with unaffiliated third parties.
As of December 31, 1996, Melvin Wedgle owed the Company $74,000 for
cash loans advanced to him during the course of his employment with the Company.
Mr. Wedgle's loan is evidenced by a promissory note which is due September 30,
1997 bears interest of 9% per annum and is collateralized by 100,000 common
shares in the Company.
The Company has adopted a policy that no additional loans will be
advanced to executive officers or directors in the Company except upon the
affirmative vote of a majority of the Company's disinterested directors.
On January 27, 1996, the Company adopted the 1996 Consultant's Stock
Option Plan (the "Consultant Plan") under which 500,000 shares of the Company's
common stock have been reserved for issuance at prices not less than 75% of the
fair market value of the option stock on the date of grant. On February 7, 1996,
the Company registered all shares reserved under the Consultant Plan. The
Company believes that the Consultant Plan will enhance stockholder investment by
attracting, retaining and motivating consultants and employees of the Company
and encouraging stock ownership by such consultants and employees by providing a
means to acquire a proprietary interest in the Company's success. On February 7,
1996, the Company entered into an agreement with Philip J. Davis (the "Davis
Agreement") to provide investment
<PAGE>
banking, investor relations and acquisition/merger related consulting services
to the Company. Pursuant to the Davis Agreement and under the Consultant's Plan,
the Company granted Mr. Davis an option to purchase 150,000 shares at $1.50 per
share 50,000 shares at $2.50 per share and 50,000 shares at $3.50 per share
until February 7, 1997. As of this date, all options granted under the Davis
Agreement have been exercised. On April 24, 1996, the Company entered into an
agreement with James A. Favia (the "Favia Agreement") to provide investment
banking consulting services to the Company. Pursuant to the Favia Agreement and
under the Consultant's Plan, the Company granted Mr. Favia an option to purchase
50,000 shares of the Company's common stock at $2.1875 per share until April 24,
1997. As of this date, all options granted under the Favia Agreement have been
exercised.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company's executive officers and directors are required to file
under the Securities Exchange Act of 1934 reports of ownership and changes of
ownership in securities of the Company with the Securities and Exchange
Commission. Based solely upon copies of such reports and information provided to
the Company by individual executive officers and directors, the Company believes
that during the year ended December 31, 1996 all executive officers and
directors complied with such reporting requirements except for Mr. Rudden, who
did not timely file one statement of changes in ownership on Form 4.
The Company does not have a standing audit, nominating and compensation
committees of the Board of Directors, or committees performing similar
functions.
During the last full fiscal year, the Company held six (6) board
meetings. None of the directors attended fewer than 75 percent of the aggregate
of (1) the total number of meetings of the board of directors and (2) the total
number of meetings held by all committees of the board on which he served,
during the periods in which he served.
RENUMERATION
SUMMARY COMPENSATION TABLE
Fiscal Annual Other Annual Long-Term
Name and Position Year Salary Compensation Compensation
Stock Options(#)
- ----------------- ------ ------ ------------ ----------------
Melvin Wedgle 12/31/96 $157,000 -0- 200,000
President and
Chief Executive Officer
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
% of Exercise Value at Assumed Annual
Options Total Price Rates of Stock Price
Name Granted (1) Granted per Share Expiration Appreciation for Option
in Fiscal Year ($/Sh)(2) Date (3) Term 4
5% ($) (10%($)
<S> <C> <C> <C> <C> <C> <C>
Melvin 200,000 87% $1.81 3/25/04 $227,660 $576,935
Wedgle 8,000 3% $1.70 12/28/05 $ 8,553 $ 21,675
</TABLE>
(1) On March 25, 1995, the shareholders approved an option to purchase
600,000 shares of common stock exercisable in equal installments each year
commencing from March 24, 1994 only if certain profitability criteria are met as
reported at September 30, 1994,1995 and December 31, 1996 and to expire in March
2004. As of this date, 275,000 of the 600,000 options approved for Mr. Wedgle
have expired due to the failure to meet such profitability criteria for the
fiscal years ended September 30, 1994 and 1995. On June 22, 1996, the
shareholders approved the 1995 Directors' Stock Option Plan under which each
director may be granted options to purchase up to 15,000 shares of common stock
exercisable in equal installments each year commencing from September 30, 1995
only if certain profitability criteria are net as reported at September 30, 1995
and December 31, 1996 and 1997. As of this date, 2,000 of the options approved
for each director have expired due to the failure to meet certain profitability
criteria for the fiscal year ended September 30, 1995.
(2) All options were granted at market value at the date of grant.
(3) Mr. Wedgle's options have a ten-year term, subject to termination between 30
days to one year following termination of employment in certain events and is
exercisable only if certain profitability criteria are met.
(4) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are dependent
on the future performance of the common stock, overall stock conditions, as well
as the option holders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
Shares Acquired At Fiscal Year End Fiscal Year End(2)
Name on Exercise(#) Value Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- --------- --------------- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Melvin
Wedgle 119,000 $283,119 251,500 -0- $735,760 -0-
</TABLE>
(1) Represents the difference, if any, between the market value of the Company's
common stock at exercise and the exercise price of the options.
(2) Represents the difference, if any, between the market value of the Company's
common stock on December 31, 1996 and the exercise price of the options.
On December 14, 1988, the Company's shareholders approved an Incentive
Stock Option Plan (the "Plan") for the benefit of the Company's employees. The
Company believes that the Plan provides an appropriate incentive to certain
employees to maintain a continued interest in the operation and future of the
Company. The terms of the Plan provide that the Company is authorized to grant
options to purchase shares of common stock to selected employees including
officers and directors upon the unanimous consent of all of the Company's
directors. The Company will select the optionees and determine the terms and
conditions of the stock option grant. However, the purchase price to be paid by
optionees for the option shares will not be less than the fair market value of
the option shares on the date of grant. Employees owning more than 10% of the
outstanding shares of any class of securities of the Company must be granted
options at a purchase price of at least 110% of the fair market value of the
shares on the date of the grant. No option can be exercised for a period of
twelve months following the date of grant, and the employee must exercise
options during employment or within 30 days of termination of employment. The
Company has registered the shares underlying the options under the Securities
Act of 1933, as amended, so that the shares will be free trading when issued.
The options are granted for a term of six years, and during such term, may be
exercised 33.3% after one year and an additional 33.3% during each of the
succeeding two years. A total of 125,000 shares of the Company's authorized but
unissued common stock had been reserved for possible issuance pursuant to the
Plan. On March 25, 1995, the Company's Board of Directors increased the number
of shares of the Company's authorized but unissued common stock reserved for
possible issuance pursuant to the Plan to 275,000 shares. On July 25, 1995, the
Company registered the increase in shares reserved for possible issuance
pursuant to the Plan. To date, options totaling 316,165 shares have been issued
under the Plan, exercisable at $0.68 to $5.12 per share, options totaling
96,457shares have been exercised at $0.68 to $2.56 per share and options
totaling 99,000 have expired, leaving options totaling 120,708 shares
outstanding. On February 6, 1990, the Company granted to Fred A. Baker options
to purchase 50,000 shares (the "Baker Option") at $0.50 per share at any time
until February 6, 1995. During 1995, the Company extended the Baker Option until
August
<PAGE>
1, 1996. On July 25, 1995, the Company registered the Baker Option. At November
30, 1995, the Baker Option was fully exercised.
On September 30, 1990, the Company agreed to grant Messrs. Wedgle and
Baker options to purchase up to 50,000 shares each (the "Wedgle Option" and
"Baker Option") at $0.625 per share at any time until September 30, 1995, if and
only if the Company realized net after tax income of at least $250,000 for the
fiscal year ended September 30, 1991. Such net income was realized by the
Company and the Wedgle and Baker Options were issued in December 1991. During
1995, the Company extended the Baker Option until August 1, 1996 and extended
the Wedgle Option until September 30, 1998. On July 25, 1995, the Company
registered the Wedgle and Baker Options. At February 1, 1996, the Baker Option
was fully exercised. As of this date, 25,000 shares of the Wedgle Option have
been exercised.
On March 25, 1995, the shareholders approved a proposal authorizing the
Company to grant Mr. Wedgle options to purchase up to 200,000 shares of the
Company's common stock each year for three years at $1.81 (the "Executive
Options") until March 24, 2004. The Executive Options were further limited based
upon the Company achieving certain levels of after tax net income for the years
ended or ending September 30, 1994, 1995 and December 31, 1996. No Executive
Option was granted for the year ended September 30, 1994 due to the Company's
failure to meet the minimum after tax net income requirement for that year. On
September 30, 1995, the Company granted an Executive Option for 125,000 shares
for the year ended September 30, 1995 based on the Company achieving a certain
level above the minimum after tax net income requirement for that year. On
December 31, 1996, the Company issued an Executive Option for 200,000 shares for
the year ended December 31, 1996 based on the Company achieving a certain level
above the minimum after tax net income requirement for that year. As of this
date, options for 105,000 shares have been exercised and options for 220,000
shares are outstanding.
On July 21, 1995, the Company established the 1995 Directors' Stock
Option Plan (the "Directors' Plan"). The Directors' Plan was approved by the
shareholders on June 22, 1996. The Company believes that the Directors' Plan
will enhance stockholder investment by attracting, retaining and motivating
directors of the Company and to encourage stock ownership by such directors by
providing a means to acquire a proprietary interest in the Company's success.
Under the Directors' Plan, each director (five in total) may be granted options
to purchase up to 15,000 shares of the Company's common stock in equal
installments over a three year period beginning September 30, 1995 at prices not
less than the fair market value of the option shares on the date of grant and
exercisable for no more than ten years from date of grant. Any director owning
more than 10% of the total combined voting power of all classes of stock of the
Company must be granted options at a purchase price of a least 110% of the fair
value of the option shares on the date of grant.
Each installment granted to each director may be further limited based
upon the Company achieving the following percentage of after tax net income to
total revenues for the three fiscal years ending September 30, 1995 and December
31, 1996 and 1997:
<PAGE>
After Tax Options Issuable for Years Ending
Net income % 9-30-95 12-31-96 12-31-97
--------------- --------- ---------- ----------
2.9 or lower % -0- -0- -0-
3.0 to 5.9% 3,000 3,000 3,000
6.0 to 6.9% 4,000 4,000 4,000
7.0 or higher % 5,000 5,000 5,000
Based upon the audited financial statements of the Company for the
years ended September 30, 1995 and December 31, 1996, the percentage of after
tax net income to total revenues was 5.6% and 7.5%, respectively. For the years
ended September 30, 1995 and December 31, 1996, each director as been issued
options to purchase a total of 8,000 shares of the Company's Common Stock at
$1.70 per share exercisable any time until December 28, 2005.
No retirement, pension, profit sharing or other similar program has
been adopted by the Company. Except as stated above, no warrants or options have
been granted to any officer, director or other employee of the Company. In the
future, the Company may offer stock bonus and profit sharing or pension plans to
the employees or executive officers of the Company in such amounts and upon such
conditions as the Board of Directors may determine in its sole discretion.
Caro & Graifman, P.C.
for U.S. Pawn, Inc.
September 26, 1997
