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As filed with the Securities and Exchange Commission on August 14, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROFORMANCE RESEARCH ORGANIZATION, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<CAPTION>
<S> <C> <C>
Delaware 7999 84-1334921
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
5335 WEST 48TH AVENUE
DENVER, COLORADO 80212
(303) 458-1000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
OFFICES AND PRINCIPAL PLACE OF BUSINESS)
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WILLIAM D. LEARY
PRESIDENT AND TREASURER
5335 WEST 48TH AVENUE
DENVER, COLORADO 80212
(303) 458-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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COPIES TO:
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<CAPTION>
<S> <C> <C>
MICHAEL C. PHILLIPS, ESQ. JACK HUTCHINGS, ESQ. ROBERT P. ABDO, ESQ.
KEVIN A. FAULKNER, ESQ. FAY MATSUKAGE, ESQ. ABDO & ABDO
Morrison & Foerster LLP Dill Dill Carr Stonbraker & A Professional Corporation
755 Page Mill Road Hutchings, P.C. 710 Northstar West
Palo Alto, CA 94304-1018 455 Sherman Street 625 Marquette Avenue
Suite 300 Minneapolis, MN 55402
Denver, CO 80203
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered Registered (1) per Share (2) Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value . . . . . . . . . . . 1,150,000 $5.00 $5,750,000 $1,983
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(1) Includes 150,000 shares that the Placement Agents have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PROSPECTUS
Subject To Completion, Dated August 14, 1998
1,000,000 Shares
Proformance Research Organization, Inc.
Common Stock
(par value $.0001)
All of the 1,000,000 shares of Common Stock offered hereby (the "Shares")
are being issued and sold by Proformance Research Organization, Inc., ("P.R.O."
or the "Company"). The Company's principal executive offices are located at
5335 W. 48th Avenue, Suite 200, Denver, Colorado 80212, (303) 458-1000.
Prior to this offering, there has been no public market for the Common
Stock of the Company. See "PLAN OF DISTRIBUTION" for a discussion of the
factors considered in determining the initial public offering price. The shares
of Common Stock are offered by the Company and the Placement Agents on a "best
efforts" "all or none" basis, subject to prior sale and subject to the Company's
and the Placement Agents' right to reject orders in whole or in part.
Application has been made for quotation of the Common Stock on the Nasdaq Small
Cap Market under the symbol "PROO". Pending closing of the offering,
subscription proceeds will be held in an interest-bearing escrow account by Bank
Windsor, Minneapolis, Minnesota.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
Price to Selling Proceeds to the
Public Commissions(1)(2)(4) Company(3)(4)
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<S> <C> <C> <C>
Per Share. . . . . . . $5.00 $0.50 $4.50
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Total. . . . . . . . . $5,000,000 $500,000 $4,500,000
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</TABLE>
(1) The Company has agreed to indemnify the Placement Agents against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) In addition, the Placement Agents will receive warrants to purchase a
number of shares equal to 10% of the number of shares sold by the Placement
Agents, at an exercise price of $6.00 per share, expiring 5 years from the
date of sale. See "PLAN OF DISTRIBUTION."
(3) Before deducting expenses of this Offering, payable by the Company and
estimated at $100,000 and non-accountable expenses payable to the Placement
Agents in the amount of $150,000, for total expenses of $250,000. See "USE
OF PROCEEDS."
(4) A fund controlled by one of the Company's directors has subscribed for all
Shares remaining unsold at the end of the Offering. See "CERTAIN
TRANSACTIONS--Weiner Subscription Agreement." The Placement Agents are not
entitled to receive any selling commission on the sale of any such shares.
Global Financial Group, Inc.
100 Washington Square, Suite 1319
Minneapolis, Minnesota 33401
(800)321-1894
_______________, 1998
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Proformance Research Organization, Inc. ("P.R.O." or the "Company") earns
revenue from two sources: (1) providing golf instruction services, both to
recreational golfers wishing to improve their game and to golf instructors
wishing to maintain accreditation with the Professional Golf Association of
America (the "PGA") and (2) sales of golf related products such as instructional
materials and golf equipment, either produced by the Company or as a reseller of
products produced by third parties. P.R.O. provides golf instruction through
three primary avenues - (1) golf schools located at independent resorts, to
which students generally travel for intensive 2-5 day programs ("Destination
Golf Schools"), (2) franchised learning centers designed to cater primarily to
local clientele for hourly lessons ("Learning Centers") and (3) training of golf
instructors for teaching certification, which training is conducted at P.R.O.
headquarters, Destination Golf Schools and Learning Centers. P.R.O. currently
has eight Destination Golf Schools under contract for full or partial year
operation, six of which are currently operating and two of which are scheduled
to open in the fall of 1998. In addition, P.R.O. is currently operating two
Learning Centers. P.R.O. leases the facilities for its Destination Golf Schools
at existing golf courses or resorts. This arrangement permits P.R.O. to offer
first rate golf facilities at relatively low facilities cost and enables P.R.O.
to take advantage of the course's or resort's marketing efforts, visibility and
facility quality. P.R.O. currently markets its own Player's Edge system line of
instructional video tapes and booklets, tied to the curriculum taught at its
Destination Golf Schools and Learning Centers. In addition, P.R.O. recently
signed an agreement to market, on a non-exclusive basis, the FILA line of golf
clubs, bags, hats, gloves and umbrellas.
P.R.O. believes that it is distinguished from its competitors on the basis
of the quality of its facilities, its unique curriculum, and its experienced
management team and staff. P.R.O.'s curriculum is geared toward the marketing
premise that ideas accepted on the professional golf tours are accepted by
recreational golfers. The basis of P.R.O.'s curriculum is physical fitness and
focus on the mental approach to the game, which the Company believes are
currently popular among golfers on the professional tours.
P.R.O. and Proformance Research Organization are registered trademarks of
the Company. This prospectus may contain other trade names and trademarks of
the Company. Player's Edge, Physical Edge, Mental Edge, CGT, CGTA and P.A.R.
System are registered trademarks of Sports Solutions, Inc. and licensed by the
Company.
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited consolidated financial information for the first three
fiscal quarters of each fiscal year of the Company.
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IN CONNECTION WITH THE OFFERING, THE PLACEMENT AGENTS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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THE OFFERING
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<CAPTION>
<S> <C>
Common Stock offered by the Company . . . . 1,000,000 shares
Common Stock to be outstanding after the
Offering . . . . . . . . . . . . . . . . . 4,661,445 shares(1)
Use of proceeds . . . . . . . . . . . . . . Site development expenses;
repayment of short-term debt
and bridge loans; and working
capital. See "USE OF
PROCEEDS."
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1998
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Balance Sheet Data: Actual As Adjusted (2)
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . $ 230,181 $3,930,181
Working capital. . . . . . . . . . . . . . . . . (499,685) 3,200,315
Total assets . . . . . . . . . . . . . . . . . 381,503 4,081,503
Long-term obligations (less current portion) . 252,500 252,500
Shareholders' equity (deficiency). . . . . . . (652,913) 3,047,087
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding as of
June 30, 1998. Excludes 175,175 shares issuable upon conversion of
outstanding debt. See Note 3 of Notes to Audited Consolidated
Financial Statements. Also excludes 72,500 shares issuable upon
exercise of outstanding warrants.
(2) Adjusted to reflect the sale of 1,000,000 shares offered by the
Company, based on an initial public offering price of $5.00 per
share, after deducting estimated commissions and offering
expenses and the receipt of the net proceeds therefrom. Assumes
no conversion of the current outstanding bonds of the Company.
THE COMPANY WAS FOUNDED IN COLORADO IN 1993 UNDER THE NAME WORLD
ASSOCIATES, INC. AND WAS REINCORPORATED IN DELAWARE IN JULY 1998 UNDER THE NAME
PROFORMANCE RESEARCH ORGANIZATION, INC. (THE "REINCORPORATION"). P.R.O.
PROPERTY, INC., A COLORADO CORPORATION ("PPI") IS A WHOLLY-OWNED SUBSIDIARY OF
THE COMPANY. ALL REFERENCES TO THE COMPANY HEREIN INCLUDE THE PREDECESSOR
CORPORATION AND PPI. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE HEREIN. UNLESS OTHERWISE INDICATED, THE INFORMATION HEREIN
(i) ASSUMES NO EXERCISE OF THE PLACEMENTS AGENTS' OVER-ALLOTMENT OPTION,
(ii) HAS BEEN ADJUSTED TO REFLECT CONVERSION RATIOS OF 2.8-TO-1 FOR THE COMMON
STOCK AND 3.5-TO-1 FOR THE SERIES A AND SERIES B PREFERRED STOCK IN THE
REINCORPORATION AND (iii) HAS BEEN ADJUSTED TO REFLECT THE CONVERSION OF ALL
OUTSTANDING SHARES OF SERIES A AND SERIES B PREFERRED STOCK INTO COMMON STOCK
UPON THE CLOSING OF THE OFFERING.
THE INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN FURNISHED BY THE
COMPANY AND OTHER SOURCES BELIEVED BY THE COMPANY TO BE RELIABLE. THE PLACEMENT
AGENTS HAVE NOT MADE ANY INDEPENDENT INVESTIGATION OF SUCH INFORMATION AND MAKE
NO REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF ANY SUCH
INFORMATION. THIS PROSPECTUS CONTAINS SUMMARIES, BELIEVED TO BE ACCURATE, OF
CERTAIN TERMS OF CERTAIN DOCUMENTS, BUT REFERENCE IS MADE TO THE ACTUAL
DOCUMENTS, COPIES OF WHICH WILL BE MADE AVAILABLE UPON REQUEST, FOR THE COMPLETE
INFORMATION CONTAINED THEREIN. ALL SUCH SUMMARIES ARE QUALIFIED IN THEIR
ENTIRETY BY THIS REFERENCE.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS GENERALLY
STATE THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES
BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF SUCH
INFORMATION IS NOT GUARANTEED. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED THIS
MARKET DATA. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY
TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
3
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS INCLUDES
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL STATEMENTS OTHER THAN STATEMENTS OF
HISTORICAL FACT ARE "FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF THESE
PROVISIONS, INCLUDING ANY FINANCIAL PROJECTIONS, ANY STATEMENTS OF THE FUTURE
INTENTIONS, PLANS AND OBJECTIVES OF MANAGEMENT, ANY STATEMENTS CONCERNING
PROPOSED NEW SITES, DEVELOPMENT PROJECTS, PRODUCTS OR SERVICES, ANY STATEMENTS
REGARDING FUTURE ECONOMIC CONDITIONS OR PERFORMANCE, AND ANY STATEMENT OF
ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. IN SOME CASES, FORWARD-LOOKING
STATEMENTS CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS "MAY," "WILL,"
"EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES," "POTENTIAL," OR
"CONTINUE," OR THE NEGATIVE THEREOF OR OTHER COMPARABLE TERMINOLOGY. ALTHOUGH
THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN ARE REASONABLE, THERE CAN BE NO ASSURANCE THAT SUCH
EXPECTATIONS OR ANY OF THE FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT,
AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED OR ASSUMED IN
THE FORWARD-LOOKING STATEMENTS. THE COMPANY'S FUTURE BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, AS WELL AS ANY FORWARD-LOOKING STATEMENTS,
ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO
THE RISK FACTORS SET FORTH BELOW AND THOSE DESCRIBED ELSEWHERE IN THIS
PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS AND REASONS WHY RESULTS MAY DIFFER
INCLUDED IN THIS PROSPECTUS ARE MADE AS OF THE DATE HEREOF, AND THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT OR REASON WHY
ACTUAL RESULTS MIGHT DIFFER.
SPECULATIVE SECURITIES; LIMITED OPERATING HISTORY. The shares of Common
Stock offered hereby (the "Shares") are highly speculative securities and
involve a high degree of risk. The Company has an extremely limited operating
history. The Company had revenues of approximately $188,000 in 1996, $119,000
in 1997 and $236,000 in the six months ending June 30, 1998. Prior to that
time, the Company had no operations related to its current business and had only
limited operations related to a discontinued line of business. The Company had
net losses of approximately $349,000 in 1996, $693,000 in 1997 and $692,000 in
the six months ended June 30, 1998. To date, the Company has not achieved an
operating profit in any period. As of June 30, 1998, the Company had an
accumulated deficit of $1,949,308. The limited operating history makes it
difficult to predict the Company's future performance. The Company's
consolidated audited financial statements have been prepared assuming that the
Company will continue as a going concern. There can be no assurance that the
Company will be able to continue as a going concern if it cannot achieve a level
of profitability that will allow it to repay its short-term and long-term debt.
The Company has made a strategic decision to open several sites for its
Destination Golf Schools and Learning Centers, despite the fact that there are
significant overhead expenses associated with opening multiple sites. The
resulting overhead expenses increase the amount of revenue required to achieve
profitability. There can be no assurance that the Company will ever achieve an
operating profit in any period, or that any profitability that may be achieved
in the future can be sustained.
COMPETITION. The golf instruction market is highly fragmented, with
lessons available at a vast number of local golf courses, driving ranges and
golf shops, as well as a large number of destination golf schools. The
Company's Destination Golf Schools and Learning Centers compete with all of
these sources of golf instruction. Shaw Guides, an Internet travel information
source that compiles golf instruction facilities lists hundreds of different
sources of golf instruction in the U.S. Many of the local sites with which
P.R.O.'s schools compete have greater local name recognition and resources than
the Company. P.R.O.'s Destination Golf Schools compete with several destination
golf schools operated throughout the U.S., including John Jacobs Golf Schools,
David Leadbetter Golf Academy, Nicklaus/Flick Game Improvement, Arnold Palmer
Golf Academy and Golf Digest Schools. Many of the schools with
4
<PAGE>
which the Company's Destination Golf Schools compete have greater resources, a
larger number of sites, more prestigious locations or affiliations with
well-known and respected golfers or golf instructors than the Company. For
example, John Jacobs Golf Schools has 30 schools and Golf Digest Schools offer
instruction at 15 sites. While the Company's management believes that the
Company's program is unique in its emphasis on the mental approach to golf and
its emphasis on physical conditioning, there can be no assurances that the
Company will be able to compete in the marketplace. See
"BUSINESS--Competition."
DEPENDENCE ON KEY PERSONNEL. The Company is heavily dependent upon the
efforts of its President, William D. Leary. See "MANAGEMENT." Currently, Mr.
Leary is responsible for identifying and contracting with potential distributors
and certified trainers and for evaluating potential new products. The loss of
Mr. Leary's services could have a material adverse effect on the Company.
Although the Company currently has an employment agreement with Mr. Leary, there
can be no assurance that the Company will be successful in retaining Mr. Leary,
or will be successful in attracting and retaining qualified personnel of the
requisite caliber or in the requisite numbers to enable the Company to conduct
its business as proposed.
DISCRETION REGARDING USE OF PROCEEDS; FUTURE CAPITAL REQUIREMENTS.
Although the Company intends to use the proceeds of the Offering in the manner
set forth under "USE OF PROCEEDS," the specific timing and manner of using the
proceeds will be at the discretion of the Company's Board of Directors. The
Company currently has limited capitalization and, without receiving the proceeds
of this Offering, will be restricted in the implementation of its strategy.
Additional equity or debt financing may be required to implement future portions
of the Company's strategy. In the event that the Company conducts an additional
offering of stock or convertible debt, private or public, significant dilution
to purchasers of Shares in this Offering may occur. There can be no assurance
that such capital will be available to the Company, or will be available on
acceptable terms. Inability to obtain necessary capital on favorable terms may
have significant adverse consequences, such as inability of the Company to
achieve its business plan or even insolvency of the Company. See "USE OF
PROCEEDS."
SEASONALITY; RISK OF INCLEMENT WEATHER. Throughout much of the U.S., the
golf business is seasonal, operating primarily in the summer and additionally in
the spring and fall. However, in much of the Southern U.S., golf is played
either year-round or all year except for the summer. This is primarily due to
an outdoor playing season limited by inclement weather or excessive heat. The
Company believes that business at its Destination Golf Schools will be seasonal
with increased activity in the winter as students take winter vacations to warm
weather destinations, and decreased activity in the summer. In particular, the
Company expects decreased revenues from Destination Golf School operations in
May and September each year. The Company closes down many of its warm weather
sites in May, with the staff of those sites moving to a summer site, and closes
its summer sites in September with the staff returning to their warm weather
sites. In each case, there is expected to be a one week lag between when one
site closes and the other site opens. Of the Company's eight current
Destination Golf Schools, three facilities will close during the summer
(Phoenix, Tucson and Las Vegas), two will be open only during the summer
(Keystone and Lake Okoboji, Iowa), one site will be open for five months from
late spring to early fall (Huff House, New York) and the remaining two will be
open year-round (San Diego and St. Petersburg). Also, the Company's operations
are subject to the effects of inclement weather from time to time even during
the seasons that they are open. In particular, in January and February 1998,
the Company's facility in Phoenix was closed for an unusually high number of
days and the opening of the Company's facilities in San Diego and St. Petersburg
were delayed due to the effects of El Nino. The timing of any new facility
openings, the seasons any such facilities are open, the effects of unusual
weather patterns and the seasons in which students are inclined to attend golf
schools are expected to cause the Company's future results of
5
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operations to vary significantly from quarter to quarter. Accordingly,
period-to-period comparisons will not necessarily be meaningful and should not
be relied on as indicative of future results. In addition, the Company's
business and results of operations could be materially adversely affected by
future weather patterns that cause its sites to be closed, either for an
unusually large number of days or on particular days on which the Company had
booked a special event or a large number of students. Because most of the
students at the Company's Destination Golf Schools attend the school on
vacation, the student may not be able to or interested in rescheduling
attendance at one of the Company's sites. As a result, student-days lost to
inclement weather may truly represent a loss, rather than merely a deferral,
of revenue. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Seasonality."
MANAGEMENT OF GROWTH. The Company currently is experiencing a period of
rapid and substantial growth that has placed, and is expected to continue to
place, a strain on the Company's administrative and operational infrastructure.
The number of Company employees has increased from 11 full-time employees at
January 31, 1996 to 20 full-time employees at June 30, 1998. The number of
sites has increased from one Destination Golf School and no Learning Centers in
June 1997 to six Destination Golf Schools (with two additional Destination Golf
Schools under development scheduled to open in September 1998) and two Learning
Centers at June 30, 1998. The Company's ability to manage its staff and growth
effectively will require continued improvement in its operational, financial and
management controls, reporting systems and procedures. In this regard, the
Company is currently updating its management information systems to integrate
financial and other reporting among the Company's multiple domestic and foreign
offices. In addition, the Company intends to continue to increase its staff and
to continue to improve financial reporting and controls for the Company's
operations. There can be no assurance that the Company will be able to
successfully implement improvements to its management information and control
systems in an efficient or timely manner or that, during the course of this
implementation, deficiencies in existing systems and controls will be
discovered. If management of the Company is unable to manage growth effectively,
the Company's business, results of operations and financial condition will be
materially adversely affected.
VOTING CONTROL. Upon completion of the Offering, the Company's President,
William D. Leary, will have voting control over approximately 39.8% of the
Company's voting stock. See "PRINCIPAL STOCKHOLDERS." A fund controlled by one
of the Company's directors has subscribed for all Shares remaining unsold at the
end of the Offering. See "CERTAIN TRANSACTIONS--Weiner Subscription Agreement."
If such fund purchased all of the Shares offered hereby, it would own 21.5% of
the Company's voting stock, and such fund and Mr. Leary would own a total of
61.3% of the Company's voting stock, excluding over allotment option and
dilution due to conversion of bonds. Consequently, Mr. Leary and Mr. Weiner may
be able to control Company policy and the management of the Company's affairs.
There can be no assurance that Mr. Leary and Mr. Weiner will vote in accordance
with the wishes of investors in the Shares, or that Mr. Leary's views on
management and operation of the Company will be the same as the views of
investors in the Shares.
SIGNIFICANT LEVERAGE; DEBT SERVICE. As of the date of this Prospectus, the
Company has outstanding long-term debt of $610,500 and short-term notes payable
of $300,000. Although a significant portion of the long-term debt is
convertible into Common Stock of the Company, there can be no assurance that the
holders of such debt will elect to convert. The degree to which the Company is
leveraged could materially and adversely affect the Company's ability to obtain
future financing for working capital, site development or other purposes and
could make it more vulnerable to the effects of adverse weather conditions,
industry downturns and competitive pressures. The Company's ability to meet its
debt service obligations will be dependent upon the Company's future
performance, which will be
6
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subject to financial, business and other factors affecting the operations of
the Company, many of which are beyond its control. The Company will require
substantial amounts of cash to fund scheduled payments of principal of and
interest on such indebtedness, future capital expenditures and any increased
working capital requirements. If the Company is unable to meet its cash
requirements out of cash flow from operations, there can be no assurance that
it will be able to obtain alternative financing. In the absence of such
financing, the Company's ability to respond to changing business and economic
conditions, to acquire and develop future sites, to absorb adverse operating
results or to fund capital expenditures or increased working capital
requirements may be adversely affected. Any failure by the Company to satisfy
its obligations with respect to such indebtedness at maturity (with respect to
payments of principal) or prior thereto (with respect to payments of interest)
would constitute a default under such indebtedness and could cause a default
under agreements governing other indebtedness of the Company.
ARBITRARY OFFERING PRICE; LACK OF PUBLIC MARKET FOR THE SECURITIES. There
is currently no public market for the Shares and there can be no assurance that
a market for the Company's stock will develop. Prior to this offering, there
has been no public market for the Company's Common Stock. Consequently, the
initial public offering price has been determined arbitrarily by the Company and
the Placement Agents. There can be no assurance that an active public market
for the Common Stock will develop or be sustained after the offering or that, if
a market develops, the market price of the Common Stock will not decline below
the initial public offering price. A fund controlled by a director of the
Company has agreed to subscribe for, prior to the end of the Offering Period,
the number of Shares then unsold in the Offering. Sale of few Shares of Common
Stock in the Offering to investors other than such fund, and such Shares being
sold to a small number of holders, could result in few Shares of Common Stock
being available for public trading and a small number of holders of such Shares.
In such circumstances, it would be very difficult for an active trading market
to develop in the Shares. See "CERTAIN TRANSACTIONS--Weiner Subscription
Agreement." Any market trading price of the Company's Common Stock also could
be subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, announcements of new products by the Company or its
competitors, general conditions in the economy, or other events or factors. In
addition, the stock markets have experienced extreme price and volume
fluctuations, which have often been unrelated to the operating performance of
affected companies. These Company-specific factors or broad market fluctuations
may materially, adversely affect any market price of the Company's Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has from time to time
experienced significant price and volume fluctuations that may be related or
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. In addition, the market price of the shares of Common Stock of
the Company may be highly volatile. Factors such as a small market float,
fluctuations in the Company's operating results, failure to meet analysts'
expectations, announcements of major developments by the Company or its
competitors, developments with respect to the Company's markets, changes in
stock market analyst recommendations regarding the Company, its competitors or
the industry generally, and general market conditions may have a significant
effect on the market price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares
of Common Stock after this Offering could adversely affect the market price of
the Common Stock and could impair the Company's ability to raise additional
capital through the future sale of equity securities. Upon completion of this
Offering the Company will have approximately 4,661,445 shares of Common Stock
outstanding, based on the number of shares of Common Stock outstanding as of
June 30, 1998. In addition, the Company will have outstanding warrants to
purchase 72,500 shares of Common Stock, and 175,175 shares of Common Stock will
be issuable upon conversion of certain long-term debt, at the election of the
holders
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thereof. Pursuant to an agreement with Sunkyong U.S.A., the Company may
also become obligated to issue up to 320,000 shares of Common Stock. See
"BUSINESS--International Operations." Of the 4,661,445 shares to be outstanding
after the Offering, the 1,000,000 shares offered hereby will be freely tradeable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless they are held by "affiliates" of the Company as that
term is used in Rule 144 under the Securities Act.
The remaining 3,661,445 outstanding shares are "restricted securities"
within the meaning of Rule 144. Of these shares, approximately 137,000 will be
eligible for sale in the public market at the anticipated date that the Offering
Statement of which this Prospectus is a part is declared qualified (the
"Effective Date"). Beginning in December 1998, an additional approximately
99,000 of such restricted shares become eligible for sale in the public market
upon expiration of the one year holding period under Rule 144. Beginning in
March, April, May and June 1999, an additional approximately 24,500, 56,700,
66,150 and 39,200 of such restricted shares become eligible for sale in the
public market upon expiration of the one year holding period under Rule 144.
Beginning in July 1999, an additional approximately 39,200 shares issued after
June 30, 1998 become eligible for sale in the pubic market upon expiration of
the one year holding period under Rule 144. Upon the expiration of agreements
not to sell shares entered into with the Company, 15 months after the date
hereof, approximately 3,238,895 of such restricted shares will become eligible
for sale subject to the provisions of Rule 144. Prior to this offering, there
has been no public market for the Common Stock of the Company, and any sale of
substantial amounts in the open market may adversely affect the market price of
the Common Stock offered hereby. See "DESCRIPTION OF CAPITAL STOCK--Common
Stock" and "SHARES ELIGIBLE FOR FUTURE SALE."
APPLICABILITY OF "PENNY STOCK RULES." Federal regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), regulate the
trading of so-called "penny stocks" (the "Penny Stock Rules"), which are
generally defined as any security not listed on a national securities exchange
or Nasdaq, priced at less than $5.00 per share and offered by an issuer with
limited net tangible assets and revenues. In addition, equity securities listed
on Nasdaq which are priced at less than $5.00 per share are deemed penny stocks
for the limited purpose of Section 15(b)(6) of the Exchange Act, which makes it
unlawful for any broker-dealer to participate in a distribution of any penny
stock without the consent of the Securities and Exchange Commission if, in the
exercise of reasonable care, the broker-dealer is aware of or should have been
aware of the participation of previously sanctioned person. Therefore, if,
during the time in which the Common Stock is quoted on the Nasdaq Small Cap
Market, the Common Stock is priced below $5.00 per share, trading of the Common
Stock will be subject to the provisions of Section 15(b)(6) of the Exchange Act.
In such event, it may be more difficult for the broker-dealer to sell the Common
Stock and purchasers of the Shares offered hereby may have difficulty in selling
their Shares in the future in the secondary market.
In the event that the Company's Common Stock is delisted from the Nasdaq
Small Cap Market and the Company fails other relevant criteria, resulting in the
Common Stock being considered penny stock, trading, if any, of the Common Stock
would be subject to the full range of Penny Stock Rules.
DILUTION. The initial public offering price of the Shares does not
necessarily bear any relationship to assets, book value or net worth of the
Company, or any other generally recognized criteria of value. The price for the
Common Stock was established arbitrarily by the Company and the Placement
Agents. Purchasers in the offering will suffer substantial immediate dilution
of their investment. See "DILUTION."
DIVIDEND POLICY. The Company has never declared or paid dividends on its
capital stock. Except as required in its Articles of Incorporation, the Company
currently does not intend to pay dividends in the
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foreseeable future so that it may reinvest its earnings in the development of
its business. The payment of dividends in the future will be at the
discretion of the Board of Directors.
DEPENDENCE ON DESTINATION GOLF SCHOOL AND LEARNING CENTER LEASES. The
Company currently has contracts with eight Destination Golf Schools and two
Learning Centers. Most of the leases have three-year terms expiring in 2000 or
2001. The Company's revenue potential is limited by the number of students it
can accommodate at its sites. In addition, the Company believes that location
is the most important factor for a golfer in choosing a golf school. If the
Company is not able to renew such leases, at all or on favorable terms, the
Company's revenue potential could be greatly diminished, due to both a reduction
in the total number of students it can accommodate and due to a reduction in the
number and variety of sites it offers. Inability to renew its site leases on
favorable terms or find suitable replacement facilities could have a material
adverse effect on the Company's financial condition and results of operations.
POTENTIAL LOSS OF PGA OF AMERICA RECOGNITION. The Company's golf schools
have been recognized by the Professional Golfers Association of America (the
"PGA"), which allows the Company to employ, and in turn offer instruction by,
PGA-accredited teachers. The PGA is entitled to withdraw this recognition at
any time, without cause, to impose conditions on such recognition or to change
the terms of such recognition. Any such change in the status of PGA recognition
of the Company's golf schools could impair the Company's ability to retain
qualified instructors in the numbers necessary to staff its Destination Golf
Schools and Learning Centers, and could negate the Company's ability to train
golf instructors for PGA certification. Loss, or change in the terms or status,
of PGA recognition of the Company's golf schools could have a material adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL DELISTING OF COMMON STOCK FROM NASDAQ SMALLCAP MARKET. Based on
the assumed initial public offering price of $5.00 per share, and after
application of the estimated net proceeds from the Offering, the Company will
meet certain continued listing criteria for the Nasdaq SmallCap Market with
little or no margin. If the price of the Common Stock decreases from the
initial public offering price, or if the Company continues to incur losses, it
is possible that, in the near future, the Company could fall below the minimum
price, aggregate value of market float or net tangible assets criteria for
continued listing on the Nasdaq SmallCap Market. If the Company's Common Stock
is delisted from the Nasdaq SmallCap Market, liquidity of the Company's stock
could be materially adversely affected.
ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW. The Company's Board of Directors has the authority to issue up to
2,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting and conversion
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. In addition, the Board of Directors has the authority
to issue undesignated Preferred Stock and, subject to certain limitations, to
determine the rights, preferences, privileges and restrictions, including voting
rights, of such shares without any further vote or action by the stockholders.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company is subject to the antitakeover
provisions of Section 203 of the Delaware General Corporation Law, which will
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. Further, certain provisions
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of the Company's Certificate of Incorporation and Bylaws and of Delaware law
could delay or make more difficult a merger, tender offer or proxy contest
involving the Company, which could adversely affect the market price of the
Company's Common Stock. See "DESCRIPTION OF CAPITAL STOCK--Preferred Stock"
and "DESCRIPTION OF CAPITAL STOCK--Section 203 of the Delaware General
Corporation Law."
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock.
Except as required in its Articles of Incorporation, the Company currently does
not intend to pay dividends in the foreseeable future so that it may reinvest
its earnings in the development of its business. The payment of dividends in
the future will be at the discretion of the Board of Directors.
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$4,250,000 after deducting estimated legal, accounting and other offering
expenses estimated at $100,000 and non-accountable expenses of $150,000 payable
to the Placement Agents.
The following table sets forth the expected use of proceeds:
<TABLE>
<CAPTION>
USE OF PROCEEDS
<S> <C>
Site Development Expenses. . . . . . . . . . . . . . . $1,000,000
Advertising . . . . . . . . . . . . . . . . . . . . . 500,000
Product Inventory . . . . . . . . . . . . . . . . . . 300,000
Short-Term Debt . . . . . . . . . . . . . . . . . . . 300,000
Bridge Loans. . . . . . . . . . . . . . . . . . . . . 250,000
Working Capital . . . . . . . . . . . . . . . . . . . 1,900,000
----------
Total Uses of Proceeds: . . . . . . . . . . . . . . . $4,250,000
</TABLE>
Management reserves the right, in its sole discretion, to change the uses
of proceeds. See "RISK FACTORS--Discretion Regarding Use of Proceeds; Future
Capital Requirements." Pending such uses, the net proceeds of the Offering will
be invested in investment grade, interest-bearing instruments, or held in the
Company's demand deposit accounts with qualified banks to meet immediate cash-
flow requirements.
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DILUTION
As of June 30, 1998 the Company had negative net tangible book value of
$652,912, or $0.178 per share. Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the Offering made hereby and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After giving effect to the sale by the Company of the Shares
offered hereby at an initial public offering price of $5.00 per share, and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of June 30, 1998 would have been $3,597,088 or
$0.772 per share. This represents an immediate increase in net tangible book
value of $0.950 per share to existing shareholders and an immediate dilution in
net tangible book value of $4.228 per share to the purchasers of Common Stock in
the Offering, as illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share . . . . . $5.000
Net tangible book value per share as of
June 30, 1998 . . . . . . . . . . . . . . . . . $(0.178)
Increase in net tangible book value
attributable to new investors . . . . . . . . . 0.950
-------
Net tangible book value after Offering. . . . . . 0.772
------
Dilution per share to new investors . . . . . . . $4.228
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
P.R.O. provides golf instruction through three primary avenues - golf
schools located at resorts, to which students generally travel for intensive 2-5
day programs ("Destination Golf Schools"), learning centers designed to cater
primarily to local clientele for hourly lessons ("Learning Centers") and
training of golf instructors for teaching certification. P.R.O. currently has
eight Destination Golf Schools under contract for full or partial year
operation, and is currently operating two Learning Centers. The company expected
to be financed in January of 1998 and the delay in financing created a cash-
flow problem due to the financial commitments that had been made to each of
these facilities.
P.R.O. leases the facilities for its Destination Golf Schools at existing
golf courses or resorts, allowing P.R.O. to offer first rate golf facilities at
relatively low facilities cost and allowing P.R.O. to take advantage of the
course's or resort's marketing efforts, visibility and facility quality. P.R.O.
began operation of Destination Golf Schools at the locations and dates
indicated below: Keystone Ranch Resort, Keystone, Colorado, June 1997; Wildfire
Golf Course at Desert Ridge ("Wildfire"), Phoenix, Arizona, September 1997;
Carlton Oaks Country Club, San Diego area, California, March 1998; Rhodes Ranch,
Las Vegas, Nevada, March 1998; Huff House in the Catskills Mountains in New
York, June 1998; Brooks Golf Club, Lake Okoboji, Iowa, June 1998; Bardmoor Golf
Club, St. Petersburg, Florida, scheduled to open in Fall 1998 and Tucson
National, Tucson, Arizona, scheduled to open in Fall 1998. In addition, P.R.O.
began operation of Learning Centers in Scottsdale, Arizona in January 1998 and
at the Plum Creek Golf and Country Club, Denver, Colorado in June 1998.
Crown Golf Properties, Inc. ("Crown") owns or operates 30 golf facilities
worldwide, including Wildfire. In addition, P.R.O. and Crown contracted for a
Destination Golf School at Crown's Bardmoor Golf Club in St. Petersburg, Florida
and are currently in negotiation to open golf schools at additional Crown sites.
P.R.O. expects to open a golf school at the Crown site in Aspen, Colorado in
1998, which would operate in the summer only. In addition, P.R.O. is currently
in negotiation with other golf resort
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owners to open additional Destination Golf Schools in Myrtle Beach, South
Carolina, Mesquite, Nevada, Palm Springs, California and San Francisco,
California, however, there is no assurance that any or all of these locations
will become P.R.O. instructional facilities.
P.R.O.'s Destination Golf Schools and Learning Centers have opened at
varying times over the past two years, and most of the Destination Golf Schools
are closed during local off-seasons. As a result of changes in the number of
facilities open from period to period, closing certain of the Destination Golf
Schools during local off-seasons and overall seasonality of the golf business,
results of operations for any particular period may not be indicative of the
results of operations for any other period.
The Company has made a strategic decision to open several sites for its
Destination Golf Schools and Learning Centers, despite the fact that there are
significant one-time and recurring expenses associated with opening each site,
and despite the fact that its existing sites were not operating at capacity.
Originally, most site contracts for P.R.O.'s Destination Golf Schools
provided for a fixed amount of monthly rent. P.R.O. has subsequently
renegotiated some such site contracts to provide for rent on a per student
basis, reducing the Company's fixed costs.
For each Destination Golf School and Learning Center, the Company hires a
site manager and a number of certified instructors based on anticipated demand.
The Company offers 6 levels of instructor certification. Site managers are
required to complete level 4 certification, and certified instructors are
required to complete level 2 certification. Although level 2 certification can
be achieved in a single session, level 4 certification requires at least one
additional session. The Company provides training for its site managers and
certified instructors at Company expense.
For a brief time, the Company marketed a line of books and related products
in the family self-help market, under the name Team Family-TM-. The Company
discontinued that line of business in 1996, and devoted its full resources to
its current golf operations. The Company's audited consolidated financial
statements have been adjusted to exclude the effect of the discontinued
operations, and the Company's results of operations for the year ended December
31, 1996 include a loss of $52,755 and a one-time write-off of $ 89,517, each
related to the estimated loss on the anticipated disposition of the assets
related to the Team Family line of business. See Consolidated Financial
Statements and Note 8 of Notes to Consolidated Financial Statements.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
TOTAL REVENUE. The Company had total revenue of $73,538 in the six
months ended June 30, 1997, compared to $236,156 of total revenue in the six
months ended June 30, 1998. The increase in total revenue was attributable
primarily to the increase in the number of Destination Golf School and Learning
Center sites operating in the 1998 period. During the first six months of 1997,
the Company had one Destination Golf School - Keystone, Colorado - open for a
total of one month. During the first six months of 1998, the Company had
several sites open: Wildfire (Phoenix) from January 1 to May 15; Carlton Oaks
(San Diego area) from March 1 through June 30; Rhodes Ranch (Las Vegas) from
March 1 through June 30; and Keystone, Brooks (Lake Okoboji) and Huff House
(Catskills) from June 1 through June 30; Scottsdale Learning Center from January
1 through June 30; and Plum Creek (Denver area) Learning Center from June 1
through June 30. Of the $73,538 of total revenue in the six months ended June
30, 1997, $35,160 consisted of revenues from sales of products and services such
as equipment and certification of golf instructors compared to $ of product
sales in the six months ended June 30, 1998.
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<PAGE>
COST OF REVENUE. Cost of revenues in the six months ended June 30,
1997 was $8,274 or 11% of total revenue, compared to $113,567 or 48% of total
revenue in the six months ended June 30, 1998. [Cost of revenue consists
primarily of instructor salaries. The increase in cost of revenue as a
percentage of total revenue in 1998 was due primarily to hiring of instructors
for the Company's new sites, which operated below capacity. Opening of several
sites was delayed, and revenue at open sites was negatively impacted, by the
effects of an unusually wet winter in January, February and March 1998. See
"Seasonality."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, consisting primarily of marketing and advertising
expenses, expenses associated with recruiting and training P.R.O.'s Destination
Golf School and Learning Center site managers and instructors, salaries for
administrative, sales and marketing staff, and rent at the Company's
headquarters, increased from $286,635 for the six months ended June 30, 1997 to
$812,977 for the six months ended June 30, 1998. The increase was due primarily
to expenses associated with recruiting and training instructors for the new
sites, expenses associated with opening the new sites and rent at the new sites.
The Company believes that its long-term cost structure will be more advantageous
with site rentals based on fixed fees, and signed its new leases on this basis.
However, the Company is currently operating below capacity at all of its sites.
The Company determined to lower its short-term cost structure by renegotiating
the rent for its summer sites to a per-student rent. Although this decreases
the Company's fixed costs, if student volume is increased at the sites with per
student rents, the Company's costs could actually be higher at those sites than
at sites with fixed rents. The Company made a strategic decision to renegotiate
the rent at its summer sites but not its winter sites because the Company hopes
to have received financing that will allow it to engage in its planned
advertising campaign by the fall. The Company hopes that engaging in the
planned advertising campaign would allow volume at its winter sites to be
sufficient to support the fixed fee rents. However, there can be no assurance
that financing will be received in time to engage in such advertising campaign
in time to achieve sufficient volume at the winter sites to offset the fixed fee
rents, or that such advertising campaign, if begun, will result in increased
student volume.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Results for the year ended December 31, 1997 reflect the operation of the
Keystone Destination Golf School for three months and the Wildfire Destination
Golf School for four months. Results for the year ended December 31, 1996
reflect the Company's live test of its instructor certification program to
produce data regarding its marketability and franchising methods. As a result
of the change in the nature of the Company's operations from period to period,
the comparison between the 1997 and 1996 periods may not necessarily be
meaningful.
Total revenue for 1997 was $119,072 as compared to $188,455 for 1996.
Revenue in 1997 was derived primarily from the operation of P.R.O. Destination
Golf Schools at Keystone and Wildfire, for three and four months respectively.
Revenue in 1996 was derived primarily from instructor certification program.
Cost of revenue was $95,545 or 80.2% of sales in 1997, compared to $7,251
or 3.8% of sales in 1996. Cost of revenue in 1997 related to revenue from
Destination Golf Schools and consisted primarily of site rental fees and
instructor salaries. Cost of revenue in 1996 related primarily to revenue from
the instructor certification program, a classroom program which was conducted in
the Company's headquarters at no additional facilities cost. Costs of this
program were primarily instructor salaries and program materials.
13
<PAGE>
Selling, general and administrative expenses, consisting primarily of
marketing and advertising expenses, expenses associated with recruiting and
training P.R.O.'s Destination Golf School and Learning Center site managers and
instructors, salaries for administrative, sales and marketing staff, and rent at
the Company's headquarters. Selling, general and administrative expenses
increased to $678,214 in 1997 from $366,496 in 1996, an increase of 85%. These
expenses were greater in 1997 because the Company was in the process of
identifying sites for its Destination Golf Schools and Learning Centers,
establishing sites, training staff for the new sites and advertising its new
facilities. These start-up costs of establishing these new facilities are
incurred in advance of advertising the sites and booking students into the
sites. Having established an infrastructure for its Destination Golf School and
Learning Center operations, management believes that the Company can now achieve
economies of scale in certain of its operations, in particular advertising,
student bookings and billing.
LIQUIDITY AND CAPITAL RESOURCES
The cash requirements of funding P.R.O.'s operations and expansion have
exceeded cash flow from operations. The Company has satisfied its capital needs
primarily through debt and equity financing. The Company continually explores
raising additional capital through such means. The Company has an agreement
with an entity controlled by a member of its Board of Directors under which such
entity will subscribe for any Shares not otherwise subscribed for in the
Offering. See "CERTAIN TRANSACTIONS --Weiner Subscription Agreement."
The Company's outstanding long-term indebtedness as of June 30, 1998 of
$252,500 bears interest at a fixed rate of 12% and is due in 2002. Such
indebtedness is convertible into Common Stock of the Company at a rate of $1.43
per share. Such indebtedness may be prepaid by the Company upon 30 days'
notice. The Company intends to call such indebtedness for prepayment promptly
after completion of the offering. The Company also has $250,000 in short-term
debt outstanding pursuant to bridge loans extended by private investors. Such
loans bear interest at a rate of 8% per annum and are repayable from the
proceeds of the Offering.
The Company believes that the proceeds of the Offering in conjunction with
its existing cash balances and anticipated cash from operations, will be
sufficient to meet the Company's current working capital needs for at least the
next twelve months. However, there can be no assurance that the Company will
not need to raise additional capital sooner, particularly to take advantage of
any expansion opportunities that may become available. In such event, there can
be no assurance that additional capital will be available at all, at an
acceptable cost or on a basis that is timely to allow the Company to finance any
such opportunities.
SEASONALITY
Throughout much of the U.S., the golf business is seasonal, operating
primarily in the summer and additionally in the spring and fall. However, in
much of the Southern U.S., golf is played either year-round or all year except
for the summer. This is primarily due to an outdoor playing season limited by
inclement weather or excessive heat. The Company believes that business at its
Destination Golf Schools will be seasonal with increased activity in the winter
as students take winter vacations to warm weather destinations, and decreased
activity in the summer. In particular, the Company expects decreased revenues
from Destination Golf School operations in May and September each year. The
Company closes down many of its warm weather sites in May, with the staff of
those sites moving to a summer site, and closes its summer sites in September
with the staff returning to their warm weather sites. In each case, there is
expected to be a one week lag between when one site closes and the other site
opens. For example,
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<PAGE>
the Company's site manager and certified instructors for Wildfire will
generally move to Keystone for the summer and the staff from Rhodes Ranch in
Las Vegas will move to Lake Okoboji, Iowa for the summer. The Company is
currently in the process of negotiating a Destination Golf School site in
Myrtle Beach, South Carolina, and expects to staff that facility, if opened,
with the staff of its Huff House, New York facility. Of the Company's eight
current Destination Golf Schools, three facilities will close during the
summer (Phoenix, Tucson and Las Vegas), two will be open only during the
summer (Keystone and Lake Okoboji, Iowa), one site will be open for five
months from late spring to early fall (Huff House, New York) and the remaining
two will be open year-round (San Diego and St. Petersburg). Also, the
Company's operations are subject to the effects of inclement weather from time
to time even during the seasons that they are open. In particular, in January
and February 1998, the Company's facility in Phoenix was closed for an
unusually high number of days and the opening of the Company's facilities in
San Diego and St. Petersburg were delayed due to the effects of El Nino. The
timing of any new facility openings, the seasons any such facilities are open,
the effects of unusual weather patterns and the seasons in which students are
inclined to attend golf schools are expected to cause the Company's future
results of operations to vary significantly from quarter to quarter.
Accordingly, period-to-period comparisons will not necessarily be meaningful
and should not be relied on as indicative of future results. In addition, the
Company's business and results of operations could be materially adversely
affected by future weather patterns that cause its sites to be closed, either
for an unusually large number of days or on particular days on which the
Company had booked a special event or a large number of students. Because
most of the students at the Company's Destination Golf Schools attend the
school on vacation, the student may not be able to or interested in
rescheduling attendance at one of the Company's sites. As a result,
student-days lost to inclement weather may truly represent a loss, rather than
merely a deferral, of revenue. See "RISK FACTORS--Seasonality; Risk of
Inclement Weather."
IMPACT OF THE YEAR 2000
The Company has been informed by substantially all of its business
application software suppliers that their software is Year 2000 compliant. The
software from these suppliers is used in the Company's financial, reservation
processing and administrative operations. Accordingly, the Company expects that
the advent of the millennium will have no adverse effect on its business,
operating results and financial condition. However, there can be no assurances
that Year 2000 problems will not occur with respect to the Company's computer
systems. The Year 2000 problem may affect other entities with which the Company
transacts business or on which students of its golf schools depend, such as
airlines and hotels. The Company cannot predict the effect of the Year 2000
problem on such entities or its consequent impact on the Company.
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BUSINESS
THE COMPANY
Proformance Research Organization, Inc. ("P.R.O." or the "Company") earns
revenue from three sources: (1) providing golf instruction services, both to
recreational golfers wishing to improve their game and to golf instructors
wishing to maintain accreditation with the Professional Golf Association of
America (the "PGA") and (2) sales of golf related products such as instructional
materials and golf equipment, either produced by the Company or as a reseller of
products produced by third parties and (3) training of golf instructors for
teaching and certification. P.R.O. provides golf instruction through three
primary avenues - (1) golf schools located at independent resorts, to which
students generally travel for intensive 2-5 day programs ("Destination Golf
Schools"), (2) franchised learning centers designed to cater primarily to local
clientele for hourly lessons ("Learning Centers") and (3) training of golf
instructors for teaching certification, which training is conducted at P.R.O.
headquarters, Destination Golf Schools and Learning Centers. P.R.O. currently
has eight Destination Golf Schools under contract for full or partial year
operation, six of which are currently operating and two of which are scheduled
to open in the fall of 1998. In addition, P.R.O. is currently operating two
Learning Centers. P.R.O. leases the facilities for its Destination Golf Schools
at existing golf courses or resorts. This arrangement permits P.R.O. to offer
first rate golf facilities at relatively low facilities cost and enables P.R.O.
to take advantage of the course's or resort's marketing efforts, visibility and
facility quality. P.R.O. currently markets its own Player's Edge system line of
instructional video tapes and booklets, tied to the curriculum taught at its
Destination Golf Schools and Learning Centers. In addition, P.R.O. recently
signed an agreement to market, on a non-exclusive basis, the FILA line of golf
clubs, bags, hats, gloves and umbrellas.
P.R.O. believes that it is distinguished from its competitors on the basis
of the quality of its facilities, its unique curriculum, and its experienced
management team and staff. P.R.O.'s curriculum is geared toward the marketing
premise that ideas accepted on the professional golf tours are accepted by
recreational golfers. The basis of P.R.O.'s curriculum is physical fitness and
focus on the mental approach to the game, which the Company believes are
currently popular among golfers on the professional tours.
INDUSTRY BACKGROUND
The National Golf Foundation, a non-profit golf research organization (the
"NGF") conducted a survey study of golfers in the United States in 1996.
According to this study, there were approximately 26.5 million golfers in the
United States age 12 and over, compared with 19.9 million golfers in 1986, an
increase of 33%. Approximately 12 million of these golfers are between the age
of 18 and 39, 5.0 million are between age 40 and 49 and 6.5 million were over
age 50. Approximately 5.6 million U.S. golfers are "avid" golfers, defined as
those who play at least 25 rounds of golf per year. Today's typical golfer is
male, 39 years old, has a household income of $63,300 and plays 21 rounds per
year. In 1996, golfers spent about $15.1 billion on equipment, related
merchandise and playing fees, compared to $7.8 billion in 1986. Non-golfers
spent an additional $1.25 billion on golf-related items in 1996.
STRATEGY
The Company believes that the three most important criteria used by golfers
to select a school are: (1) location, (2) price, and (3) product. Key elements
of P.R.O.'s strategy are (1) to increase the number of its Destination Golf
Schools and Learning Centers in the U.S., (2) to stimulate demand for its
instructor training and certification program, (3) to expand the products
available for the Company to market, through marketing arrangements with
independent golf product manufacturers, (4) to expand, through one or more
majority-owned subsidiaries, into golf course management and development and
(5) to expand its
16
<PAGE>
business into new geographic territories. There can be no assurances that the
Company will be able to successfully execute its strategy.
INCREASE THE NUMBER OF ITS DESTINATION GOLF SCHOOLS AND LEARNING CENTERS.
The Company believes that the most important consideration for a golfer
deciding which golf school to attend is location. The Company believes
that it can attract more students by offering more locations. In expanding
to new locations, the Company intends to add sites that are consistent with
its current high quality of facilities. The Company intends to maintain a
relatively low overhead cost structure by negotiating site contracts with
rent based on the number of students attending the school. The Company
believes that its existing student booking and billing operations can
service a substantial increase in volume of students, and that economies of
scale can be achieved in advertising and other marketing expenses as new
sites are added. The Company currently has eight Destination Golf Schools
and two Learning Centers under contract. The Company has incurred
significant expenses for site development, personnel and advertising
relating to these sites. The Company has attempted to locate its sites in
different geographic regions with varying golf seasons, which the Company
hopes will reduce the effect of seasonality on its business.
STIMULATE DEMAND FOR ITS INSTRUCTOR TRAINING AND CERTIFICATION PROGRAM.
The Company is attempting to gain brand name recognition of its instructor
training and certification program. In addition to gaining revenues from
training golf instructors, the Company intends to maintain a certified
instructor membership program with a one-time membership fee plus annual
dues, designed to help PGA-certified professionals maintain their PGA
accreditation.
EXPAND THE PRODUCTS AVAILABLE FOR THE COMPANY TO MARKET. In addition to
marketing its own line of golf instructional products, the Company recently
entered into a non-exclusive agreement with Renaissance Golf Products, Inc.
to market the FILA brand of golf clubs, bags, hats, gloves and umbrellas
through its Destination Golf Schools and Learning Centers. The Company
intends to seek additional golf-related products to market through these
channels.
EXPAND INTO GOLF COURSE MANAGEMENT AND DEVELOPMENT. The Company recently
established PRO Property, Inc. ("PPI") as a subsidiary to pursue
opportunities in golf course management and development. The Company's
strategy is to exploit its knowledge and expertise in the golf business by
exploring new lines of business, such as managing existing golf courses
owned by third parties and development of new golf courses under lease
agreements on land owned by third parties. Any such facilities could serve
as sites for additional Destination Golf Schools or Learning Centers. The
Company intends to conduct this business through one or more majority-owned
subsidiaries with stock ownership offered to management responsible for the
site. In addition, financing of any such opportunities may require debt or
equity financing at the subsidiary level. See "BUSINESS--Golf Course
Development and Management Strategy."
EXPAND ITS BUSINESS INTO NEW GEOGRAPHIC TERRITORIES. The Company intends
to establish Destination Golf Schools or Learning Centers at additional
sites within the U.S. and at appropriate sites outside the U.S. The
Company currently has an agreement with Sunkyong U.S.A. to represent P.R.O.
in the Republic of Korea on an exclusive basis and to make introductions
throughout the Pacific Rim on a non-exclusive basis, for Destination Golf
School, Learning Center franchising and product sales opportunities. See
"--International Operations."
17
<PAGE>
THE P.R.O. SCHOOLS
P.R.O.'s strategy is to operate its Destination Golf Schools at
high-quality existing resorts that have golf facilities. P.R.O. currently has
eight Destination Golf Schools and two Learning Centers under contract for
operation during all or portions of each year. Following is a list of the
Company's sites and sites under development, along with the date the site
became available to students and the season the site is open. Fees for
Destination Golf Schools are paid in advance and range from $364 for a 2-day
school (excluding lodging) at Brooks Golf Club at Lake Okoboji, Iowa, to
$1,392 for a 4-day school (including lodging) at Wildfire Golf Course at
Desert Ridge in Phoenix, Arizona. Fees for Learning Centers are based on
private instruction and range from $47.00 to $100.00 per lesson.
<TABLE>
<CAPTION>
Site Name Address Date Opened Season Lease Expires
- --------- ------- ----------- ------ -------------
<S> <C> <C> <C> <C>
DESTINATION GOLF SCHOOLS
Keystone Ranch Resort Keystone Ranch Resort June 1997 Mid-May to June 2000
Keystone, Colorado mid-September
Wildfire Golf Course at 5225 East Pathfinder September Mid-September
Desert Ridge Phoenix, Arizona 1997 to mid-May
Carlton Oaks Country 9200 Inwood Drive March 1998 Year Round March 2001
Club Santee, California
(San Diego area)
Rhodes Ranch 7881 South Durago March 1998 Mid-September March 2001
Drive to mid-May
Las Vegas, Nevada
Brooks Golf Club 1405 Highway 71 June 1998 Mid-May to June 2001
Lake Okoboji, Iowa mid-September
Huff House 100 Lake Anawanda Road June 1998 May to October June 2001
Roscoe, New York
(Catskills Mountains)
Omni Tucson National* 2727 W. Club Drive October Mid-September September 2001
Tucson, Arizona 1998* to mid-May
Bardmoor Golf Club* 7919 Bardmoor October Mid-September September 2001
Boulevard 1998* to mid-May
Largo, Florida
(St. Petersburg area)
LEARNING CENTERS
Scottsdale Learning 8111 E. McDonald January 1998 Year Round January 1999
Center Scottsdale, Arizona
Plum Creek Golf & 311 Players Club Drive June 1998 April to January 1999
Country Club Castle Rock, Colorado September
</TABLE>
* Site under contract but not yet open; date indicates planned opening date.
Wildfire Golf Course at Desert Ridge is owned by Crown Golf Properties,
Inc. ("Crown"), which owns or operates 30 golf facilities worldwide. P.R.O. has
also contracted to open a site at Crown's Bardmoor Golf Club facility in St.
Petersburg, Florida and is currently in negotiation with Crown to open golf
schools at additional Crown sites. P.R.O. expects to open a golf school at the
Crown site in Aspen,
18
<PAGE>
Colorado in July 1998, which would operate in the summer only. In addition,
P.R.O. is currently in negotiation with other golf resort owners to open
additional Destination Golf Schools in Myrtle Beach, South Carolina; Mesquite,
Nevada; Palm Springs, California and San Francisco, California. Through
expansion of its relationship with Crown, opening Destination Golf Schools at
facilities in the U.S. or abroad owned by other parties, and potential
acquisitions of existing golf schools, the Company currently plans to expand
to as many as 60 total sites within the next five years. There can be no
assurances that P.R.O. will be able to identify and enter into contracts with
any additional sites.
P.R.O. contracts with the owners of each facility to provide a golf school
at the existing golf facility in exchange for rent. Certain golf facilities
prefer to outsource the golf school function rather than be responsible for the
overhead of establishing, maintaining and marketing a golf school, and to date
the Company has had success in negotiating site agreements with ten facilities.
In addition, P.R.O.'s operation of a golf school at an existing facility
provides the facility with higher visibility through P.R.O.'s advertising
efforts and additional revenue through guest nights, rounds of golf, meals,
merchandise and other purchases by P.R.O. golf school students. Due to this
mutually-beneficial arrangement, the rent charged P.R.O. for using the
facilities has been relatively low, allowing P.R.O. to maintain low operating
costs while offering its students high-quality facilities. In addition, this
arrangement permits P.R.O. to offer first rate golf facilities at relatively low
facilities cost and enables P.R.O. to take advantage of the course's or resort's
marketing efforts, visibility and facility quality without incurring the
enormous capital requirements and advertising budgets needed to establish,
maintain and market such facilities. Initially, the Company entered into leases
that provided for fixed monthly rental. The Company has restructured most of
its leases to provide for rent based on the number of students attending schools
at the site, thereby reducing the Company's fixed expenses. There can be no
assurances that the Company will continue to enter into variable rent leases.
P.R.O. LEARNING CENTERS
In contrast to Destination Golf Schools, which are located at independent
resorts with golf courses, Learning Centers are located or proposed to be
located at other independent sites where golf instruction might be available,
such as driving ranges, golf equipment stores and golf courses oriented to a
local clientele. P.R.O. currently operates two Learning Centers. In the U.S.,
P.R.O. intends to lease and operate Learning Centers, but internationally
intends to franchise locally-owned and operated Learning Centers. Management
believes that, in addition to receiving direct revenue from Learning Centers, an
increased local presence from Learning Centers would increase the visibility of
its name and curriculum and result in referrals to its Destination Golf Schools.
To encourage such referrals, P.R.O. may pay a referral bonus to Learning Center
staff for referred students who attend Destination Golf Schools.
THE P.R.O. SCHOOLS
P.R.O.'s schools have been recognized by the PGA of America, which allows
P.R.O. to employ, and in turn offer instruction by, PGA-accredited teachers. At
its Destination Golf Schools and Learning Centers, P.R.O. instructors teach a
system developed by Dave Bisbee that combines instruction in all areas of golf
technique with instruction in mental aspects of the game and physical
conditioning to improve play. Instructors assess the student's skill level and
learning style, developing a personal golfer profile for individualized
instruction. At P.R.O. Destination Golf Schools, access to a golf course on
site is included in each 2-, 3- or 4-day package.
19
<PAGE>
INSTRUCTOR CERTIFICATION
In addition to providing instruction for recreational golfers, P.R.O. has
developed an instructor certification program to enable instructors to fulfill
in part their annual accreditation requirements to maintain PGA of America
membership. Instructor certification involves a 4-day in-depth workshop to
become certified in P.R.O.'s system. Upon completion of the training, the
participant becomes certified as a P.R.O. Certified Instructor. The fee for
this training is $5,000 and is paid in advance. Once certified, the Certified
Instructor automatically becomes eligible to distribute P.R.O. instruction-
related products and services, receives commissions for referring students to
Destination Golf Schools and may be contracted with to teach in P.R.O. schools.
The cost of membership in P.R.O.'s Certified Instructor program is a $5,000.00
initiation fee and $1,000.00 in annual dues to be paid semi-annually.
PRODUCT SALES
In addition to golf instruction services, P.R.O. sells its own line of
Player's Edge system golf instructional videos, books and training aids. A key
component of P.R.O.'s strategy for growth is to expand into marketing of golf-
related products for independent manufacturers. P.R.O. has recently signed a
three-year non-exclusive distributor agreement with Renaissance Golf
("Renaissance") granting P.R.O. distribution rights to the FILA line of golf
goods including but not limited to golf clubs (the "FILA Agreement"). Under the
FILA Agreement, P.R.O. has non-exclusive distribution rights in connection with
its Destination Golf Schools, Learning Centers and certified instructors, as
well as the rights to appoint sub-distributors at such facilities.
INTERNATIONAL OPERATIONS
On May 6, 1997, P.R.O. signed a five-year agreement with Sunkyong U.S.A.
(the "Sunkyong Agreement"), under which Sunkyong U.S.A. agreed to represent
P.R.O. in the Republic of Korea ("South Korea") on an exclusive basis and to
provide introductions to parties on a non-exclusive basis throughout the Pacific
Rim relating to product sales, Learning Center franchises and Destination Golf
School opportunities at sites in the Pacific Rim. Details with respect to each
site and fees to be paid to Sunkyong U.S.A. are to be negotiated on a site-by-
site basis. The Sunkyong Agreement provides that Sunkyong U.S.A. has the option
to purchase up to 10,000 shares of P.R.O. common stock at a price of $5.00 per
share for each Destination Golf School site, up to 32 sites in total. Sites are
subject to Company approval. If all 32 sites are opened within the 5-year term
of the Sunkyong Agreement, the Company may be obligated to issue 320,000
additional shares of common stock. P.R.O. intends to contract with other
companies to introduce additional products to Sunkyong U.S.A. for them to
identify potential marketers of such products. Several companies have already
communicated to the Company their desire to access distribution in the Pacific
Rim.
However, due to the current business and financial conditions in Asia
generally and South Korea in particular, the Company has done no significant
business to date under the Sunkyong Agreement, and expects to do no significant
business under that agreement until such time as Asian business and financial
conditions improve. No assurance can be given as to when that recovery will
occur or that P.R.O. will have any significant operations in Asia in the
foreseeable future.
GOLF COURSE DEVELOPMENT AND MANAGEMENT STRATEGY
A key component of the Company's expansion strategy is to enter into the
business of developing and managing golf facilities, such as courses and driving
ranges. In addition to receiving management
20
<PAGE>
fees at any such facilities, the Company may be able to locate Destination
Golf Schools or Company-managed Learning Centers at any such facilities. The
Company, through PPI, is currently in negotiation with owners of two sites who
intend to develop golf courses on such sites, for management of the golf
course. There can be no assurance that the Company will be successful in its
negotiations relative to these sites or any future sites, or, if successful,
when such sites will become operational. The golf course development and
management business involves significantly greater capital requirements than
the Company's current instruction and product marketing lines of business.
There can be no assurance that such capital will be available to the Company
at all, at an acceptable cost or on a basis that is timely relative to the
schedules of particular projects. If the Company is unable to raise capital,
through debt or equity markets, at appropriate times and acceptable costs, the
Company may be unable to take advantage of any available development and
management opportunities. If the Company is able to raise capital,
shareholders may suffer dilution of their ownership.
MARKETING
P.R.O. markets its products and services primarily through advertising
campaigns in various media. To date, P.R.O. has had a limited marketing budget.
A key component of P.R.O.'s strategy is to use the proceeds of the Offering for
an expanded advertising campaign to stimulate additional awareness and
recognition of P.R.O. and its services and products. P.R.O.'s marketing
department has conducted research on the circulation, reader characteristics and
editorial content of various golf publications. P.R.O.'s advertising and
article placement strategy is intended to provide national exposure, credibility
and demand in the golf market. P.R.O.'s marketing strategy is planned to be
broad based, combining advertising in golf publications, such as Golf Digest,
with cross over advertising in other media intended to reach targeted
demographic and psychographic groups. These media include high-end business and
travel publications as well as electronic media. In addition, the Company hopes
to take advantage of the marketing efforts of Renaissance, FILA and the
operators of its Destination Golf School sites, as well as any future strategic
alliances to expose P.R.O. to a wider audience at no cost to the Company.
A part of P.R.O.'s marketing execution strategy is to contact publications
with articles of interest to the golfing public. As an example, the February
1997 issue of Golf Illustrated featured an article on the "Player's Edge"
Instructional System, including the mental and physical programs, by Dave
Bisbee, the Executive Director of P.R.O.
The Company believes that, historically, recreational golfers have accepted
and adopted ideas used on the professional golf tours. The Company intends to
market its schools by keying on the physical and mental components of its
curriculum in conjunction with the widespread use of fitness vans that now
travel with the PGA Tour and the fact that many PGA Tour professionals now use
sports psychologists as part of their normal preparation. In addition, P.R.O.
is currently in discussion with a number of PGA Tour professionals to find one
or more spokesmen for the Company. There can be no assurance that the Company
will be able to engage a PGA Tour professional to act as a spokesman. In
addition, the Company expects that engaging a PGA Tour professional would
involve significant compensation to such individual, in the form of cash, stock,
options, or other compensation.
One target of P.R.O.'s marketing efforts relating to its Destination Golf
Schools is executive training programs for the corporate market. P.R.O. has
created incentive packages for corporations to reward performance, entertain
clients or as incentives for sales projects. P.R.O. has conducted 30 such
programs to date, with an average attendance of 10 people.
21
<PAGE>
INTELLECTUAL PROPERTY
The Company owns the registered trademarks P.R.O. and Proformance Research
Organization. In addition, the Company has licensed the rights to use Player's
Edge, Physical Edge, Mental Edge, CGT, GGTA and P.A.R. System, which are
registered trademarks owned by SSI. See "CERTAIN TRANSACTIONS--Sports
Solutions, Inc. License."
COMPETITION
The golf instruction market is highly fragmented, with lessons available at
a vast number of local golf courses, driving ranges and golf shops, as well as a
large number of destination golf schools. The Company's Destination Golf
Schools and Learning Centers compete with all of these sources of golf
instruction. Shaw Guides, an Internet travel information source that compiles
golf instruction facilities lists hundreds of different sources of golf
instruction in the U.S. Many of the local sites with which P.R.O.'s schools
compete have greater local name recognition and resources than the Company.
P.R.O.'s Destination Golf Schools compete with several destination golf schools
operated throughout the U.S., including John Jacobs Golf Schools, David
Leadbetter Golf Academy, Nicklaus/Flick Game Improvement, Arnold Palmer Golf
Academy and Golf Digest Schools. Many of the schools with which the Company's
Destination Golf Schools compete have greater resources, a larger number of
sites, more prestigious locations or affiliations with well-known and respected
golfers or golf instructors than the Company. For example, John Jacobs Golf
Schools has 30 schools and Golf Digest Schools offer instruction at 15 sites.
While the Company's management believes that the Company's program is unique in
its emphasis on the mental approach to golf and its emphasis on physical
conditioning, there can be no assurances that the Company will be able to
compete in the marketplace.
PROPERTY
The Company leases approximately 6,200 square feet of administrative,
office and telemarketing space in Denver, Colorado through April 30, 2000. The
Company believes that this property will be sufficient to meet its needs for the
duration of the lease.
EMPLOYEES
The Company currently has 20 full-time and 8 part-time employees. None of
the Company's employees is represented by a labor union. The Company believes
that its relationship with its employees is good.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their positions and
ages are as follows:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
William D. Leary 40 President, Treasurer and Director
Robert B. Lange 72 Director
John C. Weiner 70 Director
</TABLE>
The Company's bylaws provide for a Board of Directors ranging from 1 to 9
members, with the exact number to be specified by the Board. The number is
currently fixed at 3 directors. All directors hold
22
<PAGE>
office until the annual meeting of stockholders next following their election,
and until their successors have been elected and qualified. Officers serve at
the discretion of the Board of Directors.
There are no family relationships between any directors or executive
officers of the Company. Directors of the Company receive no compensation to
date for their service as directors. Set forth below are brief descriptions of
recent employment and business experience of the Company's officers and
directors.
William D. Leary. From January 1993 until the present time, Mr. Leary has
been the President of the Company. From May 1986 until January 1993, Mr. Leary
was the President and CEO of the Innova Corporation, a golf distribution
company. Mr. Leary was employed as a linebacker by the Denver Broncos of the
National Football League from May 1983 to December 1984. From January 1985
through May 1986, Mr. Leary was rehabilitating from an injury that ended his
football career and was employed as a golf teaching professional in the United
States, Japan, Austria and Switzerland. Mr. Leary graduated with a B.S. in
general education from Mesa College, Grand Junction, Colorado in May 1983.
Robert B. Lange. From 1955 to 1972, Mr. Lange was employed as President
and CEO of Lange Ski Boot. Mr. Lange sold Lange Ski Boot in 1970, and since
that time has been working as an independent consultant. Mr. Lange graduated
with a BA degree in Economics from Harvard University in the spring of 1949 and
earned his MBA from SMU in 1951.
John C. Weiner. Mr. Weiner has been a director of the Company since 1995.
Since 1982, Mr. Weiner has been Chairman of the Board of JCW Investments, Inc.
and JCW Ventures. From 1971 to 1982, Mr. Weiner was founder and President of
Trident Investment Management, Inc., a public and private pension and other
investment account management service. Mr. Weiner sold Trident Investment
Management to Pacific Inland Bancorp in 1982. From 1956 to 1969, Mr. Weiner was
employed by Moody's Investors Service, serving as President and Chief Executive
Officer from 1966 until 1969. Mr. Weiner studied engineering at Westminster
College and Yale University from 1945 to 1946; received a B.A. in pre-med and
finance from Ripon College in 1948; received a B.S. in finance and economics
from the University of Chicago in 1950; and studied finance at Northwestern
University from 1950 to 1952.
KEY EMPLOYEES AND CONSULTANTS
In addition to the foregoing directors and officers, the following
individuals are key employees of or consultants to the Company.
Dave Bisbee. Mr. Bisbee has been Executive Director of the Company since
July 1996. Prior to joining the Company, Mr. Bisbee created and directed golf
schools that were recognized by the PGA, and developed certain products and
approaches that form the basis for the Company's products, including the
"Player's Edge" mental profile and video series. See "CERTAIN
TRANSACTIONS--Sports Solutions, Inc. License."
Charles "Vic" Kline. Mr. Kline is a current and two-time Director of the
PGA. Mr. Kline is currently on the PGA Properties Committee of the PGA. He is
also a five-time Colorado PGA Section President and five-time Player of the
Year. Mr. Kline is a past Colorado Open and Rocky Mountain Open champion. Mr.
Kline has agreed to join the Company's Board of Directors upon completion of the
Offering.
23
<PAGE>
Dr. Art Dickinson. Dr. Dickinson is a past Sports Medicine Supervisor of
the United States Olympic Team, and is a past department head and professor of
exercise physiology and biomechanics at the University of Colorado. His
professional associations include: Past President, Rocky Mountain Region,
College of Sports Medicine; National Football League.
CERTAIN TRANSACTIONS
WEINER SUBSCRIPTION AGREEMENT. On July 15, 1998, the Company entered into
a binding Subscription Agreement (the "Weiner Subscription Agreement") with
Proformance Research Organization/Weiner, Inc. ("PROW"). John C. Weiner is
President and the sole shareholder of PROW and is a director of the Company.
Under the Weiner Subscription Agreement, PROW agreed, on or before the final day
of the Offering, to subscribe for and purchase all Shares not otherwise subject
to subscriptions accepted by P.R.O. as of such date pursuant to the Offering.
SPORTS SOLUTIONS, INC. ("SSI") LICENSE. Dave Bisbee owns 50% of the
capital stock of SSI and is a key employee of the Company. In exchange for a
minimum of $10,000.00 per year of SSI services, P.R.O. has a non-exclusive
Licensing Agreement with SSI to represent the "Mental Edge-TM-" video. In
addition, P.R.O. has a Distribution Agreement with Dave Bisbee to represent the
teaching curriculum, the "Player's Edge-TM-" for an indefinite period.
LEARY EMPLOYMENT AGREEMENT. The Company and William D. Leary, an officer
and director of the Company, entered into an Employment Agreement dated July 1,
1998 (the "Employment Agreement"). The Employment Agreement is for a five-year
term and provides for salary to Mr. Leary in the amount of $120,000 annually.
Under the Employment Agreement, Mr. Leary is prohibited from competing with the
Company for a period of one year from the date of termination of Mr. Leary's
employment.
All ongoing and future transactions between the Company and officers,
directors or 5% shareholders will be made or entered into on terms that are no
less favorable to the Company than those that can be obtained from unaffiliated
third parties, and all such transactions (including forgiveness of any loans)
will be approved by a majority of the independent, disinterested members of the
Company's board of directors.
EXECUTIVE COMPENSATION
The Company does not have any employment contracts with any of its officers
or directors, except for Mr. Leary. Such persons are employed by the Company on
an at will basis, and the terms and conditions of employment are subject to
change by the Company. Mr. Leary, the Company's chief executive officer, did
not receive any cash compensation and was not granted any stock options for the
1997 fiscal year. He had no stock options at December 31, 1997.
24
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership by
each officer and director, and all officers and directors as a group, as well as
all persons who own greater than 5% of the Company's outstanding shares, as of
the date of this Prospectus, and as adjusted to reflect the issuance of the
Common Stock offered hereby (assuming sale of the maximum number of Shares):
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned(2)(3)
------------------------
5% Beneficial Owners, Directors Number of Shares Prior to After
and Named Executive Officers(1) Beneficially Owned Offering Offering
- ------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
William D. Leary(4). . . . . . . . . . 960,202 26.2% 20.6%
Leah Leary(5). . . . . . . . . . . . . 946,202 25.8 20.3
Bill Childs. . . . . . . . . . . . . . 486,500 13.3 10.4
Robert B. Lange. . . . . . . . . . . . 154,000 4.2 3.3
John C. Weiner(6). . . . . . . . . . . 42,000 1.1 0.9
All executive officers and directors
as a group (3 individuals)(7) . . . . 2,052,404 56.1 44.0
</TABLE>
(1) To the Company's knowledge, except as set forth in the footnotes to
this table and subject to applicable community property laws, each person named
in the table has sole voting and investment power with respect to the shares set
forth opposite such person's name. The address of each of the persons in this
table is as follows: c/o Proformance Research Organization, Inc., 5335 West
48th Avenue, Denver, Colorado 80212.
(2) Based on 3,661,445 shares of Common Stock outstanding on June 30, 1998
and 4,661,445 shares of Common Stock outstanding after this Offering. Does not
include 175,175 shares issuable upon conversion of outstanding debt at June 30,
1998 or 72,500 shares issuable upon exercise of warrants outstanding at June 30,
1998.
(3) Assumes no exercise of Placement Agents' over-allotment option. If
the over-allotment option is exercised in full, the Company will sell an
aggregate of 1,150,000 shares of Common Stock in the Offering.
(4) Includes 50,000 shares owned by Sean Leary and Keenan Leary, minor
children of William D. Leary and Leah Leary. Excludes 896,202 shares owned by
Leah Leary, the wife of William D. Leary. William D. Leary has voting control
over the shares owned by Leah Leary pursuant to a Voting Trust Agreement.
(5) Includes 50,000 shares owned by Sean Leary and Keenan Leary. Excludes
910,202 shares owned by William D. Leary. William D. Leary has voting control
over shares owned by Leah Leary pursuant to a Voting Trust Agreement.
(6) Assumes sale of no shares pursuant to the Weiner Subscription
Agreement. Up to 1,000,000 shares in the Offering could be sold pursuant to the
Weiner Subscription Agreement. If all shares sold in the Offering are sold
pursuant to the Weiner Subscription Agreement, John C. Weiner would beneficially
own 1,042,000 shares, or 22.4% of the shares outstanding, after the Offering.
(7) Includes 50,000 shares owned by Sean Leary and Keenan Leary and
896,202 shares owned by Leah Leary.
25
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of the Offering, the Company will be authorized
to issue up to 20,000,000 shares of Common Stock, par value $0.0001 per share,
and up to 2,000,000 shares of Preferred Stock, par value $0.0001 per share.
COMMON STOCK
As of June 30, 1998, there were 3,661,445 shares of Common Stock
outstanding, which were held of record by approximately 117 stockholders
(assuming conversion of all shares of Series A and Series B Preferred Stock,
which conversion will occur automatically upon closing of the Offering). All of
such shares are "restricted securities" within the meaning of Rule 144 under the
Securities and are subject to limitations on resale imposed by Rule 144. In
addition, holders of certain of such shares have agreed not to sell their shares
for a period of 15 months after the date hereof. See "SHARES ELIGIBLE FOR
FUTURE SALE." There will be 4,661,445 shares of Common Stock outstanding
after giving effect to the sale of Common Stock offered to the public by the
Company hereby. In addition as of June 30, 1998, 175,175 shares of Common Stock
were issuable upon conversion of long-term debt (at the election of the holders
thereof) and there were outstanding warrants to acquire 72,500 shares of Common
Stock at a weighted-average exercise price of approximately $4.90 per share.
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. The
Company does not have cumulative voting rights in the election of directors, and
accordingly, holders of a majority of the shares voting are able to elect all of
the directors. Subject to preferences that may be granted to any then
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor as well as any distributions to the stockholders.
See "DIVIDEND POLICY." In the event of a liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to share ratably in all
assets of the Company remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock
have no preemptive or other subscription of conversion rights. There are no
redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED STOCK
Effective upon the closing of the offering and pursuant to the Company's
Certificate of Incorporation, the Board of Directors will have the authority,
without further action by the stockholders, to issue up to 2,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, any or all of which may be greater than the rights of Common
Stock, without any further vote or action by stockholders. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock after consummation of the Offering.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business
26
<PAGE>
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested holder, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) at or subsequent to such
time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
In general, Section 203 defines business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder, (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder,
(iii) subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder, (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock or any class or
series of the corporation beneficially owned by the interested stockholder or
(v) the receipt by the interested stockholder of the benefit of any loss,
advances, guarantees, pledges or other financial benefits by or through the
corporation. In general, Section 203 defines interested stockholder as an
entity or person beneficially owning 15% or more of the outstanding stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LISTING
Application has been made to have the Common Stock approved for quotation
on the Nasdaq Small Cap Market under the symbol "PROO."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
Corporate Stock Transfer. Its address is Corporate Stock Transfer, Republic
Plaza, 370 17th Street, Suite 2350, Denver, Colorado 80202-4614 and its
telephone number is (303) 595-3300.
PLAN OF DISTRIBUTION
The Shares offered hereby are being offered on a best efforts basis by
Global Financial Group, Inc. (the "Placement Agents") as the Company's exclusive
selling agent. The Placement Agents will receive a selling commission equal to
10% of the initial public offering price for all Shares sold by the Placement
Agents, and a non-accountable expense allowance equal to 3% of the initial
public offering price for all Shares sold in the Offering. In addition, the
Placement Agents will receive warrants to purchase a number of shares equal to
10% of the number of Shares sold in the Offering, at an exercise price of $6.00
per Share, expiring 5 years from the date of sale. The Placement Agents may
syndicate the Shares through certain securities dealers at the initial public
offering price less a selling concession to be negotiated between the Placement
Agents and any such dealer and to be paid by the Placement Agents out of the
foregoing compensation.
27
<PAGE>
Bank Windsor of Minneapolis, Minnesota will hold subscribers' funds in an
interest-bearing escrow account until the closing of the Offering. Upon
consummation of the Offering, interest will be used to pay the expenses of the
escrow account. Any remaining interest will be remitted to the Company. Upon
termination of the Offering, subscribers will receive from Bank Windsor return
of their funds along with interest earned on their funds from the date of
deposit to the date of such termination.
Prior to this Offering, there has been no public market for the Shares.
The initial public offering price was determined by the Company and the
Placement Agents based on several factors, including prevailing market
conditions, the Company's historical performance, estimates of the business
potential and earnings prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuations of companies in related businesses.
The Company has agreed to indemnify the several Placement Agents against
such certain liabilities, including liabilities under the Securities Act of
1933.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after this Offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the future sale of equity
securities. Upon completion of this Offering the Company will have
approximately 4,661,445 shares of Common Stock outstanding, based on the number
of shares of Common Stock outstanding as of June 30, 1998. In addition, the
Company will have outstanding warrants to purchase 72,500 shares of Common
Stock, and 175,175 shares of Common Stock will be issuable upon conversion of
certain long-term debt, at the election of the holders thereof. Pursuant to an
agreement with Sunkyong U.S.A., the Company may also become obligated to issue
up to 320,000 shares of Common Stock. See "BUSINESS--International Operations."
Of the 4,661,445 shares to be outstanding after the Offering, the 1,000,000
shares offered hereby will be freely tradeable without restriction under the
Securities Act, unless they are held by "affiliates" of the Company as that term
is used in Rule 144 under the Securities Act.
The remaining 3,661,445 outstanding shares are "restricted securities"
within the meaning of Rule 144. Of these shares, approximately 137,000 will be
eligible for sale in the public market at the Effective Date. Beginning in
December 1998, an additional approximately 99,000 of such restricted shares
become eligible for sale in the public market upon expiration of the one year
holding period under Rule 144. Beginning in March, April, May and June 1999, an
additional approximately 24,500, 56,700, 66,150 and 39,200 of such restricted
shares become eligible for sale in the public market upon expiration of the one
year holding period under Rule 144. Beginning in July 1999, an additional
approximately 39,200 shares issued after June 30, 1998 become eligible for sale
in the pubic market upon expiration of the one year holding period under Rule
144. Upon the expiration of agreements not to sell shares entered into with the
Company, 15 months after the date hereof, approximately 3,238,895 of such
restricted shares will become eligible for sale subject to the provisions of
Rule 144. Prior to this offering, there has been no public market for the
Common Stock of the Company, and any sale of substantial amounts in the open
market may adversely affect the market price of the Common Stock offered hereby.
See "DESCRIPTION OF CAPITAL STOCK--Common Stock" and "RISK FACTORS--Shares
Eligible for Future Sale."
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
World Associates Inc.
We have audited the accompanying consolidated balance sheet of World Associates
Inc. and subsidiary as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1997 and 1996. 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.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Associates Inc. and
subsidiary as of December 31, 1997, and the results of its operations, and its
cash flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern.
As shown in the consolidated financial statements, the company incurred a net
loss of $692,998 for 1997 and has incurred substantial net losses for each of
the past four years. At December 31, 1997, current liabilities exceed current
assets by $169,137 and total liabilities exceed total assets by $491,228. These
factors, and the others discussed in Note 12, raise substantial doubt about the
company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the company cannot continue in
existence.
Stark Tinter & Associates, LLC
Englewood, Colorado
May 1, 1998
Except for Note 10, dated July 30, 1998
F-1
<PAGE>
WORLD ASSOCIATES INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash $ 4,761
Due from officer (Note 4) 40,300
-----------
Total current assets 45,061
Property and equipment - net of accumulated
depreciation (Note 2) 17,881
Other assets 5,168
-----------
$ 68,110
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Note payable, employee (Note 5) $ 15,000
Accounts payable 126,626
Accrued interest 56,333
Due to employees 5,128
Deferred revenue 11,111
-----------
Total current liabilities 214,198
-----------
Long term debt (Note 6)
Note payable, stockholder 50,000
Bonds payable - stockholders 235,000
Bonds payable 5,000
-----------
Total long term debt 290,000
-----------
Other non-current liabilities
Net liabilities from discontinued operations (Note 8) 55,140
-----------
Stockholders' (deficiency) (Note 7)
Preferred stock, Series A, convertible,
cumulative, no stated value, 500,000 shares authorized,
116,900 shares issued and outstanding 584,500
Preferred stock, Series B, convertible, cumulative,
no stated value, 500,000 shares authorized, 185,200
issued and outstanding 212,800
Common stock, no stated value, 10,000,000 shares
authorized, 897,534 shares, issued and outstanding 82,095
Accumulated deficit (1,370,623)
-----------
Total stockholders' deficiency (491,228)
-----------
$ 68,110
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
WORLD ASSOCIATES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Revenue $ 119,072 $ 188,455
Cost of revenues 95,545 7,251
---------- ---------
Gross profit 23,527 181,204
---------- ---------
Operating expenses:
Sales, general and administrative 678,214 366,496
Depreciation 3,616 1,211
---------- ---------
Total operating expenses 681,830 367,707
---------- ---------
Operating loss (658,303) (186,503)
Interest expense 31,632 20,229
---------- ---------
Loss from continuing operations (689,935) (206,732)
Discontinued operations:
Loss from operations of Team Family segment,
estimated to be disposed of on or before
December 31, 1998 (Note 8) 3,063 52,755
Estimated loss on disposal of Team Family segment,
including provision for operating losses of
$6,125 during phase-out period (Note 8) -- 89,517
---------- ---------
Net Loss $ (692,998) $(349,004)
---------- ---------
---------- ---------
Per share information:
Weighted average shares outstanding 868,188 835,484
---------- ---------
---------- ---------
Loss per common share
Loss from continuing operations $ (0.795) $ (0.247)
Loss from discontinued operations 0.004 0.063
Estimated loss on disposal of Team Family segment -- 0.107
---------- ---------
Net loss per common share $ (0.798) $ (0.418)
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WORLD ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK PREFERRED STOCK DEFICIT
COMMON STOCK SERIES A SERIES B (NOTE 5) TOTAL
---------------- ---------------- ---------------- ----------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ------ -------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 811,499 $81,235 10,000 $ 50,000 55,000 $ 50,050 $ (328,621) $(147,336)
Bonds converted to Stock 10,000 50,000 50,000
Issuance of stock for cash 11,000 55,000 80,000 100,000 155,000
Stock issued in consideration
for loans received (Note 7) 1,429 14 14
Stock issued in consideration for
services rendered (Note 7) 78,035 780 780
Net Loss for 1996 (349,004) (349,004)
------- ------- ------ -------- ------- -------- ----------- ---------
Balance at January 1, 1997 890,963 82,029 31,000 155,000 135,000 150,050 (677,625) (290,546)
Bonds converted to Stock 20,800 104,000 20,000 25,000 129,000
Issuance of stock for cash 63,850 319,250 30,200 37,750 357,000
Stock issued in consideration for
loans received (Note 7) 1,071 11 11
Stock issued in consideration for
services rendered (Note 7) 5,500 55 1,250 6,250 6,305
Net loss for 1997 (692,998) (692,998)
------- ------- ------- -------- ------- -------- ----------- ---------
Balance at December 31, 1997 897,534 $82,095 116,900 $584,500 185,200 $212,800 $(1,370,623) $(491,228)
------- ------- ------ -------- ------ -------- ----------- ---------
------- ------- ------ -------- ------ -------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WORLD ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(692,998) $(349,004)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 3,616 1,211
Changes in assets and liabilities:
(Increase) decrease in due from officer (37,796) 9,000
Decrease in prepaid expenses 4,299 --
Decrease in inventory -- 89,517
(Increase) in other assets (1,855) --
Increase (decrease) in accounts payable 99,882 (4,880)
Increase in accrued interest 25,279 31,054
Increase (decrease) in due to employees (1,364) 6,492
Increase in deferred revenue 11,111 --
Increase (decrease) in liabilities of discontinued operations (17,836) 72,976
--------- --------
Total adjustments 85,336 205,370
--------- --------
Net cash (used in) operating activities (607,662) (143,634)
--------- --------
Cash flows from investing activities:
Purchase of fixed assets (10,288) (2,874)
--------- --------
Net cash (used in) investing activities (10,288) (2,874)
--------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 65 482
Net proceeds from issuance of preferred stock series A 429,500 105,000
Net proceeds from issuance of preferred stock series B 62,750 100,000
Proceeds from notes payable 65,000 --
Payments on notes payable -- (39,811)
Proceeds from Bonds payable 60,081 --
Payments on Bonds payable (13,848)
--------- --------
Net cash provided by financing activities 617,396 151,823
--------- --------
Net increase in cash (554) 5,315
Beginning-cash 5,315 --
--------- --------
Ending - cash $ 4,761 $ 5,315
--------- --------
--------- --------
Supplemental Cash Flow Information:
Non-cash Financing activities excluded above
Preferred Stock, Series A issued for consulting services 6,000 --
Common Stock issued for consulting services 2,320 2,015
Common Stock issued as an inducement for notes payable 25 14
Preferred Stock, Series A issued for bonds payable converted 104,000 50,000
Preferred Stock, Series B issued for bonds payable converted 25,000 --
--------- --------
Net non-cash Financing Activities 137,345 52,029
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated in 1993 under the name of World Associates, Inc.
The Company conducts destination golf schools using its instructional system to
provide mental profile assessments. The Company also licenses learning center
franchises which are located at independent sites where the Company's golf
curriculum is taught.
Consolidation
The accompanying consolidated financial statements include the accounts of The
Company and a 100% owned subsidiary. The Company's subsidiary was incorporated
in 1996 under the name Team Family, in February 1997 amended articles of
Incorporation were filed in Delaware to change the Company's name to Proformance
Research Organization, Inc. ("PRO") All significant inter-company accounts and
transactions have been eliminated.
Revenue recognition
Revenues are recognized in the period when the customer attends the golf school.
Revenues collected in advance of attendance are deferred. Selling and
promotional expenses are charged to expense as incurred.
Depreciation
The cost of equipment is depreciated over the estimated useful lives (5 years)
of the related assets. Depreciation is computed on the straight-line method for
financial reporting purposes.
Use of estimates
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions the affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during the
reporting periods.
The Company attempts to make reasonably dependable estimates. However,
uncertainties inherent in the estimation process, actual results could differ
from those estimates.
Net loss per share
The net loss per share amounts are based on the weighted average number of
common shares outstanding for the period.
F-6
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $13,992
Leasehold improvements 336
Equipment 12,530
-------
26,858
Less: Accumulated depreciation 8,977
-------
Total $17,881
-------
-------
</TABLE>
Note 3. LEASE OBLIGATION
The Company leases office facilities of approximately 6,200 square feet under an
operating lease arrangement for $2,700 per month. The lease expires on
October 30, 1999.
Minimum future lease payments required as of December 31, 1997 under this non-
cancelable operating lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $32,400
1999 27,000
-------
Total future minimum rental payments $59,400
-------
-------
</TABLE>
Note 4. RELATED PARTY TRANSACTIONS
During 1997 the Company advanced varying amounts to the president of the
Company. The balance of the advances at December 31, 1997 was $40,300. These
advances are unsecured and have no set interest or repayment terms.
On July 4, 1997, the Company entered into a binding Letter of Intent with
Proformance Research Organization/Weiner, Inc. ("PROW"). The president and the
sole shareholder of PROW is a director of the Company. Under this letter of
intent, PROW agreed, on or before the final day of an offering of the Company's
stock, (see note 10), to subscribe for and purchase a number of shares of the
Company's preferred stock.
Note 5. NOTE PAYABLE, EMPLOYEE
The note payable, employee bears interest at the rate of 10% per annum.
Principle and interest is due February 1, 1998. The note is unsecured.
F-7
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. LONG TERM DEBT
Following is a summary of long term debt at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
10% promissory note payable to a stockholder,
converted to a 12% bond, interest payable
semi annually due 2002. $ 50,000
12% convertible bonds payable to
stockholders, interest payable semi-annually
(currently in default), convertible at any
time into Series A Convertible Preferred
Stock at rate of $5 per share, annually
redeemable on the anniversary date of
issuance at the holders option, unsecured 235,000
12% convertible bonds payable, interest
payable semi-annually (in default),
convertible at any time into Series A
Convertible Preferred Stock at rate of $5 per
share, annually redeemable on the anniversary
date of issuance at the holders option,
unsecured 5,000
--------
$290,000
--------
--------
</TABLE>
Note 7. STOCKHOLDERS' EQUITY
During 1997 the company issued 5,500 shares of Common Stock and 1,250 shares of
Series A Convertible Preferred Stock ("Series A") in exchange for consulting
services rendered. Also, during 1996 the Company issued 78,035 shares of Common
Stock in exchange for consulting services rendered. The cost of the services
has been charged to operations and stockholders' equity has been increased by
$6,305 and $780, in 1997 and 1996, respectively.
During 1997 and 1996, respectively, the Company issued 1,071 and 1,429 shares of
Common Stock as inducements for loan funds received.
The Company's Series A and Series B Convertible Preferred Stock ("Series B")
have no voting rights and pay cumulative dividends at the rate of 0.000492% per
share of the Company's pre-tax profits until such time as the holder shall have
received $5 per share. Thereafter the dividend rate is 0.00005% of the
Company's pre-tax profits. The dividend on the Series B stock shall be junior
in preference to the dividend payable on the Series A stock and no dividends
shall be paid on the Series B stock until the dividend payable on the Series A
stock shall have been declared and paid or a sum sufficient for payment thereof
set apart. There have been no dividends accrued for 1997 or 1996.
Each share of Series A stock and Series B stock is convertible into one share of
common stock at any time at the option of the holder after the date of issuance.
Series A stock and Series B stock will be automatically converted into common
stock in the event that the Company completes a public offering of its common
stock. (See Note 10)
Note 8. DISCONTINUED OPERATIONS
On December 31, 1996, the company adopted a formal plan to dispose of the Team
Family segment of the business, a system of parenting and family development on
videotape and in a booklet. On December 31, 1996, the company wrote off its
inventory at a book value of $89,517. As of December 31, 1997 the disposal has
not yet been completed.
F-8
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net liabilities of discontinued operations consisted of the following at
December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Accounts payable $ 1,234
Due to distributors 17,800
Short-term note payable 35,000
Accrued interest 1,106
-------
$55,140
-------
-------
</TABLE>
Note 9. DESTINATION GOLF SCHOOL AGREEMENTS
The company has agreements with both a Colorado and a Nevada golf course. In
exchange for $64,675 in annual license fees the Company receives supplies,
storage and access to golf facilities. The company's golf school revenues are
generated from schools taught at these two locations and these costs are
included in cost of revenues on the income statement
Note 10. SUBSEQUENT EVENTS
The Company intends to offer 1,000,000 shares of common stock for sale in a
registered public offering on Form SB-2 at a price of $5.00 per share.
Effective July 31, 1998, the Company merged into PRO, its wholly-owned
subsidiary, with PRO surviving. Each issued and outstanding share of the
Company's Series A stock converted into 3.5 shares of Series A stock of PRO.
Each issued and outstanding share of the Company Series B converted into 3.5
shares of Series B of PRO. Each issued and outstanding share of the Company's
common stock converted into 2.8 shares common stock of PRO. The currently
issued and outstanding shares of PRO held by the Company were extinguished at
the effective time of merger.
During January 1998, a director of the Company entered into a stock purchase
agreement for preferred stock. The agreement provides that the investor will
purchase a number of shares of the Company's preferred stock equal to the number
of common shares not purchased in the above referenced offering at a purchase
price of $5.00 per share. This purchase was previously agreed to pursuant to a
letter of intent. On July 15, 1998, the Company entered into a Common Stock
Purchase Agreement which modified the terms of the January agreement. The new
agreement provides that the investor will purchase a number of shares of the
Company's Common Stock equal to the number of common shares not otherwise
purchased in the above-referenced offering at a purchase price of $5.00 per
share. (See Note 4.)
Note 11. INCOME TAXES
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse.
The net operating loss carry forward as of December 31, 1997 is approximately
$1,300,000 which will expire through year 2002. The tax benefit of the loss
carry forward has been offset by a valuation allowance of the same amount. The
expected tax benefit that would result from applying federal
F-9
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statutory tax rates to the pre-tax loss differs from amounts reported in the
financial statements because of the increase in the valuation allowance.
Note 12. CONTINUING LOSSES, DEFICIT IN EQUITY AND NEGATIVE WORKING CAPITAL
The consolidated financial statements have been prepared in conformity with
generally accepted principles, which contemplates continuation of the company as
a going concern. However, the Company has sustained substantial operating
losses in recent years. In addition, the Company has used substantial amounts
of working capital in its operations. Further, at December 31, 1997, current
liabilities exceeded current assets by $169,137 and total liabilities exceed
total assets by $491,228. The Company intends to offer common stock for sale in
a Regulation A Public Offering (Note 10.) Management believes this offering
will provide the opportunity to obtain additional capital.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The ability of the Company to continue operations
as a going concern is dependent upon its success in (1) obtaining additional
capital; (2) paying its obligations timely; and (3) ultimately achieving
profitable operations. The financial statements do not include any adjustments
which might result from the outcome of these uncertainties.
F-10
<PAGE>
WORLD ASSOCIATES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 230,181
Accounts Receivable -- Trade . . . . . . . . . . . . . . . 8,967
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . 2,783
Due from Officer . . . . . . . . . . . . . . . . . . . . . 40,300
-----------
Total Current Assets. . . . . . . . . . . . . . . . . . 282,231
Fixed Assets:
Leasehold Improvements . . . . . . . . . . . . . . . . . . 1,326
Furniture & Fixtures . . . . . . . . . . . . . . . . . . . 17,083
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 21,960
-----------
Total Fixed Assets . . . . . . . . . . . . . . . . . . . . . 41,369
Less: Accumulated Depreciation . . . . . . . . . . . . 10,777
-----------
Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . $ 29,592
-----------
-----------
Other Assets:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 4,856
Due From Team Family . . . . . . . . . . . . . . . . . . . 64,513
Players Edge Distributorship . . . . . . . . . . . . . . . 313
-----------
Total Other Assets . . . . . . . . . . . . . . . . . . . . $ 69,681
-----------
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $ 381,503
-----------
-----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accrued Wages. . . . . . . . . . . . . . . . . . . . . . . $ 22,519
Accounts Payable . . . . . . . . . . . . . . . . . . . . . 189,297
Accrued Interest . . . . . . . . . . . . . . . . . . . . . 90,240
Payroll Taxes Payable. . . . . . . . . . . . . . . . . . . 293
Sales Tax Payable. . . . . . . . . . . . . . . . . . . . . 5,476
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . 42,391
Notes Payable. . . . . . . . . . . . . . . . . . . . . . . 431,700
-----------
Total Current Liabilities . . . . . . . . . . . . . . . 781,916
-----------
Long Term Liabilities
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . 252,500
-----------
Total Long Term Liabilities . . . . . . . . . . . . . . 252,500
Total Liabilities . . . . . . . . . . . . . . . . . . . 1,034,416
Stockholders equity
Preferred Stock, Series A. . . . . . . . . . . . . . . . . 1,001,500
Preferred Stock, Series B. . . . . . . . . . . . . . . . . 212,800
Common Stock . . . . . . . . . . . . . . . . . . . . . . . 8,725
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . 73,370
Accumulated Deficit. . . . . . . . . . . . . . . . . . . . (1,949,308)
-----------
Total Equity. . . . . . . . . . . . . . . . . . . . . . (652,912)
-----------
$ 381,503
-----------
-----------
</TABLE>
F-11
<PAGE>
WORLD ASSOCIATES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Total Revenue. . . . . . . . . . . . . . . . $ 236,156 $ 73,538
Cost of Revenues . . . . . . . . . . . . . . 113,567 8,274
--------- ---------
Gross Profit . . . . . . . . . . . . . . . . 122,589 65,264
--------- ---------
Operating Expenses:
Sales, General & Administrative. . . . . . 812,977 286,635
Depreciation . . . . . . . . . . . . . . . 1,800 1,815
--------- ---------
Total Operating Expenses . . . . . . . . 814,777 288,450
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . $(692,188) $(223,186)
--------- ---------
--------- ---------
</TABLE>
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $(692,188)
Adjustments to net income:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 1,800
(Increase) decrease in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . (8,968)
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . (2,783)
Increase (decrease) in:
Notes payable, employees . . . . . . . . . . . . . . . . . 9,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . 90,661
Accrued Interest . . . . . . . . . . . . . . . . . . . . . 33,907
Due to employee. . . . . . . . . . . . . . . . . . . . . . (5,128)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . 31,280
Notes payable. . . . . . . . . . . . . . . . . . . . . . . 300,000
---------
Net cash used by operating activities. . . . . . . . . . (242,419)
---------
Cash flows from investing activities:
Purchases of equipment . . . . . . . . . . . . . . . . . . 13,511
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 6,150
---------
Net cash used by investing activities. . . . . . . . . . (19,661)
---------
Cash flows from financing activities:
New Borrowings
Long term. . . . . . . . . . . . . . . . . . . . . . . . 70,500
Debt reductions
Long term. . . . . . . . . . . . . . . . . . . . . . . . --
Short term . . . . . . . . . . . . . . . . . . . . . . . --
Proceeds from issuing common stock . . . . . . . . . . . . --
Proceeds from issuing preferred stock. . . . . . . . . . . 417,000
---------
Net cash provided by investing activities. . . . . . . . 487,500
---------
Net increase (decrease) in cash. . . . . . . . . . . . . . . 225,420
Cash at beginning of year. . . . . . . . . . . . . . . . . . 4,761
---------
Cash at end of period. . . . . . . . . . . . . . . . . . . . $ 230,181
---------
---------
</TABLE>
F-12
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
consolidated interim financial information and Regulations of the Securities and
Exchange Commission. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the period presented are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the audited consolidated financial statements of
the Company as of December 31, 1997 and for the two years then ended, including
notes thereto, included elsewhere in this Prospectus.
F-13
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY PLACEMENT AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, COMMON STOCK IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
_____________
TABLE OF CONTENTS
PAGE
----
Prospectus Summary . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . 4
Dividend Policy. . . . . . . . . . . . . . . . . . 10
Use of Proceeds. . . . . . . . . . . . . . . . . . 10
Dilution . . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . . . 11
Business . . . . . . . . . . . . . . . . . . . . . 16
Property . . . . . . . . . . . . . . . . . . . . . 22
Employees. . . . . . . . . . . . . . . . . . . . . 22
Directors, Executive Officers
and Significant Employees . . . . . . . . . . 22
Certain Transactions . . . . . . . . . . . . . . . 24
Executive Compensation . . . . . . . . . . . . . . 24
Principal Stockholders . . . . . . . . . . . . . . 25
Description of Capital Stock . . . . . . . . . . . 26
Plan of Distribution . . . . . . . . . . . . . . . 27
Shares Eligible for Future Sale. . . . . . . . . . 28
Audited Consolidated Financial Statements. . . . . F-1
Unaudited Consolidated Financial Statements
as of June 30, 1998 and for the six-month
periods ended June 30, 1998 and 1997. . . . . F-11
_____________
UNTIL __________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS PLACEMENT AGENTS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,000,000 SHARES
PROFORMANCE RESEARCH
ORGANIZATION, INC.
COMMON STOCK
__________________________
PROSPECTUS
__________________________
GLOBAL FINANCIAL GROUP, INC.
Subject to Completion, dated
August 14, 1998
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of
Delaware, the Registrant has broad powers to indemnify its directors and
officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Bylaws (Exhibit 3.2 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation
(Exhibit 3.1 hereto) provides that the liability of its directors for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law. Pursuant to Delaware law, this includes elimination of liability for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its Stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
Prior to the effective date of the Registration Statement, the
Registrant will have entered into agreements with its directors and certain of
its executive officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness
of the Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The Placement Agent Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Placement Agents of
the Registrant and its officers and directors for certain liabilities arising
under the Securities Act or otherwise.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than Placement Agent
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
Amount*
--------
<S> <C>
Securities and Exchange Commission Filing Fee . . . . . $ 1,983
NASD Filing Fee . . . . . . . . . . . . . . . . . . . .
Nasdaq Small Cap Market Listing Fee . . . . . . . . . .
Accounting Fees and Expenses. . . . . . . . . . . . . .
Blue Sky Fees and Expenses. . . . . . . . . . . . . . .
Placement Agent Expenses. . . . . . . . . . . . . . . . 150,000
Legal Fees and Expenses . . . . . . . . . . . . . . . .
Transfer Agent and Registrar Fees and Expenses. . . . .
Printing Expenses . . . . . . . . . . . . . . . . . . .
Miscellaneous Expenses. . . . . . . . . . . . . . . . .
--------
Total. . . . . . . . . . . . . . . . . . . . . . . $250,000
--------
--------
__________
</TABLE>
* All amounts are estimates except the SEC filing fee, the NASD filing fee
and the Nasdaq Small Cap Market listing fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
For the period from August 1995 to August 1998, the Registrant has issued
and sold the following unregistered securities:
On December 31, 1995, the Company issued 11,398 shares of Common Stock
to 2 persons in exchange for services rendered.
On November 3, 1995, the Company issued 10,500 shares of Series A
Preferred Stock to one investor at a cash purchase price of $1.43 per share.
On April 4, 1996, the Company issued 118,398 shares of Common Stock to 3
persons in exchange for services rendered.
Between February 15 and June 11, 1996, the Company issued a total of
31,500 shares of Series A Preferred Stock to 3 investors at a cash purchase
price of $1.43 per share.
On February 22, 1996, the Company issued 280,000 shares of Series B
Preferred Stock to one investor at a cash purchase price of $0.36 per share.
On October 21 and November 1, 1996, the Company issued a total of
104,101 shares of Common Stock to one employee in exchange for services
rendered.
Between July 11 and November 1, 1996, the Company issued a total of 49,000
shares of Series A Preferred Stock to 2 investors at a cash purchase price of
$1.43.
On March 4 and 14, 1997, the Company issued a total of 1,999 shares of
Common Stock to 2 persons in exchange for services rendered.
Between January 20, 1997 and March 15, 1997, the Company issued a total
of 42,000 shares of Series A Preferred Stock to a total of 7 investors at a
cash purchase price of $1.43 per share.
Between May 14 and 18, 1997, the Company issued a total of 84,000
shares of Series B Preferred Stock to two investors at a cash purchase price
of $0.36 per share.
On May 28, 1997, the Company issued 999 shares of Common Stock to one
person in exchange for services rendered.
Between May 21, 1997 and September 30, 1997, the Company issued a total
of 108,150 shares of Series A Preferred Stock to a total of 19 investors at a
cash purchase price of $1.43 per share.
Between May 28 and July 31, 1997, the Company issued a total of 91,700
shares of Series B Preferred Stock to a total of 3 investors at a cash
purchase price of $0.36 per share.
On October 23, 1997, the Company issued 15,400 shares of Common Stock to
one person in exchange for services rendered.
Between October 1 and December 17, 1997, the Company issued a total of
171,500 shares of Series A Preferred Stock to a total of 15 investors at a
cash purchase price of $1.25 per share.
Between March 26, 1998 and August 9, 1998, the Company issued a total of
237,300 shares of Series A Preferred Stock to a total of 49 investors at a
cash purchase price of $1.43 per share.
The sale and issuance of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act by virtue of
Rule 506 promulgated thereunder.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No Placement Agents were employed in
any of the above transactions.
ITEM 27. EXHIBITS
The exhibits are as set forth in the Exhibit Index.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide the Placement Agents at the
closing specified in the Placement Agent Agreement certificates in such
denominations and registered in such names as required by the Placement Agents
to permit prompt delivery to each purchaser.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the issuer pursuant to the foregoing provisions, or
otherwise, the issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the issuer in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this Registration Statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial BONA FIDE
offering of those securities.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado on the 11th day of August, 1998.
PROFORMANCE RESEARCH
ORGANIZATION, INC.
By: /s/ William D. Leary
---------------------------------
William D. Leary
PRESIDENT, TREASURER AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William D. Leary as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and sign any registration statement for the same
offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1993, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ William D. Leary President, Treasurer and August 11, 1998
- --------------------- Director (Principal
William D. Leary Executive, Financial
and Accounting Officer)
/s/ Robert B. Lange Director August 11, 1998
- ---------------------
Robert B. Lange
/s/ John C. Weiner Director August 11, 1998
- ---------------------
John C. Weiner
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Title
- ------- -----
1.1 Agency Agreement dated ______________, 1998 between the Company
and Global Financial Group, Inc.
1.2* Escrow Agreement dated _______________, 1998 among the Company,
the Placement Agents and Bank Windsor as escrow agent
3.1 Amended and Restated Certificate of Incorporation
3.2 Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
5.1* Opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.
10.1 Distribution Agreement between the Company and Dave
Bisbee, dated August 22, 1996
10.2 Distribution Agreement between the Company and
William D. Leary
10.3* Lease between Fernal Inc. and William D. Leary and the
Company, dated May 1, 1997, as amended by an Addendum
to Lease between Mach One and World Associates, Inc.
dated April 4, 1998
10.4 Common Stock Purchase Agreement with Proformance Research
Organization/Weiner, Inc. dated July 15, 1998
10.5* Sublease dated April 21, 1998 between Mach One Corporation and
Proformance Research Organization, Inc.
10.6* Employment Agreement between the Company and William D. Leary
dated July 1, 1998
23.1* Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. Reference
is made to Exhibit 5.1
23.2 Consent of Stark Tinter & Associates, LLC. Reference is made
to page II-___
24.1 Powers of Attorney. Reference is made to page II-4
_________________
* To be filed by amendment.
II-5
<PAGE>
AGENCY AGREEMENT
__________ ____, 1998
Mr. Kevin S. Miller, President
Global Financial Group, Inc.
100 Washington Avenue South, Suite 1319
Minneapolis, MN 55401
Gentlemen:
Proformance Research Organization, Inc. ("Company"), a Delaware
corporation, proposes to issue and sell through you ("Agent") 1,000,000 shares
of the Company's $0.0001 par value common stock for $5.00 per share ("Shares").
The offering of the Shares is further described in the Small Business Company
Registration Statement ("Registration Statement") filed on Form SB-2 with the
United States Securities and Exchange Commission ("Commission").
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce
the Agent to enter into this Agreement, the Company represents and warrants as
follows:
a) The Company has filed a Registration Statement (No.
_______________) on Form SB-2 relating to the Shares with the Commission
pursuant to the Securities Act of 1933 ("Act"), as amended, and the
Registration Statement was declared effective on ________________, 19___.
The Company has furnished to the Agent and to its legal counsel two signed
and ten conformed copies of the Registration Statement together with all
amendments and exhibits. As used in this Agreement, the term
"Registration Statement" means the Registration Statement, including the
Prospectus, the exhibits and the financial statements and all amendments
including any amendments after the effective date of the Registration
Statement. The term "Prospectus" means the Prospectus filed as a part of
Part II of the Registration Statement, including all pre-effective and
post-effective amendments and supplements thereto.
b) The Registration Statement and all other documents previously
filed or filed after the date hereof with the Commission conform and will
conform with all of the requirements of the Act in all material respects.
Neither the Registration Statement, the Prospectus nor the other material
filed or to be filed with the Commission contains nor will contain any
untrue statements of material fact nor are there or will there be any
omissions of material facts required to be stated therein or that are
necessary to make the statements therein not misleading, except that this
warranty does not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by and with respect to you, or any dealer through you, expressly
for use in the Registration Statement or Prospectus or any amendment or
supplement thereto.
c) The Company has obtained a CUSIP number for its common stock
and the Company has used its best efforts to qualify the Shares for
offering in every state reasonably designated by the Agent. The materials
previously filed or filed after the date hereof with any state do not and
will not contain any untrue statements of material fact nor are there or
will there be any omissions of material facts required to be stated
therein or that are necessary to make the statements therein not
misleading.
<PAGE>
d) The outstanding capital stock of the Company has been duly and
validly authorized, issued and is fully paid and non-assessable and
conforms to all statements made in the Registration Statement and
Prospectus with respect thereto. The Shares, Warrants (as defined in
paragraph 6 hereof) have been duly and validly authorized and, when issued
and delivered against payment as provided in this Agreement, will be
validly issued, fully paid and non-assessable. The Shares and Warrant
Shares, upon issuance, will not be subject to the preemptive rights of any
shareholders of the Company. The Warrants, when sold and delivered, will
constitute valid and binding obligations of the Company enforceable in
accordance with their terms. A sufficient number of shares of common
stock have been reserved for issuance upon exercise of the Warrants. The
Shares, Warrant Shares and Warrants will conform to all statements in the
Registration Statement and Prospectus. Upon delivery of and payment for
the Warrants to be sold by the Company as set forth in this Agreement, the
Agent and its designees will receive good and marketable title thereto,
free and clear of all liens, encumbrances, charges and claims except those
created by, through or under the Agent and except restrictions on transfer
arising under federal and state securities laws and their rules and
regulations. The Company will have on the Effective Date (as defined in
paragraph 1.h) hereof) of the Registration Statement and at the time of
delivery of such Warrants full legal right and power and all authorization
and approval required by law to sell, transfer and deliver such Warrants
in the manner provided hereunder.
e) The Company has been legally incorporated and is now, and
always during the period of the offering will be, a validly existing
corporation under the laws of the State of Delaware, lawfully qualified to
conduct the business for which it was organized and which it proposes to
conduct. The Company will always during the period of the offering be
qualified to conduct business as a foreign corporation in each
jurisdiction where the nature of its business requires such qualification.
f) The Company has an authorized capitalization of 20,000,000
shares of common stock ($0.0001 par value) and 2,000,000 shares of
Preferred Stock ($0.0001 par value), of which 1,000,000 shares are
designated Series C Convertible Preferred Stock ($0.0001 par value). If
the Shares are sold, the Shares will represent at least ____% of the
Company's shares of common stock outstanding after the public offering.
Common stock underlying outstanding options and warrants except options
issued pursuant to the COMPANY'S INCENTIVE STOCK OPTION PLAN DESCRIBED IN
PARAGRAPH 1.g) ??? and except the Warrants will be deemed to be
outstanding for purposes of determining the number of shares of the
Company's common stock outstanding after the public offering. There are
no outstanding options, warrants or other rights to purchase securities of
the Company, however characterized, held in its treasury. With respect to
the offer to sell, sale, offer to purchase or purchase of any of its
securities, the Company has not made any intentional or reckless
violations of the anti-fraud provisions of the federal securities laws,
rules or regulations promulgated thereunder or the laws, rules or
regulations of any jurisdiction wherein such securities transactions or
solicitations occurred.
G) THE BOARD OF DIRECTORS OF THE COMPANY AND THE SHAREHOLDERS OF
THE COMPANY HAVE ADOPTED AN INCENTIVE STOCK OPTION PLAN DESIGNED TO
QUALIFY UNDER SECTION 422A OF THE INTERNAL REVENUE CODE. THE INCENTIVE
STOCK OPTION PLAN RELATES TO ______________ SHARES OF THE COMPANY'S COMMON
STOCK AND ANY OPTIONS GRANTED PURSUANT THERETO THAT ARE OUTSTANDING ON THE
DATE HEREOF AND THAT WILL BE OUTSTANDING ON THE CLOSING OF THE OFFERING OF
THE SHARES WILL HAVE AN EXERCISE PRICE OF AT LEAST $______ PER SHARE.
h) During the period of the offering of the Shares and for one
(1) year from the
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date the Commission declares the Registration Statement to be effective
("Effective Date"), the Company will not sell any securities (except
options issued pursuant to the Company's Incentive Stock Option Plan,
except any shares issued upon the exercise of such options, except any
shares issued upon the exercise of any other options or warrants
outstanding on the Effective Date and except the Warrants) without the
Agent's prior written consent, which will not be unreasonably withheld.
i) The Company has caused each of its officers and directors and
has used its best efforts to cause each of its other shareholders to enter
into an agreement with the Agent pursuant to the terms of which each such
person has agreed not to sell any shares owned directly or indirectly by
such person FOR A PERIOD OF TWENTY-FOUR (24) MONTHS ??? from the Effective
Date of the Registration Statement without the Agent's prior written
consent, which will not be unreasonably withheld. The Company has
obtained such an agreement from shareholders owning at least ________% of
the Company's outstanding common stock and no more than two (2)
shareholders have refused to sign such an agreement.
j) The Company has no subsidiaries nor contemplates acquiring
subsidiaries or engaging in mergers with or the acquisition of any
companies.
k) The financial statements, together with related schedules and
notes, included in the Registration Statement and Prospectus present
fairly the financial condition of the Company and are reported upon by
independent public accountants according to generally accepted accounting
principles and as required by the rules and regulations of the Commission.
l) Except as disclosed in the Registration Statement and the
Prospectus, the Company does not have any contingent liabilities,
obligations or claims nor has it received threats of claims or regulatory
action. Further, except as disclosed in the Registration Statement and
the Prospectus, subsequent to the date information is given in the
Registration Statement and definitive Prospectus, and prior to the close
of the offering: (i) there shall not be any material adverse change in
the management or condition, financial or otherwise, of the Company or in
its business taken as a whole; (ii) there shall not have been any material
transaction entered into by the Company other than transactions in the
ordinary course of business; (iii) the Company shall not have incurred any
material obligations, contingent or otherwise, which are not disclosed in
the Registration Statement and the Prospectus; (iv) there shall not have
been nor will there be any change in the capital or long-term debt (except
current payments) of the Company; and (v) the Company has not and will not
have paid or declared any dividends or other distributions on its common
shares.
m) The Company's securities, however characterized, are not
subject to preemptive rights.
n) The Company will have the legal right and authority to enter
into this Underwriting Agreement upon its execution, to effect the
proposed sale of the Shares, to execute the Warrants and to effect all
other transactions contemplated by this Agreement.
o) The Company knows of no person who rendered any services in
connection with the introduction of the Company to the Agent. No broker's
or other finder's fees are due and payable by the Company and none will be
paid by it.
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p) The Company is eligible to use Form SB-2 for the offering of
the Shares.
q) The Company and its affiliates are not currently offering any
securities nor has the Company or its affiliates offered or sold any
securities except as required to be described in the Registration
Statement.
r) The Company will not file any amendment or supplement to the
Registration Statement, Prospectus or exhibits if the Agent and its
counsel have not been previously furnished a copy, or if the Agent or its
counsel have objected in writing to the filing of the amendment or
supplement.
s) The Company possesses adequate certificates or permits issued
by the appropriate federal, state and local regulatory authorities
necessary to conduct its business and to retain possession of its
properties. The Company has not received any notice of any proceeding
relating to the revocation or modification of any of these certificates or
permits.
t) The Company has filed all tax returns required to be filed and
is not in default in the payment of any taxes which have become due
pursuant to any law or any assessment.
u) The Company has marketable title to all properties including
intellectual properties described in the Registration Statement as owned
by it. The properties are free and clear of all liens, charges,
encumbrances or restrictions, however characterized, except as described
in the Registration Statement. All of the contracts, leases, subleases,
patents, copyrights, licenses and agreements, however characterized, under
which the Company holds its properties as described in the Registration
Statement are in full force and effect. The Company is not in default
under any of the material terms or provisions of any contracts, leases,
subleases, patents, copyrights, licenses or agreements under which the
Company holds its properties. There are no known claims against the
Company concerning the Company's rights under the leases, subleases,
patents, copyrights, licenses and agreements and concerning its right to
continued possession of its properties.
v) All original documents and other information relating to the
Company's affairs has and will continue to be made available upon request
to the Agent and to its counsel at the Agent's office or at the office of
the Agent's counsel and copies of any such documents will be furnished
upon request to the Agent and to its counsel. Included within the
documents made available have been at least the Articles of Incorporation
and any Amendments, Minutes of all of the meetings of the Incorporators,
Directors and Shareholders, all financial statements and copies of all
contracts, leases, patents, copyrights, licenses or agreements to which
the Company is a party or in which the Company has an interest.
w) The Company has appointed Union Stock Transfer, 13275 East
Fremont Place, Suite 302, Englewood, Colorado 80112-3917, as the Company's
transfer agent. The Company will continue to retain a transfer agent
reasonably satisfactory to the Agent for so long as the Company is subject
to the reporting requirements under Section 12(g) or Section 15(d) of the
Securities Exchange Act of 1934 and so long as the Agent is a principal
market-maker in shares of the Company's common stock. The Company will
make arrangements to have available at the office of the transfer agent
sufficient quantities of the Company's common stock certificates as may be
needed for the quick and efficient transfer of the Shares.
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<PAGE>
x) The Company will use the proceeds from the sale of the Shares
as set forth in the Registration Statement and Prospectus.
y) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement which have not been described or filed as required.
z) The Company is not in material default under any of the
contracts, leases, licenses or agreements to which it is a party. The
proposed offering of the Shares will not cause the Company to become in
material default under any of its contracts, leases, subleases, patents,
copyrights, licenses or agreements nor will it create a conflict between
the Company and any of the contracting parties to the contracts, leases
and other agreements. Further, the Company is not in material default in
the performance of any obligation, agreement or condition contained in any
debenture or loan agreement of the Company. The execution and delivery of
this Agreement will not conflict with or result in a breach of any of the
material terms, conditions or provisions of, or constitute a material
default under, the Articles of Incorporation or By-Laws of the Company, as
amended, or any note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or
any of its property is bound, or any existing law, order, rule,
regulation, writ, injunction, or decree of any government, governmental
instrumentality, agency or body, arbitration tribunal or court, domestic
or foreign, having jurisdiction over the Company or its property. The
consent, approval, authorization or order of any court or governmental
instrumentality, agency or body is not required for the consummation of
the transactions herein contemplated except such as may be required under
the Act, under the Blue Sky or securities laws of any state or
jurisdiction, or the rules of the NASD (as defined in paragraph 2.a)
hereof).
There are no contracts or other documents which are required
to be filed as exhibits to the Registration Statement by the Act or its
rules and regulations which have not been so filed. Each contract to
which the Company is a party has been duly and validly executed, is in
full force and effect in all material respects in accordance with its
respective terms, and no contracts have been assigned by the Company,
except as disclosed in the Registration Statement and Prospectus. The
Company knows of no present situation, condition or fact which would
prevent compliance with the terms of such contracts. Except for
amendments or modifications of contracts in the ordinary course of
business and except as disclosed in the Registration Statement and
Prospectus, the Company has no intention of exercising any right which
would cancel any of its obligations under any contract, and has no
knowledge that any other party to any contract, in which the Company has
an interest, has any intention not to render full performance under such
contract.
aa) The Company has not made any representation, whether oral or
in writing, to anyone, whether an existing shareholder or not, that any of
the Shares will be reserved for or directed to them during the proposed
public offering.
bb) The Company has caused each of its current shareholders to
agree in writing with respect to shares acquired by them prior to the
Effective Date that they have acquired the shares for investment purposes
only and they acknowledge that they hold "restricted securities" as
defined in Rule 144.
cc) Except as disclosed in the Registration Statement and
Prospectus, there is and prior to the close of the offering of the Shares
to the public there will be, no action, suit or proceeding before any
court or governmental agency, authority or body pending, or
5
<PAGE>
to the knowledge of the Company, threatened which might result in
judgments against the Company not adequately covered by insurance or which
collectively might result in any material adverse change in the condition
(financial or otherwise), the business or the prospects of the Company, or
would materially affect the properties or assets of the Company.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE AGENT. The Agent represents
and warrants as follows:
a) It is registered as a broker-dealer with the Commission, in
good standing with the Minnesota Division of Securities and is registered,
to the extent registration is required, with the appropriate governmental
agency in each state in which it offers or sells the shares and is a
member of the National Association of Securities Dealers, Inc. ("NASD")
and will use its best efforts to maintain such registrations,
qualifications and memberships throughout the term of the offering.
b) To the knowledge of the Agent, no action or proceeding is
pending against the Agent or any of its officers or directors concerning
the Agent's activities as a broker or dealer that would affect the
Company's offering of the Shares.
c) The Agent will offer the Shares only in those states and in
the quantities that are identified in the Blue Sky Memorandum from the
Company's counsel to the Agent that the offering of the Shares has been
qualified for sale under the applicable state statutes and regulations.
The Agent, however, may offer the Shares in other states if (i) the
transaction is exempt from the registration requirements in that state,
(ii) the Company's counsel has received notice ten (10) days prior to the
proposed sale, and (iii) the Company's counsel does not object within said
10-day period.
d) The Agent, in connection with the offer and sale of the Shares
and in the performance of its duties and obligations under this Agreement,
agrees to use its best efforts to comply with all applicable federal laws;
the laws of the states or other jurisdictions in which the Shares are
offered and sold; and the rules and regulations of the NASD.
e) The Agent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado with all
requisite power and authority to enter into this Agreement and to carry
out its obligations hereunder.
f) This Agreement has been duly authorized, executed and
delivered by the Agent and is a valid agreement on the part of the Agent.
g) Neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will result in any breach of any
of the terms or conditions of, or constitute a default under, the Articles
of Incorporation or By-Laws of the Agent or any indenture, agreement or
other instrument to which the Agent is a party or violate any order
directed to the Agent of any court or any federal or state regulatory body
or administrative agency having jurisdiction over the Agent or its
affiliates.
6
<PAGE>
h) The Agent knows of no person who rendered any services in
connection with the introduction of the Company to the Agent. No person
acting by, through or under the Agent will be entitled to receive from the
Agent or from the Company any finder's fees or similar payments.
i) The written information provided by the Agent for inclusion in
the Registration Statement and Prospectus consists of certain information
on the front and back Prospectus cover pages, and that set forth under
"Underwriting" in the Prospectus.
j) The Agent will, reasonably promptly after the closing date,
supply the Company with all information required from the Agent for the
completion of Form SR and such additional information as the Company may
reasonably request to be supplied to the securities commissions of such
states in which the Shares have been qualified for sale.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
3. EMPLOYMENT OF THE AGENT. In reliance upon the representations and
warranties and subject to the terms and conditions of this Agreement:
a) The Company employs the Agent as its exclusive agent to sell
for the Company's account the Shares, on a cash basis only, at a price of
$5.00 per Share. The Agent agrees to use its best efforts, as agent for
the Company, to sell the Shares subject to the terms and conditions set
forth in this Agreement. It is understood between the parties that there
is no firm commitment by the Agent to purchase any or all of the Shares.
b) The obligation of the Agent to offer the Shares is subject to
receipt by it of written advice from the Commission that the Registration
Statement is effective, is subject to the Shares being qualified for
offering under applicable laws in the states as may be reasonably
designated by the Agent, is subject to the absence of any prohibitory
action by any governmental body, agency or official, and is subject to the
terms and conditions contained in this Agreement and in the Registration
Statement covering the offering to which this Agreement relates.
c) The Company and the Agent agree that, unless all of the Shares
to be offered are sold within ninety (90) days after the Effective Date
(which period may be extended for an additional period not to exceed
ninety (90) days by mutual agreement between the Company and the Agent),
the agency between the Company and the Agent will terminate. If the
agency between the Company and the Agent terminates, the full proceeds
which have been paid for the Shares shall be returned to the purchasers.
Prior to the sale of all of the Shares to be offered, all proceeds
received from the sale of the Shares will be deposited in an escrow
account entitled "Proformance Research Organization Escrow Account" with
Bank Windsor, 740 Marquette Avenue, Minneapolis, Minnesota 55402.
d) The Company, the Agent and Bank Windsor will, prior to the
beginning of the offering of the Shares, enter into a fund escrow
agreement in form satisfactory to the parties. The parties mutually agree
to faithfully perform their obligations under the fund escrow agreement.
The Agent will promptly deliver the funds into the escrow account in
accordance with Rule 15(c)2-4 of the Securities Exchange Act of 1934, as
amended but in any event not to exceed five (5) business days after
receipt of such funds.
e) The Agent shall have the right to associate with other agents
and dealers as it may determine and shall have the right to grant to such
persons such concessions out of
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<PAGE>
the commissions to be received by the Agent as the Agent may determine,
under and pursuant to a Participating Dealer Agreement in the form filed
as an exhibit to the Registration Statement.
f) Subject to the sale of all of the Shares, the Company agrees
to pay to the Agent an underwriting commission computed at the rate of
$.50 (10% of the public offering price) for each of the Shares sold by the
Agent at the public offering price of $5.00 per Share. Agent shall not be
entitled to be paid an underwriting commission on shares directed by
Company, not to exceed 600,000 of the Shares. This commission shall be
payable in certified funds upon the release of the funds which have been
deposited in the escrow account.
4. EXPENSES OF THE AGENT.
a) Subject to the sale of all of the Shares (including those
directed by Company) and subject to the provisions of paragraph 13.b)
hereof, the Company shall reimburse the Agent for its expenses on a
non-accountable basis in an amount of $30,000.00. THE AGENT ACKNOWLEDGES
THAT IT HAS RECEIVED $___________ CASH OF THE NON-ACCOUNTABLE EXPENSE
ALLOWANCE. SUBJECT TO THE PROVISIONS OF PARAGRAPH 13.b) HEREOF, THE
REMAINING NON-ACCOUNTABLE EXPENSE ALLOWANCE IS DUE ON THE RELEASE OF THE
FUNDS IN THE ESCROW ACCOUNT TO THE COMPANY.
b) Except as stated in paragraph 13.b) of this Agreement, the
Agent agrees that, out of its non-accountable expense allowance, the Agent
will pay all costs incurred or to be incurred by the Agent or by its
personnel in connection with the offering of the Shares, except those to
be paid by the Company as described in paragraph 5 hereof.
Notwithstanding the foregoing, in the event that Agent is not entitled to
receive any non-accountable expense allowance, Company shall reimburse
Agent for its accountable attorneys' fees, costs and expenses not to
exceed $___________.
5. EXPENSES OF THE COMPANY. The Company agrees that it will pay the
following fees and expenses:
a) All fees and expenses of its legal counsel who will be engaged
to prepare certain information, documents and papers for filing with the
Commission and with state or local securities authorities;
b) All fees and expenses of its accountants incurred in
connection with the offering of the Shares and the preparation of all
documents and filings made as part of the offering;
c) All costs in issuing and delivering the Shares;
d) All costs of printing and delivering to the Agent and dealers
as many copies of the Registration Statement and amendments, preliminary
Prospectus and definitive Prospectus as reasonably requested by the Agent;
e) All of the Company's mailing, telephone, travel, clerical and
other office costs incurred or to be incurred in connection with the
offering of the Shares;
f) All fees and costs which may be imposed by the Commission, the
various state or local securities authorities and the NASD for review of
the offering of the Shares;
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<PAGE>
g) All other expenses incurred by the Company in performance of
its obligations under this Agreement.
6. WARRANTS.
a) Subject to the sale of all of the Shares, the Company agrees
to sell to the Agent warrants to purchase common stock ("Warrants") for a
purchase price of $.01 per Warrant entitling the Agent to purchase One
Hundred Thousand (100,000) Shares of the Company's common stock. Each
Warrant shall entitle the holder to purchase one share of the Company's
common stock.
b) The Warrants may not be exercised for a period of twelve (12)
months following the Effective Date. However, if the Company plans to
merge, reorganize or take any other action that would terminate the
Warrants, the Warrants will be exercisable immediately prior to such
action. The Company will provide the Agent with notice of any tender
offer being made for the Company's shares as soon as practicable after the
Company becomes aware of such tender offer. The Warrants will be
exercisable for a period of four (4) years, such period to begin twelve
(12) months after the Effective Date. If the Warrants are not exercised
during their term, they will by their terms automatically expire. The
purchase price of the shares underlying the Warrants will be $6.00 per
share during the period that the Warrants are exercisable. The Company
will set aside and at all times have available a sufficient number of
shares of its common stock to be issued upon the exercise of the Warrants.
The shares underlying the Warrants are hereinafter called "Warrant Shares"
which term shall include all shares of common stock that have been issued
upon the exercise of the Warrants and all unissued shares of common stock
underlying the Warrants. The Warrants may not be sold, transferred,
assigned or hypothecated for a period of twelve (12) months after the
Effective Date except to officers of the Agent, except as a result of the
death of any such officer and except to successors to the Agent's
business.
c) The Warrants will be evidenced by certificates issued by the
Company and delivered to the Agent, which shall contain such terms and
conditions as are required by the Agent, including anti-dilution
provisions reasonably acceptable to the Agent relating to stock splits,
stock dividends and other like matters. The Warrants shall provide the
holder with a cashless exercise right on terms and conditions agreeable to
Agent. Any transfer of the Warrants by the Agent to any person must be
made in compliance with the Act.
d) The Agent agrees that the Warrants and any certificates
representing the Warrant Shares will bear the following legend:
"The securities represented by this Certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the
Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of the
Company."
e) Upon written request of the holder(s) of at least twenty-five
percent (25%) of the Warrant Shares, whether issued or not, made at any
time within the period beginning one (1) year and ending five (5) years
after the Effective Date, the Company will file, no more than once, a
registration statement or Regulation A Registration Statement under the
Act, registering or qualifying the Warrants and Warrant Shares. The
Company will use its
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<PAGE>
best efforts to qualify or register the Warrants and Warrant Shares for
sale in at least the same states as the Shares were registered or
qualified. The Company must file a registration statement if all
Warrants and Warrant Shares cannot be sold under a Regulation A
Registration Statement because of the limited exemption. If Warrants
are registered or qualified, the Company agrees to take whatever actions
are necessary so that during the next twelve (12) months after the
Effective Date of such registration or qualification, a current
registration statement or Regulation A Registration Statement relating
to the Warrant Shares will be effective with the Commission. The
Company agrees to use its best efforts to cause the registration
statement or Regulation A Registration Statement to become effective.
All expenses of such registration or qualification including, but not
limited to, legal, accounting and printing fees, will be borne by the
Company.
f) The Company agrees that, if at any time within the period
beginning one (1) year and ending six (6) years after the Effective Date,
it should file a registration statement with the Commission pursuant to
the Act or file a Regulation A Registration Statement under the Act,
regardless of whether some of the holder(s) of the Warrants and Warrant
Shares have availed itself (themselves) of the right provided in paragraph
6.e) above, the Company, at its own expense, will offer the holder(s) the
opportunity to register or qualify the Warrant and Warrant Shares, limited
in the case of a Regulation A offering to the amount of the available
exemption. The Company's obligations pursuant to this paragraph 6.f)
shall only be in effect if the holders of at least twenty-five percent
(25%) of the Warrant Shares accept the Company's offer. This paragraph is
not applicable to a registration statement filed by the Company with the
Commission on Form S-14 or Form S-8, or any other inappropriate form.
g) In addition, the Company will cooperate, within the period
beginning one (1) year and ending five (5) years after the Effective Date,
with the then holder(s) of at least twenty-five percent (25%) of the
Warrant Shares in preparing and signing any registration statement or
Regulation A Registration Statement, in addition to the registration
statements and Regulation A Registration Statements discussed above,
required in order to sell or transfer the Warrants or Warrant Shares and
will supply all information required, but such additional registration
statement or Registration Statement shall be at the then holder(s)' cost
and expense.
h) The Company will not be required to pay any underwriting
commissions, discounts or similar expenses relating to the Warrants and/or
Warrant Shares that are registered or qualified pursuant to paragraph
6.e), f) or g) of this Agreement.
7. THREAT OF REGULATORY ACTION. The Company and the Agent agree to
advise each other immediately and confirm in writing the receipt of any threat
of or the initiation of any steps or procedures which would impair or prevent
the right to offer the Shares or the issuance of any "suspension orders" or
other prohibitions preventing or impairing the proposed offering of the Shares.
In the case of the happening of any such event, neither the Company nor the
Agent will acquiesce in such steps, procedures or suspension orders if such
acquiescence would adversely affect the other party and, in such event, each
party agrees to actively defend any such actions or orders unless both parties
agree in writing to acquiesce in such actions or orders or unless counsel for
each party advises the parties that the probability of successfully defending
against such actions or orders is remote.
8. FURTHER AGREEMENTS OF THE COMPANY. The Company further agrees with
the Agent as follows:
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<PAGE>
a) The Company will advise the Agent as soon as the Company is
advised of any comments by the Commission, of any request made by the
Commission for an amendment to the Registration Statement or Prospectus or
for supplemental information, and of any order or of the institution of
any adverse proceedings with respect to the offering of the Shares. The
Company will immediately deliver to the Agent copies of any papers
involved.
b) The Company will use its best efforts to qualify the sale of
the Shares in such states as shall be reasonably designated by the Agent.
The officers, directors, promoters and shareholders of the Company will
comply with applicable state escrow requirements, including those
pertaining to the escrow of shares, provided that the period of escrow
shall not exceed two (2) years from the Effective Date and provided that
the period of escrow shall only be based upon the passage of time.
c) The Company will provide the Agent and its counsel with copies
of all applications for the registration of Shares filed with the various
state authorities and will provide the Agent and its counsel with copies
of all comments and orders received from these authorities.
d) The Company will deliver to the Agent and to other broker-
dealers as directed by the Agent as many copies of preliminary Prospectus
as the Agent may reasonably request during the period following the filing
of Amendment No. 1 to the Registration Statement (unless the Registration
Statement is not reviewed by the Commission, in which event such copies
shall be made available by the Company as reasonably requested by the
Agent) and the Effective Date. The Company will deliver to the Agent and
to other broker-dealers as requested by the Agent as many copies of the
definitive Prospectus as the Agent may reasonably request during the
period of the offering and for ninety (90) days after the Effective Date.
e) The Company will furnish the Agent for so long as the
Company's common stock is registered under the Securities Exchange Act of
1934 and for so long as the Agent is a principal market-maker in such
common stock with:
(i) Within ninety (90) days after the close of each fiscal
year of the Company, a financial report of the Company and its
subsidiaries, if any, on a consolidated basis, such report to
include such information in such form as the Company shall be
required to include in reports for that fiscal year to be filed with
the Commission and such report to be certified by independent public
accountants;
(ii) Within sixty (60) days after the end of each quarterly
fiscal period of the Company other than the last quarterly fiscal
period in any fiscal year, copies in printable form of the financial
statements of the Company and its subsidiaries, if any, on a
consolidated basis, for that period and as of the end of that
period, which financial statements shall include a narrative
discussion of such financial statements and of the business
conducted by the Company and its subsidiaries, if any, during such
fiscal quarter and such information in such form as the Company
shall be required to include in reports for that period to be filed
with the Commission, all subject to year-end adjustment, signed by
the principal financial or accounting officer of the Company;
(iii) As soon as is available, a copy of each report of the
Company
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<PAGE>
mailed to shareholders or filed with the Commission;
(iv) Copies of all news, press or public information
releases when made;
(v) Upon request in writing from the Agent, such other
information as may reasonably be requested concerning the
properties, business and affairs of the Company and its
subsidiaries, if any.
f) The Company agrees to notify the Agent immediately within the
90-day period after the Effective Date of any event that materially
affects the Company or its securities and that should be set forth in an
amendment or supplement to the Prospectus in order to make the statements
made therein not misleading. Similarly, the Company agrees to as soon as
possible thereafter prepare and furnish to the Agent as many copies of the
Agent may request of an amended Prospectus or a supplement to the
Prospectus in order that the Prospectus as amended or supplemented will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or that is necessary in order
to make the statements made therein not misleading.
g) The Company will file with the Commission the required reports
on FORM SR ??? and will file with the appropriate state securities
commissioners any sales and other reports required by the rules and
regulations of such agencies and will supply copies to the Agent.
h) Within thirty (30) days after successful termination of the
offering of the Shares, the Company will make a filing under Section 12(g)
of the Securities Exchange Act of 1934, as amended, on Form 8-A with
respect to its common stock and will use its best efforts to cause it to
become effective. The Company agrees to deliver a copy of the Form 8-A to
the Agent and to its counsel when filed.
i) Except with the Agent's approval, the Company agrees that the
Company will not do the following until (i) the completion of the offering
of the Shares, or (ii) the termination of this Agreement, or (iii) ninety
(90) days after the Effective Date, whichever occurs later:
(1) Undertake or authorize any change in its capital
structure or authorize, issue or permit any public or private
offering of additional securities;
(2) Authorize, create, issue or sell any funded
obligations, notes or other evidences of indebtedness, except in the
ordinary course of business and within twelve (12) months of their
creation;
(3) Consolidate or merge with or into any other
corporation; or
(4) Crate any mortgage or any lien upon any of its
properties or assets except in the ordinary course of its business.
j) For so long as the Company's common stock is registered under
the Securities Exchange Act of 1934, as amended, the Company will hold an
annual meeting of shareholders for the election of directors within 180
days after the end of the Company's fiscal year, and within 180 days after
the end of each of the Company's fiscal years, will provide the Company's
shareholders with the audited financial statements of the Company as of
the end of the fiscal year just completed prior thereto. Such financial
statements shall be those required by Rule 14a-3 under the Securities
Exchange Act of 1934, as amended,
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and shall be included in an annual report meeting the requirements of
the Rule. Further, the Company agrees to make available to the Agent
and the Company's shareholders in printable form within sixty (60) days
after the end of each fiscal quarter of the Company (other than the last
fiscal quarter in any fiscal year) reasonably itemized financial
statements of the Company and its subsidiaries, if any, for the fiscal
quarter just ended and a narrative discussion of such financial
statements and the business conducted by the Company and its
subsidiaries, if any, during such quarter.
k) As soon as practical, but in any event not later than fifteen
(15) months after the Effective Date, the Company will make generally
available to its securities holders, according to Section 11(a) of the
Act, an earnings statement of the Company in reasonable detail covering a
period of at least twelve (12) months beginning after the Effective Date
and will advise the Agent in writing that such statement has been made
available.
l) The Company agrees to have the Shares listed on NASDAQ on the
first day of trading in the Shares. The Company and the Agent will agree
upon the NASDAQ symbol to be used.
m) Within thirty (30) days after the successful termination of
the offering of the Shares, the Company agrees to submit information about
the Company to be included in various securities manuals, including
Moody's OVER-THE-COUNTER MANUAL and Standard & Poor's, STANDARD
CORPORATION RECORDS to facilitate secondary trading in the Shares.
n) The Company will qualify the Shares for secondary trading in
California, _____________, __________________, _____________________,
_______________, _______________, _______________________, as soon as
possible.
o) The Company agrees to cause the stock certificates of all of
the current shareholders of the Company and of any future officers or
directors of the Company to be clearly legended as being restricted
against transfer without compliance with the Act and to cause the
Company's transfer agent to put stop transfer instructions against such
stock certificates.
p) Subject to the sale of all of the Shares, the Company agrees
that for a period of five (5) years from the Effective Date, the Agent
shall have a preferential right to purchase for its account or to sell for
the account of the Company or its subsidiaries any securities with respect
to which the Company or its subsidiaries may seek a public or private
offering for cash. The Company will consult the Agent with regard to any
such covered offering for cash and will offer the Agent the opportunity to
purchase or sell any such securities on terms not less favorable to the
Company or its subsidiaries than it or they can secure elsewhere. The
Agent shall have fifteen (15) days in which to accept such offer. If the
Agent rejects such offer, the Company shall be able to sell such
securities on terms not less favorable than those offered to the Agent.
If such securities are not sold within a period of 225 days, the Agent
shall once again have the rights specified herein with respect to the sale
or purchase of such securities.
q) The officers and directors of the Company at the time of
filing of the Company's Registration Statement and at the Effective Date
of the Company's Registration Statement must be reasonably acceptable to
the Agent.
9. COMPANY'S INDEMNIFICATION.
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a) The Company agrees to indemnify, defend and hold harmless the
Agent from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable legal or other expenses) incurred by
the Agent in connection with defending or investigating any such claims or
liabilities, whether or not resulting in any liability to the Agent, which
the Agent may incur under the federal or state securities laws and
regulations thereunder, state statutes or at common law or otherwise, but
only to the extent that such losses, claims, damages, liabilities and
expenses shall arise out of or be based upon a violation or alleged
violation of the federal or state securities laws or regulations
promulgated thereunder, a state statute or the common law resulting from
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or in any application or other
papers filed with the various state securities authorities (hereinafter
collectively called "Blue Sky Applications") or shall arise out of or be
based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that this indemnity agreement
shall not apply to any such losses, claims, damages, liabilities or
expenses arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements there in not misleading, provided, however, that
this indemnity agreement shall not apply to any such losses, claims,
damages, liabilities or expenses arising out of or based upon any such
violation based upon a statement or omission made in reliance upon written
information furnished for use in the Registration Statement or in a Blue
Sky Application by the Agent.
b) The foregoing indemnity of the Company in favor of the Agent
shall not be deemed to protect the Agent against any liability to which
the Agent would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Agent's duties, or by
reason of the Agent's reckless disregard of the Agent's obligations and
duties under the Act or this Agreement.
c) The Agent agrees to give the Company an opportunity to
participate in the defense or preparation of the defense of any action
brought against the Agent to enforce any such claim or liability and the
Company shall have the right so to participate. The agreement of the
Company under the foregoing indemnity is expressly conditioned upon notice
of any such action having been sent by the Agent to the Company, by letter
or telegram (addressed as provided in this Agreement), promptly after the
receipt of written notice of such action against the Agent such notice
either being accompanied by copies of papers served or filed in connection
with such action or by a statement of the nature of the action to the
extent known to Agent. Failure to notify the Company as herein provided
shall not relieve it from any liability which it may have to the Agent
other than on account of the indemnity agreement contained in this
paragraph 9.
10. AGENT'S INDEMNIFICATION.
a) The Agent likewise agrees to indemnify, defend and hold
harmless the Company against any and all losses, claims, damages, expenses
and liabilities to which the Company may become subject, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or in any Blue Sky
Application or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, resulting from the use of written
information furnished to the Company by the Agent for use in the
preparation of the Registration Statement or in any Blue Sky Application.
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<PAGE>
b) The Company agrees to give the Agent an opportunity to
participate in the defense or preparation of the defense of any action
brought against the Company to enforce any such claim or liability and the
Agent shall have the right to so participate. The Agent's liability under
the foregoing indemnity is expressly conditioned upon notice of any such
action having been sent by the Company to the Agent by letter or telegram
(addressed as provided for in this Agreement), promptly after the receipt
by the Company of written notice of such action against the Company, such
notice either being accompanied by copies of papers served or filed in
connection with such action or by a statement of the nature of the action
to the extent known to the Company. Failure to notify the Agent as herein
provided shall not relieve the Agent from any liability which the Agent
may have to the Company other than on account of the indemnity agreement
contained in this paragraph 10.
c) The provisions of paragraphs 9 and 10 shall not in any way
prejudice any right or rights which the Agent may have against the Company
or the Company may have against the Agent under any statute, including the
Act, at common law or otherwise.
d) The indemnity agreements contained in paragraph 9 and 10 shall
survive the termination of this Agreement and shall inure to the benefit
of the Company, the Agent, their respective successors and the persons
specified in paragraph 16 below, and their respective heirs, personal
representatives and successors and shall be valid irrespective of any
investigation made by or on behalf of the Agent or the Company.
11. CONTRIBUTION. If the indemnification provided for in paragraphs 9
and 10 is unavailable to or insufficient to hold harmless an indemnified party
under paragraphs 9 and 10 in respect of any losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect no only (a) the
relative benefits received by the Company on the one hand the Agent on the other
from the offering of the Shares, but also (ii) the relative fault of the Company
and the Agent in connection with the statements or omissions which resulted in
such losses, claims, damages, expenses or liabilities (or action in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Agent on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses other than the non-accountable
expense allowance payable by the Company to the Agent) received by the Company
bear to the total underwriting commissions and expense allowance received by the
Agent in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Agent and their parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Agent agree that it would not be
just and equitable if contribution pursuant to this paragraph 11 were determined
by pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this paragraph 11.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this paragraph 11 shall be deemed to include any legal or
other expenses to which such indemnified party would be entitled if paragraphs 9
and 10 were applied. Notwithstanding the provisions of this paragraph 11, the
Agent shall not be required to contribute any amount in excess of the amount by
which the total price with the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which the Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
15
<PAGE>
omission or alleged omission plus the Agent's proportionate share of such
legal or other expenses; and any punitive or exemplary damages if the untrue
or alleged untrue statement of a material fact relates to information supplied
by or statements made by the Agent. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
12. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE AGENT. All
obligations of the Agent under this Agreement are subject to the following
conditions precedent:
a) Counsel for the Agent shall have completed a review of the
form and content of the Registration Statement and Prospectus, of the
organization and present legal status of the Company and of the legality
and validity of the authorization and issuance of the issued and
outstanding stock of the Company and of the Shares.
b) The Company shall have performed all of its obligations under
this Agreement. All of the statements, representations and warranties
contained in this Agreement shall be complete and true.
c) From the date of this Agreement until the completion of the
offering, no material adverse changes shall have occurred in the business,
properties and assets of the Company other than changes occurring in the
ordinary course of business.
d) From the date of this Agreement until the completion of the
offering, no claims or litigation shall have been instituted or threatened
against the Company for substantial amounts or which would materially
adversely affect the Company, its business or its property and no
reasonable basis exists for such claims or threats. Further, no
proceeding shall have been instituted or threatened against the Company
before any regulatory body wherein an unfavorable ruling would have a
material adverse effect on the Company.
e) From the date of this Agreement until the completion of the
offering of the Shares, no material adverse change shall have occurred in
the operation financial condition, management or credit of the Company or
in any conditions affecting the prospects of its business.
f) From the date of this Agreement until the completion of the
offering, the Company shall not have sustained any loss on account of
fire, flood, accident or calamity of such character as materially
adversely affects its business or property, regardless of whether or not
the loss has been insured.
g) The Agent shall have received from the independent public
accountants for the Company two letters addressed to the Agent, one dated
the Effective Date and one dated the date of the release of the funds from
the Escrow Account to the Company, to the effect that:
(i) With respect to the Company, they are independent
public accountants within the meaning of the Act and the published
rules and regulations.
(ii) In their opinion, the financial statements and
supporting schedules and notes examined by them of the Company at
all dates and for all periods referred to in their opinion included
in the definitive Prospectus comply as to form in all
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<PAGE>
material respects with the applicable accounting requirements of
the Act and the published rules and regulations.
(iii) Upon the basis of a reading of the related available
interim financial statements and the financial data and accounting
records of the Company, inquiries of officers of the Company
responsible for financial and accounting matters, a reading of the
minute books of the Company and other specified procedures and
inquiries satisfactory to the Agent, if any, nothing has come to
their attention which causes them to believe that during the period
from the last audited balance sheet included in the Registration
Statement to a specified date not more than five (5) days prior to
the date of such letter (a) there has been any change in the capital
shares or other securities of the Company or any payment or
declaration of any dividend or other distribution in respect thereof
or exchange therefor from that shown in its audited balance sheets
or in the debt of the Company from that shown or contemplated under
"Capitalization" in the Registration Statement or definitive
Prospectus (other than as set forth in or contemplated by the
Registration Statement or definitive Prospectus); (b) there have
been any material decreases in net current assets or net assets as
compared with amounts shown in the last audited balance sheet
included in the definitive Prospectus (other than in the ordinary
course of business), except in all instances the changes disclosed
in or contemplated by the Registration Statement and definitive
Prospectus; and (c) on the basis of their examinations referred to
in their opinion, report and consent included in the Registration
Statement and definitive Prospectus and the indicated procedures and
discussions referred to above, nothing has come to their attention
which, in their judgment, would cause them to believe or indicate
that the financial statements and schedules set forth in the
Registration Statement and definitive Prospectus do not present
fairly the financial position and results of operations of the
Company, for the periods indicated, in conformity with generally
accepted accounting principles applied on a consistent basis, and
are not in all material respects a fair presentation of the
information purported to be shown.
h) On the date of the release of the funds in the Escrow Account
to the Company, the Agent shall have received from the president or vice
president of the Company and the treasurer of the Company certificates
dated as of such date, in form satisfactory to the Agent to the effect
that:
(i) The representations and warranties of the Company
contained in paragraph 1 of this Agreement are complete and true.
(ii) All of the conditions precedent in paragraphs 12.b)-
12.f) of this Agreement have been performed and the representations
of these conditions precedent are true.
(iii) No stop order or other proceedings have been instituted
or threatened by the Commission or any state authority which would
adversely affect the offering of the Shares.
(iv) This Agreement and the Warrants have been duly
authorized and executed and constitute valid agreements of the
Company, and with respect to the Warrants, are binding agreements
and are enforceable according to their terms.
(v) The respective signers have each carefully examined the
Registration
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<PAGE>
Statement and definitive Prospectus and any amendments and
supplements, and to the best of their knowledge, the Registration
Statement and definitive Prospectus and any amendments and
supplements contain all statements required to be stated therein.
All statements contained there are true and correct. Neither the
Registration Statement, definitive Prospectus or any amendment,
supplement or sticker thereto includes any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. Since the Effective Date of the Registration Statement,
there has occurred no event required to be stated therein or
necessary to make the statements therein not misleading, and since
the Effective Date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth.
i) On the Effective Date and on the closing date, the Agent shall
have received from the Company's legal counsel Blue Sky Memorandum setting
forth the states in which the Shares may be sold and the number of Shares
that may be sold in each such state.
j) On the date the funds in the Escrow Account are released to
the Company, the Agent shall have received a written opinion from the
Company's counsel __________ _________________________ stating that:
(i) The Company has filed a Registration Statement on Form
SB-2 relating to the Shares with the Commission pursuant to the Act,
the Registration Statement has become effective under the Act and
the Registration Statement, Prospectus and all other documents filed
with the Commission comply as to form with all requirements of the
Act in all material respects (except for the financial statements
and other financial data included therein, as to which counsel need
express no opinion).
(ii) Counsel is unaware of any contracts or documents
required to be described in the Registration Statement or in the
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
(iii) Counsel is unaware of any contracts or documents that
have not been disclosed in the Prospectus that are material to the
representations in the Prospectus and that would require disclosure
in order to make statements made not misleading.
(iv) To the best knowledge of counsel and after reasonable
investigation, the Company is not in default of any of the
contracts, leases or agreements to which it is a party and the
proposed offering of Shares will not cause the Company to become in
default of any of its contracts, leases or agreements nor will it
create a conflict between the Company and any of the contracting
parties to the contracts, leases and other agreements.
(v) To the best knowledge of counsel and after reasonable
investigation, and except as described in the Registration
Statement, the Company has marketable title to all properties
described in the Registration Statement as owned by it; the
properties are free and clear of all liens, charges, encumbrances or
restrictions; all of the leases, subleases and other agreements
under which the Company holds its properties are in full force and
effect; the Company is not in default under any of
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<PAGE>
the material terms or provisions of any of the leases, subleases
or other agreements; and there are no claims against the Company
concerning its rights under the leases, subleases and other
agreements and concerning its right to continued possession of its
properties.
(vi) This Agreement and the Warrants issued to the Agent or
its designates have been duly authorized and executed by the Company
and constitute valid agreements of the Company except that no
opinion need be expressed as to the validity of the indemnification
provisions insofar as they are or may be held to be violative of
public policy (under either state or federal law), the availability
of specific performance or other equitable remedies, the effects of
bankruptcy, insolvency, moratorium and all other similar laws and
decisions affecting the rights of creditors generally and as to
whether or not this Agreement may be an illusory contract.
(vii) To the best knowledge of counsel and after reasonable
investigation, no claim or litigation has been instituted or
threatened against the Company.
(viii) To the best knowledge of counsel and after reasonable
investigation, no stop order or other proceedings have been
instituted or threatened by the Commission or any state or local
authority which would adversely affect the offering of the Shares.
(ix) To the best knowledge of counsel and after reasonable
investigation, all documents and contracts relating to the Company's
affairs have been furnished to the Agent's counsel.
(x) To the best knowledge of counsel and after reasonable
investigation, the Company possesses adequate licenses,
certificates, authorizations or permits issued by the appropriate
federal, state and local regulatory authorities necessary to conduct
its business as described in the Registration Statement and to
retain possession of its properties. Counsel is unaware of any
notice of any proceeding relating to the revocation or modification
of any of these certificates or permits having been received by the
Company.
(xi) To the best knowledge of counsel and after reasonable
investigation, neither the Company nor its affiliates is currently
offering any securities for sale except as described in the
Registration Statement.
(xii) No preemptive rights exist with respect to the
Company's securities.
(xiii) Counsel is unaware of any subsidiaries of the Company.
(xiv) Counsel has participated in the preparation of the
Registration Statement, and Prospectus an no facts have come to the
attention of such counsel to lead counsel to believe that either the
Registration Statement or the Prospectus or any amendment or
supplement thereto (except for the financial statements and other
financial data included therein, as to which such counsel need
express no opinion) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
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<PAGE>
(xv) The Company has an authorized capitalization of
20,000,000 shares of common stock ($0.0001 par value) and 2,000,000
shares of preferred stock ($0.0001 par value), up to 1,000,000 of
which are designated Series C Convertible Preferred Stock. There
are no outstanding options, warrants or other rights to purchase
shares of the Company's common stock known to counsel other than as
described in the Registration Statement.
(xvi) The Company has been incorporated and is a validly
existing corporation under the laws of the State of Delaware and has
full corporate power and authority under such laws to own its
properties and to conduct its business as described in the
Registration Statement. To the best of counsel's knowledge,
information and belief, the Company is qualified to conduct business
as a foreign corporation in each jurisdiction where the nature of
its business activities requires such qualification except where
failure to so qualify would not have a material adverse effect upon
the business or financial condition of the Company.
(xvii) The Company's shares of common stock that are issued
and outstanding are fully paid and non-assessable, and the Shares
and Warrant Shares, when issued and paid for in accordance with
their terms, will be fully paid and non-assessable. The Shares
conform to the description thereof contained in the Registration
Statement. The Company has authorized the issuance of the Shares,
Warrants and Warrant Shares on the terms and conditions herein set
forth. A sufficient number of common shares have been duly reserved
for issuance upon exercise of the Warrants.
13. TERMINATION.
a) This Agreement may be terminated by the Agent by notice to the
Company in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions or provisions of this Agreement
on the part of the Company to be performed, complied with or fulfilled
within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Agent in writing.
b) This Agreement may be terminated by the Agent by notice to the
Company if the Agent believes, in its sole judgment, that any adverse
changes have occurred in the financial condition or obligations of the
Company or if the Company shall have sustained a loss by strike, fire,
flood, accident or other calamity of such a character as, in the sole
judgment of the Agent, may interfere materially with the conduct of the
Company's business and operations regardless of whether or not such loss
shall have been insured.
c) This Agreement may be terminated by the Agent by notice to the
Company at any time if, in the sole judgment of the Agent, payment for and
delivery of the Shares is rendered impracticable or inadvisable because
(i) additional material governmental restrictions not in force and effect
on the date hereof shall have been imposed upon the trading in securities
generally, or minimum or maximum prices shall have been generally
established on the New York or American Stock Exchange, or trading in
securities generally on either such Exchange shall have been suspended, or
a general moratorium shall have been established by federal or state
authorities; or (ii) a war or other national calamity shall have occurred;
or (iii) substantial and material changes in the condition of the market
(either generally or with reference to the sale of the Shares to be
offered hereby) beyond normal fluctuations are such that it would be
undesirable, impracticable or inadvisable in the sole
20
<PAGE>
judgment of the Agent to proceed with this Agreement or with the public
offering; or (iv) of any matter materially adversely affecting the
Company.
d) In the event any action or proceeding shall be instituted or
threatened against the Agent, either in any court of compete jurisdiction,
before the Commission or any state securities commission concerning its
activities as a broker or dealer that would prevent the Agent from acting
as such, at any time prior to the Effective Date hereunder, or in any
court pursuant to any federal, state, local or municipal statute, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of the Agent's assets or if the Agent
makes an assignment for the benefit of creditors, the Company shall have
the right on three (3) days written notice to the Agent to terminate this
Agreement without any liability to the Agent of any kind except for the
payment of expenses as provided in paragraphs 4.a) and 5 herein.
e) Any termination of this Agreement pursuant to this paragraph
13 shall be without liability of any character (including, but not limited
to, loss of anticipated profits or consequential damages) on the part of
any party thereto, except that in such event (i) the Agent shall provide
the Company with a statement of its accountable expenses, which shall
include but are not limited to the Agent's counsel fees, consultants'
fees, entertainment expenses, travel expenses, postage expenses, office
costs, advertising costs, clerical costs, due diligence meeting expenses,
duplication expenses, long distance telephone expenses and general and
administrative expenses incurred in connection with the proposed offering;
and (ii) if such accountable expenses are more than the amount of the non-
accountable expense payments the Company has made to the Agent, the Agent
shall bear such excess, or if such accountable expenses are less than the
amount of the non-accountable expense payments the Agent has received from
the Company, the Agent shall return the difference to the Company.
14. FEE UPON OCCURRENCE OF CERTAIN EVENTS. If, after signing this
Agreement and before the closing of the offering of the Shares, the Company
agrees to a merger, consolidation or other business combination, or to any
acquisition of its assets, or if the holders of at least fifty (50%) percent of
the Company's outstanding common stock agree to sell or transfer their common
stock, the Company will pay the hereinafter described fee to the Agent upon
consummation of any such transaction if the offering of the Shares is thereafter
abandoned by the Company or the Agent. If the Company and/or the Company's
shareholders receive only cash in any such transaction, the fee that the Company
will pay to the Agent is $_________??? in cash which will be paid upon
consummation of the transaction. In all other cases, the fee payable to the
Agent by the Company will have a value of $________ ??? but the actual form of
such fee and the time of the payment thereof will be negotiated between the
Company and the Agent.
15. NOTICES. All notices shall be in writing and shall be delivered at
or mailed to the following addresses or sent by telegram to the following
addresses with written confirmation thereafter:
To the Company: William D. Leary, President & CEO
Proformance Research Organization
5335 W. 48th Avenue, Suite 200
Denver, CO 80212
With Copy to: Fay M. Matsukage, Esq.
Dill, Dill, Carr, Stonbraker &
Hutchings, P.C.
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<PAGE>
455 Sherman Street, Suite 300
Denver, Co 80203
To the Agent: Kevin S. Miller, President
Global Financial Group, Inc.
100 Washington Ave. So., Suite 1319
Minneapolis, MN 55401
With Copy to: Robert P. Abdo, Esq.
Abdo & Abdo, P.A.
710 Northstar West
625 Marquette Avenue
Minneapolis, MN 55402
16. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the Company and the Agent (including the participating dealers as
provided in paragraphs 9 and 10) and their successors. Nothing expressed in
this Agreement is intended to give any person other than the persons mentioned
in the preceding sentence any legal or equitable right, remedy or claim under
this Agreement. However, the representations, warranties and indemnity and
defense obligations of the Company included in this Agreement also inure to the
benefit of any person who controls the Agent and participating dealers within
the meaning of Section 15 of the Act and the representations, warranties,
indemnities and defense obligations of the Agent and participating dealers inure
to the benefit of each officer who signs the Registration Statement, each
director of the Company and each person who controls the Company within the
meaning of Section 15 of the Act.
17. MISCELLANEOUS PROVISIONS.
a) Time shall be of the essence of this Agreement.
b) This Agreement shall be construed according to the laws of the
State of Minnesota.
c) The representations and warranties made in this Agreements
shall survive the termination of this Agreement and shall continue in full
force and effect regardless of any investigation made by the party relying
upon any such representation or warranty.
d) This Agreement is made solely for the benefit of the Company
and its officers, directors and controlling persons within the meaning of
Section 15 of the Act and of the Agent and its officers, directors and
controlling persons within the meaning of Section 15 of the Act, and their
respective successors, heirs and personal representatives, and no other
person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" as used in this Agreement shall not
include any purchaser, as such, of the Shares.
e) The Agent will provide upon closing a list of all names and
addresses of all participating dealers and shall provide the Company with
such changes of the address or name of such participating dealers as occur
and of which the Agent is notified. Further, the Agent shall use its best
efforts to maintain the current name and address of all participating
dealers during the term of this Agreement.
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If this Agreement correctly sets forth our understanding, please indicate
your acceptance in the space provided below for that purpose.
Very truly yours,
PROFORMANCE RESEARCH ORGANIZATION, INC.
By_____________________________________
William D. Leary,
President & CEO
Confirmed and accepted as of
the date of this Agreement:
GLOBAL FINANCIAL GROUP, INC.
By___________________________________
Kevin S. Miller, President
23
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TEAM FAMILY, INC.,
Team Family, Inc., a corporation organized and existing under the laws
of the State of Delaware, does hereby certify that:
FIRST: The name of the corporation is Team Family, Inc., and the
date of filing of its original Certificate of Incorporation with the Secretary
of State was February 28, 1996.
SECOND: This Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law by (i) the Board of Directors of the Corporation (the
"Board") in accordance with the Delaware General Corporation Law, and (ii) the
stockholders of the Corporation by written consent of such stockholders given in
accordance with Section 228 of the Delaware General Corporation Law.
THIRD: The text of the Restated Certificate of Incorporation is
hereby amended and further restated to read in full as follows:
"ARTICLE I
The name of this corporation is Proformance Research Organization,
Inc.
ARTICLE II
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
(a) The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of Common Stock that the Corporation is authorized to issue is
Twenty Million (20,000,000) shares, with a par value of $0.0001 per share, and
the total number of shares of Preferred Stock that the Corporation is authorized
to issue is One Million (1,000,000) shares, with a par value of $0.0001 per
share.
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(b) The Preferred Stock may be issued from time to time in series.
There shall initially be two series of Preferred Stock designated and known as
"Series A Preferred Stock" (hereinafter referred to as the "Series A Stock") and
"Series B Preferred Stock" (hereinafter referred to as the "Series B Stock").
The Series A Stock shall consist of 210,000 shares and the Series B Stock shall
consist of 600,000 shares.
The Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them. Subject to compliance
with applicable protective voting rights which have been or may be granted to
Preferred Stock or series thereof in Certificates of Determination or the
corporation's Articles of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of any series of Preferred Stock, the rights,
privileges, preferences and restrictions of any such additional series may be
subordinate to, PARI PASSU with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote or written consent), or senior to any of
those of any present or future class or series of Preferred Stock or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board
of Directors is also authorized to increase or decrease the number of shares of
any series (other than Series A Stock or Series B Stock), prior or subsequent to
the issue of that series then outstanding. In case the number of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
The rights, preferences, privileges and other matters relating to the
Series A Stock and Series B Stock are as follows:
1. DIVIDENDS.
1.1 The dividend rate of the Series A Stock is an amount equal
to 0.0001% divided by 3.5 per share of the gross proceeds of the Corporation
until such time as the holder shall have received an amount equal to twice the
liquidation preference of the Series A Stock and thereafter the dividend rate of
the Series A Stock is an amount equal to 0.00005% divided by 3.5 per share of
the gross proceeds of the Corporation for each year after and no more. Dividends
on the Series A Stock shall be payable when, as and if declared by the Board of
Directors, out of funds at the time legally available for payment of dividends,
payable annually ninety (90) days after the close of each fiscal year of the
Corporation. Dividends on shares of Series A Stock shall commence to accrue and
shall be cumulative from and including their date of purchase from the
Corporation. The dividend amount for the dividend payable in the year of
purchase shall be prorated based upon the date of purchase. No dividends, other
than dividends payable solely in shares ranking junior to the Series A Stock
shall be paid or set apart for payment on any shares ranking junior to the
Series A Stock unless and until all accrued and unpaid dividends of the Series A
Stock, including the full dividend for the current fiscal year, shall have been
declared and paid or a sum sufficient for payment thereof set apart. The
dividend on the Series A Stock shall be senior in preference to the dividend
payable on the Series B Stock,
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and no dividends shall be paid on the Series B Stock until the dividend
payable on the Series A Stock shall have been declared and paid or a sum
sufficient for payment thereof set apart.
1.2 The dividend rate of the Series B Stock is an amount equal
to 0.0001% divided by 3.5 per share (0.1% per 3,500 shares of Series B Stock) of
the gross proceeds of the Corporation until such time as the holder shall have
received an amount equal to twice the liquidation preference of the Series B
Stock and thereafter the dividend rate of the Series B Stock is an amount equal
to 0.00005% divided by 3.5 per share (0.05% per 3,500 shares of the Series B
Stock) of the gross proceeds of the Corporation for each year after and no more.
Dividends on the Series B Stock shall be payable when, as and if declared by the
Board of Directors, out of funds at the time legally available for payment of
dividends, payable annually ninety (90) days after the close of each fiscal year
of the Corporation. Dividends on shares of Series B Stock shall commence to
accrue and shall be cumulative from and including their date of purchase from
the Corporation. The dividend amount for the dividend payable in the year of
purchase shall be prorated based upon the date of purchase. No dividends, other
than dividends payable solely in shares ranking junior to the Series B Stock
shall be paid or set apart for payment on any shares ranking junior to the
Series B Stock unless and until all accrued and unpaid dividends of the Series
B Stock, including the full dividend for the current fiscal year, shall have
been declared and paid or a sum sufficient for payment thereof set apart. The
dividend on the Series B Stock shall be junior in preference to the dividend
payable on the Series A Stock, and no dividends shall be paid on the Series B
Stock until the dividend payable on the Series A Stock shall have been declared
and paid or a sum sufficient for payment thereof set apart.
2. REDEMPTION. At the option of the Corporation, shares of Series A
and Series B Stock may be redeemed, in whole or in part, at any time and from
time to time after the date five years from the date of issuance of such Series
A or Series B Stock to be redeemed, upon the terms and conditions set forth
herein:
2.1 The redemption price per share under this Paragraph shall be
$0.514 per share of Series B Stock or $1.429 per share of Series A Stock, in
each case plus an amount equal to unpaid dividends accrued to the date of
redemption (whether or not declared) which shall be accrued at the dividend rate
provided in Paragraphs 1.1 and 1.2, pro rata to the date of redemption whether
or not such date of redemption is a regular dividend payment date (the
"Redemption Price").
2.2 Notice to the holders of shares of Series A or Series B
Stock to be redeemed shall be given by mailing to such holders a notice of such
redemption first class, postage prepaid, not later than sixty (60) days and not
earlier than thirty (30) days before the date fixed for redemption at the last
addresses as they appear on the books of the Corporation. Any notice which is
mailed herein shall be conclusively presumed to have been duly given, whether or
not the stockholder receives such notice and failure duly to give such notice by
mail or defect in such notice to the holder of any stock designated for
redemption shall not affect the validity of the proceedings for the redemption
of any other shares of Series A or Series B Stock.
3
<PAGE>
2.3 The Notice of Redemption to each stockholder whose shares of
Series A or Series B Stock are to be redeemed shall specify the number of shares
of such stockholder to be redeemed, the date fixed for redemption and the
redemption price at which the shares are to be redeemed and shall specify where
payment of the redemption price is to be made upon surrender of such shares, and
shall state the accrued dividends to the date fixed for redemption will be paid
as specified in said notice and that from and after said date, dividends thereon
will cease to accrue and the conversion rights of such shares shall cease and
terminate at the close of business on the date fixed for redemption.
3. LIQUIDATION OR DISSOLUTION.
3.1 In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Series A Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount equal to $1.429 per
share (equitably adjusted for stock splits, reverse stock splits, stock
dividends and the like) (plus an amount equal to unpaid cumulative dividends)
without interest and no more before any payments shall be made to the holders of
stock of the Corporation ranking junior to the Series A Stock. Such liquidation
preference shall be senior to the liquidation preference of the Series B Stock,
and no payment shall be made on the Series B Stock until payment of the
liquidation preference of the Series A Stock has been made in full.
3.2 In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Series B Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount equal to $0.514 per
share (plus an amount equal to unpaid cumulative dividends) without interest and
no more before any payment shall be made to the holders of stock of the
Corporation ranking junior to the Series B Stock. Such liquidation preference
shall be junior to the liquidation preference of the Corporation's Series A
Stock, and no payment shall be made on the Series B Stock until payment of the
liquidation preference of the Series A Stock has been made in full.
3.3 A merger or consolidation of the Corporation with or into
any other Corporation, share exchange or sale or conveyance of all or any part
of the assets of the Corporation (which shall not in fact result in the
liquidation of the Corporation and the distribution of assets to stockholders)
shall not be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation within this meaning of Paragraph 3.
4. NO SINKING FUND. The shares of Series A Stock and Series B Stock
shall not be subject to the operation of a purchase, retirement or sinking fund.
5. CONVERSION RIGHTS. The holders of the Series A Stock and Series
B Stock shall have conversion rights as follows:
5.1 Each share of Series A Stock and Series B Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the Corporation's office or any transfer agent for
the Series A Stock or Series B Stock,
4
<PAGE>
into Common Stock at the initial conversion rate of one fully-paid and
nonassessable share of Common Stock for each share of Series A Stock or Series
B Stock, respectively, subject, however, to the adjustments described below.
(The number of shares of Common Stock into which each share of Series A Stock
or Series B Stock may be converted is hereinafter referred to as the
"Conversion Rate.")
5.2 In the event the Corporation shall conduct an offering of
its Common Stock pursuant to a registration statement filed under the Securities
Act of 1933, as amended (the "Act") or an offering statement under Regulation A
under the Act, upon effectiveness of such registration or offering statement,
upon the closing of such offering the Series A Stock and Series B Stock shall be
automatically converted to shares of Common Stock of the Corporation at the
Conversion Rate then in effect. In such event, all holders of Series A Stock
and Series B Stock shall promptly surrender their certificates for conversion
pursuant to Section 5.5. Any holder who fails to so surrender his certificate
shall nonetheless be deemed to have converted his shares to Common Stock upon
the effectiveness of such registration or offering statement.
5.3 In the event of conversion under either Section 5.1 or 5.2,
dividends on the Series A Stock and Series B Stock shall cease to accrue on the
date of conversion, and previously accumulated dividends shall be paid as
promptly as possible after conversion from funds legally available for such
payment.
5.4 In the event of conversion under Section 5.1 hereof, such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Stock or Series
B Stock to be converted. In the event of conversion under Section 5.2 hereof,
such conversion shall be deemed to have been made at the close of business on
the day on which the registration or offering statement causing such conversion
became effective. In either event, the person or persons entitled to receive
the shares of Common Stock issuable upon such conversions shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
5.5 Before any holder of Series A Stock or Series B Stock shall
be entitled to convert the same into shares of Common Stock under Section 5.1
hereof, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or any transfer agent for such
stock, and shall give written notice to the Corporation at such office that such
holder elects to convert the same and shall state therein the name or names in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Stock or Series B
Stock, or to such holder's nominee or nominees, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled.
5.6 In the event the Corporation at any time or from time to
time after the date of the initial sale of Series A Stock and Series B Stock
effects a subdivision or combination of its outstanding Common Stock into a
greater or lesser number of shares without a
5
<PAGE>
proportionate and corresponding subdivision or combination of its outstanding
Series A Stock and Series B Stock, then and in each such event the Conversion
Rate for the Series A Stock and Series B Stock shall be increased or decreased
proportionately.
5.7 No fractional shares of Common Stock shall be issued upon
conversion of the Series A Stock or Series B Stock and any shares of Series A
Stock or Series B Stock surrendered for conversion which would otherwise result
in a fractional share of Common Stock shall be redeemed for the then fair market
value thereof, as determined by the Corporation's Board of Directors in good
faith, payable as promptly as possible whenever funds are legally available
therefor. If more than one share of Series A Stock or Series B Stock is
surrendered for conversion at any one time by the same holder, the number of
full shares of Common Stock to be issued upon conversion shall be computed on
the basis of the aggregate number of shares of Series A Stock or Series B Stock
so surrendered.
6. VOTING RIGHTS. No voting rights accompany shares of Series A
Stock or Series B Stock.
7. NO IMPLIED LIMITATIONS. Except as otherwise provided by express
provisions hereof, nothing herein shall limit by inference or otherwise the
discretionary right of the Board of Directors to classify and be classified and
issue any shares of Preferred Stock and to fix or alter all terms thereof.
ARTICLE V
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:
(a) 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.
(b) 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 Section 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
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 provision of subsection (d) of Section 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 of the corporation
entitled to vote unless provisions for such classification shall be set forth in
this certificate of incorporation.
6
<PAGE>
(c) 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 Section 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.
ARTICLE VI
Except as otherwise provided in this Certificate of Incorporation, the
number of directors of the corporation shall be fixed from time to time by a
bylaw or amendment thereof duly adopted by the Board of Directors or by the
stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of Delaware, as
the Bylaws may provide. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the Bylaws of the corporation.
ARTICLE IX
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provision of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
ARTICLE X
The corporation shall, to the fullest extent permitted by the
provisions of Section 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
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<PAGE>
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 person.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XII
The corporation is to have perpetual existence.
ARTICLE XIII
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
the provisions of Section 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 the provisions of Section 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 a consequence of such compromise or
arrangement, the same 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."
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<PAGE>
IN WITNESS WHEREOF, Team Family, Inc. has caused this Certificate to be
signed and attested by its duly authorized officers this 30th day of December,
1996.
TEAM FAMILY, INC.
a Delaware corporation
By: /s/ William D. Leary
-----------------------------------
William D. Leary, President
Attest:
By: /s/ [Illegible]
--------------------------------
Assistant Secretary
9
<PAGE>
BYLAWS
OF
PROFORMANCE RESEARCH ORGANIZATION, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
ARTICLE 1
OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Registered Office . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Offices . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Place of Meetings . . . . . . . . . . . . . . . . . 1
Section 2.2 Annual Meetings . . . . . . . . . . . . . . . . . . 1
Section 2.3 Special Meetings. . . . . . . . . . . . . . . . . . 1
Section 2.4 Notice of Meetings. . . . . . . . . . . . . . . . . 2
Section 2.5 Quorum . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.6 Voting Rights . . . . . . . . . . . . . . . . . . . 3
Section 2.7 List of Stockholders. . . . . . . . . . . . . . . . 3
Section 2.8 Action Without Meeting. . . . . . . . . . . . . . . 3
ARTICLE 3
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Number and Term of Office . . . . . . . . . . . . . 4
Section 3.2 Powers. . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3 Vacancies . . . . . . . . . . . . . . . . . . . . . 4
Section 3.4 Resignations and Removals . . . . . . . . . . . . . 4
Section 3.5 Meetings. . . . . . . . . . . . . . . . . . . . . . 5
Section 3.6 Quorum and Voting . . . . . . . . . . . . . . . . . 5
Section 3.7 Action Without Meeting. . . . . . . . . . . . . . . 6
Section 3.8 Fees and Compensation . . . . . . . . . . . . . . . 6
Section 3.9 Committees. . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1 Officers Designated . . . . . . . . . . . . . . . . 7
Section 4.2 Tenure and Duties of Officers . . . . . . . . . . . 7
ARTICLE 5
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF
SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . . . . . . . . 9
Section 5.1 Execution of Corporate Instruments. . . . . . . . . 9
Section 5.2 Voting of Securities Owned by Corporation . . . . . 9
i
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TABLE OF CONTENTS
(CONTINUED)
PAGE
- --------------------------------------------------------------------------------
ARTICLE 6
SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.1 Form and Execution of Certificates. . . . . . . . . 9
Section 6.2 Lost Certificates . . . . . . . . . . . . . . . . . 10
Section 6.3 Transfer. . . . . . . . . . . . . . . . . . . . . . 10
Section 6.4 Fixing Record Dates . . . . . . . . . . . . . . . . 10
Section 6.5 Registered Stockholders . . . . . . . . . . . . . . 10
ARTICLE 7
OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . . . 11
ARTICLE 8
CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 9
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS. . . . . . 12
Section 9.1 Right to Indemnification. . . . . . . . . . . . . . 12
Section 9.2 Authority to Advance Expenses . . . . . . . . . . . 12
Section 9.3 Right of Claimant to Bring Suit . . . . . . . . . . 13
Section 9.4 Provisions Nonexclusive . . . . . . . . . . . . . . 13
Section 9.5 Authority to Insure . . . . . . . . . . . . . . . . 13
Section 9.6 Survival of Rights. . . . . . . . . . . . . . . . . 13
Section 9.7 Settlement of Claims. . . . . . . . . . . . . . . . 13
Section 9.8 Effect of Amendment . . . . . . . . . . . . . . . . 14
Section 9.9 Subrogation . . . . . . . . . . . . . . . . . . . . 14
Section 9.10 No Duplication of Payments. . . . . . . . . . . . . 14
ARTICLE 10
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 11
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii
<PAGE>
BYLAWS
OF
PROFORMANCE RESEARCH ORGANIZATION, INC.
- --------------------------------------------------------------------------------
ARTICLE 1
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be The Corporation Trust Company, 1209 Orange
Street, Wilmington, New Castle County, DE 19801.
SECTION 1.2 OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business Denver, Colorado, and may also have
offices at such other places, both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE 2
STOCKHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 1.2 of Article 1 hereof.
SECTION 2.2 ANNUAL MEETINGS. The annual meetings of the stockholders of
the corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
SECTION 2.3 SPECIAL MEETINGS. Special Meetings of the stockholders of
the corporation may be called, for any purpose or purposes, by the Chairman of
the Board or the President or the Board of Directors at any time. Upon written
request of any stockholder or stockholders holding in the aggregate one-tenth of
the voting power of all stockholders delivered in person or sent by registered
mail to the Chairman of the Board, President or Secretary of the corporation,
the Secretary shall call a special meeting of stockholders to be held at the
office of the corporation required to be maintained pursuant to Section 1.2
hereof at such time as the Secretary may fix, such meeting to be held not less
than ten nor more than sixty days after the receipt of such request, and if the
Secretary shall neglect or refuse to call such meeting, within seven days after
the receipt of such request, the stockholder making such request may do so.
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<PAGE>
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate
of Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears upon
the books of the corporation; except that where the matter to be acted on is a
merger or consolidation of the Corporation or a sale, lease or exchange of all
or substantially all of its assets, such notice shall be given not less than
twenty (20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which,
if taken, would entitle shareholders fulfilling the requirements of
section 262(d) of the Delaware General Corporation Law to an appraisal of the
fair value of their shares, the notice of such meeting shall contain a statement
of that purpose and to that effect and shall be accompanied by a copy of that
statutory section.
(c) When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty days, or unless after the adjournment a new
record date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice of
such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable
at the pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
SECTION 2.5 QUORUM.
(a) At all meetings of stockholders, except where otherwise
provided by law, the Certificate of Incorporation, or these Bylaws, the
presence, in person or by proxy duly authorized, of the holders of a majority of
the outstanding shares of stock entitled to vote shall constitute a quorum for
the transaction of business. Shares, the voting of which at said meeting have
been enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said meeting. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. At such adjourned meeting at
which a quorum is present or represented any business may be transacted which
might have been transacted at the original meeting. The stockholders present at
a duly called or convened meeting, at which a quorum is present, may continue to
transact business
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until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the corporation.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in
whose names shares entitled to vote stand on the stock records of the
corporation on the record date for determining the stockholders entitled to vote
at said meeting shall be entitled to vote at such meeting. Shares standing in
the names of two or more persons shall be voted or represented in accordance
with the determination of the majority of such persons, or, if only one of such
persons is present in person or represented by proxy, such person shall have the
right to vote such shares and such shares shall be deemed to be represented for
the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall
have the right to do so either in person or by an agent or agents authorized by
a written proxy executed by such person or his duly authorized agent, which
proxy shall be filed with the Secretary of the corporation at or before the
meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after three years from its date unless
the proxy provides for a longer period.
SECTION 2.7 LIST OF STOCKHOLDERS. 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 entitled to
vote at said meeting, arranged in alphabetical order, showing the address of 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 where the meeting is to
be held and which place shall be specified in the notice of the meeting, or, if
not specified, at the place where said meeting is to be held, and the list shall
be produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.8 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required by statute to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, are 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. To be effective, a
written consent must be delivered to the corporation by delivery to its
registered office in 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 a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
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to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this Section to
the corporation, written consents signed by a sufficient number of holders to
take action are delivered to the corporation in accordance with this Section.
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.
ARTICLE 3
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole of the Board of Directors shall be one until changed
by amendment of the Articles of Incorporation or by a Bylaw amending this
Section 3.1 duly adopted by the vote or written consent of holders of a majority
of the outstanding shares or by the Board of Directors. With the exception of
the first Board of Directors, which shall be elected by the incorporators, and
except as provided in Section 3.3 of this Article 3, the directors shall be
elected by a plurality vote of the shares represented in person or by proxy, at
the stockholders annual meeting in each year and entitled to vote on the
election of directors. Elected directors shall hold office until the next
annual meeting and until their successors shall be duly elected and qualified.
Directors need not be stockholders. If, for any cause, the Board of Directors
shall not have been elected at an annual meeting, they may be elected as soon
thereafter as convenient at a special meeting of the stockholders called for
that purpose in the manner provided in these Bylaws.
SECTION 3.2 POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by or under the direction of
the Board of Directors.
SECTION 3.3 VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected shall hold office for
the unexpired portion of the term of the director whose place shall be vacant,
and until his successor shall have been duly elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this section in the
case of the death, removal or resignation of any director, or if the
stockholders fail at any meeting of stockholders at which directors are to be
elected (including any meeting referred to in Section 3.4 below) to elect the
number of directors then constituting the whole Board.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office for the unexpired portion of the
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term of the director whose place shall be vacated and until his successor
shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the
purpose in the manner hereinabove provided, the Board of Directors, or any
individual director, may be removed from office, with or without cause, and a
new director or directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be
held immediately after the annual stockholders' meeting and at the place where
such meeting is held or at the place announced by the Chairman at such meeting.
No notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 1.2 of Article 1
hereof. Regular meetings of the Board of Directors may also be held at any
place within or without the State of Delaware which has been designated by
resolutions of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held
at any time and place within or without the State of Delaware whenever called by
the Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by any of the directors.
(d) Written notice of the time and place of all regular and
special meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile at least 48 hours before the start of
the meeting, or sent by first class mail at lease 120 hours before the start of
the meeting. Notice of any meeting may be waived in writing at any time before
or after the meeting and will be waived by any director by attendance thereat.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time in accordance
with Section 3.1 of Article 3 of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is
present all questions and business shall be determined by a vote of a majority
of the directors present, unless a different vote be required by law, the
Certificate of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communication
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equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
(d) The transactions of any meeting of the Board of
Directors, or any committee thereof, however called or noticed, or wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the directors not present shall sign a written waiver of notice, or a
consent to holding such meeting, or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION. Directors and members of committees
shall not receive any salary, fees or other compensation for their services as
directors.
SECTION 3.9 COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution passed by a majority of the whole Board, appoint an Executive
Committee of not less than one member, each of whom shall be a director. The
Executive Committee, to the extent permitted by law, shall have and may exercise
when the Board of Directors is not in session all powers of the Board in the
management of the business and affairs of the corporation, including, without
limitation, the power and authority to declare a dividend or to authorize the
issuance of stock, except such committee shall not have the power or authority
to amend the Certificate of Incorporation, to adopt an agreement or merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, to recommend
to the stockholders of the Corporation a dissolution of the Corporation or a
revocation of a dissolution, or to amend these Bylaws.
(b) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committee, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. The members of all committees of the Board of
Directors shall serve a term coexistent with that of the Board of Directors
which shall have appointed such committee. The Board, subject to the provisions
of subsections (a) or (b) of this Section 3.9, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee; provided, that no committee shall consist of less than one member.
The membership of a committee member shall terminate on the date of his death or
voluntary resignation, but the Board may at any time for any reason remove any
individual committee member and the Board may fill any committee vacancy created
by death, resignation, removal or
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increase in the number of members of the committee. The Board of Directors
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee,
and, in addition, in the absence or disqualification of any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they 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.
(d) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 3.9 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter; special
meetings of any such committee may be held at the principal office of the
corporation required to be maintained pursuant to Section 1.2 of Article 1
hereof; or at any place which has been designated from time to time by
resolution of such committee or by written consent of all members thereof, and
may be called by any director who is a member of such committee, upon written
notice to the members of such committee of the time and place of such special
meeting given in the manner provided for the giving of written notice to members
of the Board of Directors of the time and place of special meetings of the Board
of Directors. Notice of any special meeting of any committee may be waived in
writing at any time after the meeting and will be waived by any director by
attendance thereat. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at any meeting at which a quorum is present shall
be the act of such committee.
ARTICLE 4
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED. The officers of the corporation shall
be a Chairman of the Board of Directors and a President, and one or more Vice-
Presidents, a Secretary, and a Treasurer. The order of the seniority of the
Vice Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors or the Chairman of
the Board or the President may also appoint one or more assistant secretaries,
assistant treasurers, and such other officers and agents with such powers and
duties as it or he shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as they shall deem appropriate.
Any one person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the
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vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall
be construed as creating any kind of contractual right to employment with the
corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors (if there be such an officer appointed) shall
be the chief executive officer of the corporation and, when present, shall
preside at all meetings of the shareholders and the Board of Directors. The
Chairman of the Board of Directors shall perform such other duties and have such
other powers as the Board of Directors shall designate from time to time.
(c) DUTIES OF PRESIDENT. The President shall be the chief
executive officer of the corporation in the absence of the Chairman of the Board
and shall preside at all meetings of the shareholders and at all meetings of the
Board of Directors, unless the Chairman of the Board of Directors has been
appointed and is present. The President shall perform such other duties and
have such other powers as the Board of Directors shall designate from time to
time.
(d) DUTIES OF VICE-PRESIDENTS. The Vice-Presidents, in the
order of their seniority, may assume and perform the duties of the President in
the absence or disability of the President or whenever the office of the
President is vacant. The Vice-President shall perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the shareholders and of the Board of Directors and any committee
thereof, and shall record all acts and proceedings thereof in the minute book of
the corporation. The Secretary shall give notice, in conformity with these
Bylaws, of all meetings of the shareholders, and of all meetings of the Board of
Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) DUTIES OF TREASURER. The Treasurer shall keep or cause
to be kept the books of account of the corporation in a thorough and proper
manner, and shall render statements of the financial affairs of the corporation
in such form and as often as required by the Board of Directors or the
President. The Treasurer, subject to the order of the Board of Directors, shall
have the custody of all funds and securities of the corporation. The Treasurer
shall perform all other duties commonly incident to his office and shall perform
such other duties and have such other powers as the Board of Directors or the
President shall designate from time to time. The President may direct any
Assistant Treasurer to assume and perform the duties of the Treasurer in the
absence or disability of the Treasurer, and each Assistant Treasurer shall
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
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ARTICLE 5
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion,
determine the method and designate the signatory officer or officers, or other
person or persons, to execute any corporate instrument or document, or to sign
the corporate name without limitation, except where otherwise provided by law,
and such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board
of Directors or otherwise required by law, formal contracts of the corporation,
promissory notes, deeds of trust, mortgages and other evidences of indebtedness
of the corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President AND by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
(c) All checks and drafts drawn on banks or other
depositaries on funds to the credit of the corporation, or in special accounts
of the corporation, shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors or, in the absence of such authorization,
by the Chairman of the Board (if there be such an officer appointed), or by the
President, or by any Vice-President.
ARTICLE 6
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of the corporation by, the Chairman of the Board (if there be such an
officer appointed), or by the President or any Vice-President and by the
Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the 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
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certificate is issued, it may be issued with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate which the corporation shall issue to represent
such class or series of stock, provided that, except as otherwise provided in
section 202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock,
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to indemnify the corporation in such manner as it shall require
and/or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a certificate or
certificates for a like number of shares, properly endorsed.
SECTION 6.4 FIXING RECORD DATES.
(a) 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 date on which the meeting is held. A determination
of stockholders of record entitled 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.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, 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
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Directors. If no record date has been fixed by the Board of Directors, the
record date for determining 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 Delaware 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 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 a 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 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.
(c) 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.
SECTION 6.5 REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE 7
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation, other
than stock certificates, may be signed by the Chairman of the Board (if there be
such an officer appointed), or the President or any Vice-President or such other
person as may be authorized by the Board of Directors and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signature of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate security
may be the imprinted facsimile of the signatures of such persons. Interest
coupons appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation, or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or attested
any bond, debenture or other corporate security, or whose facsimile signature
shall appear thereon or
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before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE 8
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the corporation
and the state and date of its incorporation. Said seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE 9
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 9.1 RIGHT TO INDEMNIFICATION. Each person who was or is a party
or is threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"); PROVIDED, HOWEVER, that except as
to actions to enforce indemnification rights pursuant to Section 9.3 of this
Article, the corporation shall indemnify any Agent seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this Article shall be a
contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES. Expenses incurred by an
officer or director (acting in his capacity as such) in defending a Proceeding
shall be paid by the corporation in advance of the final disposition of such
Proceeding, PROVIDED, HOWEVER, that if
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required by the Delaware General Corporation Law, as amended, such Expenses
shall be advanced only upon delivery to the corporation of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article or otherwise. Expenses incurred by
other Agents of the corporation (or by the directors or officers not acting in
their capacity as such, including service with respect to employee benefit
plans) may be advanced upon such terms and conditions as the Board of
Directors deems appropriate. Any obligation to reimburse the corporation for
Expense advances shall be unsecured and no interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 9.1 or 9.2 of this Article is not paid in full by the corporation within
90 days after a written claim has been received by the corporation, the claimant
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense (including attorneys' fees) of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending a
Proceeding in advance of its final disposition where the required undertaking
has been tendered to the corporation) that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper under the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE. The rights conferred on any person
by this Article shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate, agreement, or vote of the stockholders or disinterested directors
is inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 9.5 AUTHORITY TO INSURE. The corporation may purchase and
maintain insurance to protect itself and any Agent against any Expense, whether
or not the corporation would have the power to indemnify the Agent against such
Expense under applicable law or the provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS. The rights provided by this Article
shall continue as to a person who has ceased to be an Agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS. The corporation shall not be liable
to indemnify any Agent under this Article (a) for any amounts paid in settlement
of any action or claim effected without the corporation's written consent, which
consent shall not be unreasonably
13
<PAGE>
withheld; or (b) for any judicial award if the corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT. Any amendment, repeal, or modification
of this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION. In the event of payment under this Article,
the corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS. The corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote, or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE 10
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be given
to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address
of a stockholder or director be known, such notice may be sent to the office of
the corporation required to be maintained pursuant to Section 1.2 of Article 1
hereof. An affidavit of mailing, executed by a duly authorized and competent
employee of the corporation or its transfer agent appointed with respect to the
class of stock affected, specifying the name and address or the names and
addresses of the stockholder or stockholders, director or directors, to whom any
such notice or notices was or were given, and the time and method of giving the
same, shall be conclusive evidence of the statements therein contained. All
notices given by mail, as above provided, shall be deemed to have been given as
at the time of mailing and all notices given by telegram or other means of
electronic transmission shall be deemed to have been given as at the sending
time recorded by the telegraph company or other electronic transmission
equipment operator transmitting the same. It shall not be necessary that the
same method of giving be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
The period or limitation of time within which any stockholder may exercise any
option or right, or enjoy any privilege or benefit, or be required to act, or
within which any director may exercise any power or right, or enjoy any
privilege, pursuant to any notice sent him in the manner above provided, shall
not be affected or extended in any manner by the failure of
14
<PAGE>
such a stockholder or such director to receive such notice. Whenever any
notice is required to be given under the provisions of the statutes or of the
Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Whenever
notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate
under any provision of the Delaware General Corporation Law, the certificate
shall state, if such is the fact and if notice is required, that notice was
given to all persons entitled to receive notice except such persons with whom
communication is unlawful.
ARTICLE 11
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 2.11 of
Article 2, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting. The Board of Directors shall also have the authority to repeal, alter
or amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
15
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Proformance Research Organization, Inc., a
Delaware corporation, hereby certifies that the foregoing is a full, true and
correct copy of the Bylaws of said Corporation, with all amendments to date of
this Certificate.
WITNESS the signature of the undersigned this ___ day of _______________,
1998.
____________________________________
William D. Leary, Secretary
16
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is between Dave Bisbee (BISBEE) and the undersigned World
Associates, Inc./authorized Distributor (DISTRIBUTOR). This agreement does
not establish a franchise, sub franchise, agency or any relationship other
than a distributor relationship. Neither BISBEE nor DISTRIBUTOR has any
authority to make representations, warranties or agreements for the other
party.
1. SCOPE OF AGREEMENT. The DISTRIBUTOR has the right, but not the
obligation, to sell, BISBEE'S "Gold related materials". "Golf related
materials" are products and services produced by BISBEE including but not
limited to the "Player's Edge Instructional Series" and the Instructor
Certification Workbook/Learning Center Business Plan (Exhibits A and B)
formerly used at Exceller.
1.1 COMPENSATION. World Associates shall provide 31,250 Shares of
"Common" Stock in exchange for the "Distribution Rights" defined here in.
2. NATURE OF THE RELATIONSHIP. The success or failure of the
DISTRIBUTOR'S business is the responsibility of the DISTRIBUTOR and BISBEE
does not make any projection or guarantee as to the success of the
DISTRIBUTOR business. BISBEE does not exercise control over the DISTRIBUTOR'S
business methods or offer advice on how to run DISTRIBUTOR'S business.
BISBEE does require that DISTRIBUTOR not affect BISBEE'S goodwill,
copyrights, trademarks, and valuable business reputation by acting in a
disreputable, illegal, immoral or unprofessional manner and DISTRIBUTOR
hereby agrees not to act in such a manner or make representations that are
not within the bounds provided by BISBEE in any manner.
3. DISTRIBUTION RIGHTS. The DISTRIBUTOR is granted exclusive
distribution rights world wide for the marketing of the "Golf related
materials" with the sole exception of BISBEE'S personal efforts selling and
instructing the "Golf related materials" as long as the DISTRIBUTOR is in
compliance with the terms of this Agreement. The provision does not exclude
BISBEE from marketing in any area except as defined in sub-distributor
agreements, which grant rights to BISBEE'S "Golf related materials" to
sub-distributors. The DISTRIBUTOR may directly or indirectly "including
through sub-distributors, wholesalers, agents and persons similar to the
DISTRIBUTOR) sell any products or services to any person in any area. If the
DISTRIBUTOR sells to other persons for re-sale, or otherwise has other
persons sell products sold by DISTRIBUTOR, the DISTRIBUTOR will assure that
such person do not violate this Agreement and a violation by such person
shall be considered a violation by the DISTRIBUTOR.
4. USE OF BISBEE'S PROFESSIONAL IDENTITY. Subject to the terms and
conditions contained in this agreement, BISBEE hereby grants to DISTRIBUTOR a
transferable license to utilize BISBEE'S identity (including likeness) in
connection with the packaging and any advertising and promotion of the "Golf
related materials" and/or DISTRIBUTOR'S business. BISBEE shall make himself
available for reasonable advertising and or promotional efforts made by the
DISTRIBUTOR, at company's expense (including but not limited to television).
<PAGE>
5. CONFIDENTIALITY. If the DISTRIBUTOR receives any confidential
information from BISBEE, the DISTRIBUTOR will not disclose such information
to any third person and will use that information only in the name of BISBEE,
copyrighted and licensed to DISTRIBUTOR. This provision shall be enforced by
a court to the maximum extend and duration permitted under applicable law and
the court may modify this provision to accomplish its intended purpose to the
maximum extent.
6. TERMINATION. The non-defaulting party may terminate this Agreement
upon a breach hereof by the other party. The party responsible for the breach
shall have 90 (ninety) days from the date of notification to remedy the
breach. It is expressly understood that, in the event the DISTRIBUTOR is in
breach of this agreement via a breach of agreement by a sub-distributor,
termination of the sub-distributor agreement shall be deemed to be remedy of
the breach.
7. CHOICE OF LAW AND VENUE. This Agreement is governed by the laws of
Colorado (including laws on the amount and type of damages that may be
awarded), excluding laws on choice of law. The federal and state courts
located in Denver, Colorado shall be the exclusive forum for any suit or
proceeding, and each party hereto consents to the jurisdiction of such
courts, provided, however, that Bisbee may elect to bring a suit or
proceeding against the Distributor in another appropriate jurisdiction.
MISCELLANEOUS.
a. The Distributor has all recission rights, if any, provided by
state or federal law.
b. Notices hereunder will be given by Certified Mail.
c. Provisions which by their sense should survive termination of
this Agreement, including the confidentiality provisions and
prohibitions on reproduction of materials or production of
similar materials, shall survive termination.
d. A party shall not be liable for any delay or inability to
perform which is outside its reasonable control.
e. The DISTRIBUTOR is responsible for collecting and remitting all
sales, use and other taxes on sales by the DISTRIBUTOR.
f. BISBEE will offer training to the DISTRIBUTOR, their employees
and sub-distributors at no cost.
g. This is an integrated agreement. No promises or representations
have been made by one party to the other that are not set forth
in this document.
Distributor: World Associates, Inc.
BY: /s/ William D. Leary 7-22-96
------------------------------------------
William D. Leary, President Date
Dave Bisbee:
BY: /s/ Dave Bisbee 8-22-96
------------------------------------------
Dave Bisbee Date
2
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is between William D. Leary (WILLIAM D. LEARY) and the
undersigned Proformance Research Organization, Inc./authorized Distributor
(DISTRIBUTOR). This agreement does not establish a franchise, sub franchise,
agency or any relationship other than a distributor relationship. Neither
WILLIAM D. LEARY nor DISTRIBUTOR has any authority to make representations,
warranties or agreements for the other party.
1. SCOPE OF AGREEMENT. William D. Leary warrants that they have the
right to grant the rights defined herein. The DISTRIBUTOR has the right, but
not the obligation, to sell, WILLIAM D. LEARY'S "Golf related materials".
"Golf related materials" are golf exercised fitness programs authored by
WILLIAM D. LEARY.
2. NATURE OF THE RELATIONSHIP. The success or failure of the
DISTRIBUTOR'S business is the responsibility of the DISTRIBUTOR and WILLIAM
D. LEARY does not make any projection or guarantee as to the success of the
DISTRIBUTOR business. WILLIAM D. LEARY does not exercise control over the
DISTRIBUTOR'S business methods or offer advice on how to run DISTRIBUTOR'S
business.
WILLIAM D. LEARY does require that DISTRIBUTOR not affect WILLIAM D.
LEARY goodwill, copyrights, trademarks, and valuable business reputation by
acting in a disreputable, illegal, immoral or unprofessional manner and
DISTRIBUTOR hereby agrees not to act in such a manner or make representations
that are not within the bounds provided by WILLIAM D. LEARY in any manner.
3. DISTRIBUTION RIGHTS. The DISTRIBUTOR is granted non-exclusive
distribution rights for the marketing of the "Golf related materials" through
the distributors Golf Schools, Learning Centers and Certified Instructors, as
long as the DISTRIBUTOR is in compliance with the terms of this Agreement.
The provision does not exclude WILLIAM D. LEARY from marketing in any area.
The DISTRIBUTOR may directly or indirectly "including through
sub-distributors, wholesalers, agents and persons similar to the DISTRIBUTOR)
sell any products or services to any person in any area as well. If the
DISTRIBUTOR sells to other persons for re-sale, or otherwise has other
persons sell products sold by DISTRIBUTOR will assure that such person do not
violate this Agreement and a violation by such persons shall be considered a
violation by the DISTRIBUTOR.
4. USE OF WILLIAM D. LEARY'S PROFESSIONAL IDENTITY. Subject to the
terms and conditions contained in this agreement, and William D. Leary review
and written approval, WILLIAM D. LEARY hereby grants to DISTRIBUTOR the right
to utilize WILLIAM D. LEARY identity in connection with the packaging and any
advertising and promotion of the "Golf related materials" and/or
DISTRIBUTOR'S business. WILLIAM D. LEARY shall make a representative
available for reasonable advertising and or promotional efforts made by the
DISTRIBUTOR, at company's expense, one day each quarter, if so desired, by
the DISTRIBUTOR, such efforts shall require 30 days notice.
5. CONFIDENTIALITY. If the DISTRIBUTOR receives any confidential
information from WILLIAM D. LEARY, the DISTRIBUTOR will not disclose such
information to any third person and will use that information only in the
name of WILLIAM D. LEARY copyrighted and licensed to DISTRIBUTOR. This
provision shall be enforced by a court to the maximum extend and duration
permitted under applicable law and the court may modify this provision to
accomplish its intended purpose to the maximum extent.
<PAGE>
6. TERM AND TERMINATION. The Term of this Agreement shall be one year
from the date of execution, subject to automatic renewal each year for a
period of three years unless otherwise terminated. Termination - Either party
may terminate this Agreement upon 90 (ninety) days written notice. It is
expressly understood that, in the event the DISTRIBUTOR is in breach of this
agreement via a breach of agreement by sub-distributor, termination of the
sub-distributor agreement shall be deemed to be remedy of the breach.
7. CHOICE OF LAW AND VENUE. This Agreement is governed by the laws of
Colorado (including laws on the amount and type of damages that may be
awarded), excluding laws on choice of law. The federal and state courts
located in Denver, Colorado shall be the exclusive forum for any suit or
proceeding, and each party hereto hereby consents to the jurisdiction of such
courts, provided, however, the WILLIAM D. LEARY may elect to bring a suit or
proceeding against the DISTRIBUTOR in another appropriate jurisdiction.
MISCELLANEOUS.
a. The Distributor has all rescission rights, if any provided by
state or federal law.
b. Notices hereunder will be given by Certified Mail.
c. Provisions, which by their sense should survive termination of
this Agreement, including the confidentiality provisions and
prohibitions on reproduction of materials or production of
similar materials, shall survive termination.
d. A party shall not be liable for any delays or inability to
perform, which is outside its reasonable control.
e. The DISTRIBUTOR is responsible for collecting and remitting all
sales, use and other taxes on sales by the DISTRIBUTOR.
f. WILLIAM D. LEARY will offer training regarding to the DISTRIBUTOR
and of their employees and sub-distributors at no cost.
g. This is an integrated agreement. No promises or representations
have been made by one party to the other that are not set forth
in this document.
DISTRIBUTOR: Proformance Research Organization, Inc.
BY: /s/ Douglas Weiner 5-1-96
-----------------------------------
Date
BY: /s/ [Illegible] 5-1-96
-----------------------------------
Date
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 15th day of July, 1998 by and between
Proformance Research Organization Inc., a Delaware corporation (the
"Company") and Proformance Research Organization Weiner, Inc. and or Vanguard
21st Century Weiner Inc. (the "Investor").
The Company is conducting an offering of up to 1,000,000 shares (the
"COMMON SHARES") of the Common Stock at a price per share of $5.00, offered
under Regulation A under the Securities Act of 1933 (the "Act") pursuant to
an Offering Statement on Form 1-A, Sec File No. 24-3536-HQ ("the Offering").
On July 4, 1997, the parties entered into a Letter of Intent (the "Letter of
Intent") setting forth the terms of an investment in the Company by the
Investor in connection with the Offering, under which the Investor agreed to
purchase Series "C" Preferred Stock of the Company, at a purchase price of
$6.00 per share at or prior to the closing of the Offering. On January 30,
1998, the parties entered into a Subscription Agreement pursuant to the
Letter of Intent, (the "Subscription Agreement"). This Agreement is entered
into by the parties to modify the term of the Subscription Agreement and the
Letter of Intent and to effect the purchase and sale of the shares of Common
Stock (the "Common Stock) in the Offering.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK.
(a) At the termination of the Offering period, the Company will
notify the Investor of the number of Common Shares sold in the Offering, the
number of Common Shares to be sold to the Investor pursuant to this
Agreement, and the date of closing sales of shares pursuant to the Offering
this Agreement, all pursuant to a notice to be attached hereto as Exhibit A
(the "Notice"). The closing of the purchase and sale of Common Shares
pursuant to this Agreement (the "Closing") shall take place concurrently with
the closing of the sale of shares in the Offering on the date set forth in
the Notice (the "CLOSING DATE").
(b) Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the Closing and the Company agrees to sell and
issue to Investor in the Offering and at the Closing the amount of the
Company's Common Shares set forth on the Notice at a purchase price of $5.00
per share.
1.2 CLOSING. The Closing shall take place simultaneously with the
closing of the Offering on the same terms and conditions as the Closing of
the Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants that:
2.1 AUTHORIZATION. The Investor has full power and authority to
enter into this Agreement, and this Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms.
<PAGE>
2.2 STATE OF RESIDENCE. For purposes of state securities laws,
Investor is a resident solely of the State of South Carolina.
2.3 DISCLOSURE OF INFORMATION. John C. Weiner Jr., President and
controlling shareholder of the Investor, is a member of the Board of
Directors of the Company. In such capacity, John C. Weiner Jr. is familiar
with the Company's business, financial condition and prospects, and with the
terms and merits of the Offering and the purchase of the Common Shares.
Investor further represents that it has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of
the Offering, the offering of the Common Stock and business, properties,
prospects and financial condition of the Company.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided hereon,
the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties
(including any transferees of the Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns ant rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by construed
under the laws of the State of Colorado as applied to agreements among
Colorado residents entered into and be performed entirely within Colorado.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified,
(ii) on the next business day after deposit with FedEx or other nationally
recognized courier service, delivery charges prepaid, marked for the next day
delivery and addressed to the party on the signature page hereof or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party (the party's "Address"), (ii) on the fifth business
day after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at
its Address or (iv) on the next business day after facsimile transmission to
a party to the facsimile number indicated for such party on the signature
page hereof or at such other facsimile as such party may designate by ten
(10) days' advance written notice to the other party.
3.6 EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement or the Certificate of Designation,
the
<PAGE>
prevailing party shall be entitled to reasonable attorney's fees, costs
and necessary disbursements in addition to any other relief to which such
party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
3.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable by law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire Agreement among the parties and no party
shall be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein. This Agreement supersedes the Letter of Intent and the Subscription
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
Proformance Research Organization
A Delaware Corporation
By: /s/ William D. Leary
---------------------------------
WILLIAM D. LEARY, PRESIDENT
Address: Proformance Research Organization, Inc.
Attention: William D. Leary, President
5335 W. 48th Avenue, Suite 200
Denver, CO 80212
Proformance Research Organization/Weiner, Inc.
and or Vanguard 21st Century Weiner Inc.:
BY: /S/ John C. Weiner Jr.
----------------------------------
JOHN C. WEINER JR, PRESIDENT
Address: 7468 Anchorage Villa
-----------------------------
Hilton Head, SC 29928
- -------------------------------------
- -------------------------------------
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form SB-2 of Proformance Research Organization, Inc. of our
report dated May 1 and July 30, 1998, relating to the financial statements of
World Associates, Inc. as of December 31, 1997.
Stark Tinter & Associates, LLC
Certified Public Accountants
August 11, 1998
Englewood, Colorado
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 230,181 4,761
<SECURITIES> 0 0
<RECEIVABLES> 8,967 0
<ALLOWANCES> 0 0
<INVENTORY> 2,783 0
<CURRENT-ASSETS> 282,231 45,061
<PP&E> 41,369 26,858
<DEPRECIATION> 10,777 8,977
<TOTAL-ASSETS> 381,503 68,110
<CURRENT-LIABILITIES> 781,916 214,198
<BONDS> 252,500 240,000
0 0
1,214,300 797,300
<COMMON> 82,095 82,095
<OTHER-SE> (1,949,308) (1,370,623)
<TOTAL-LIABILITY-AND-EQUITY> 381,503 68,110
<SALES> 0 0
<TOTAL-REVENUES> 236,156 119,072
<CGS> 113,567 95,545
<TOTAL-COSTS> 113,567 95,545
<OTHER-EXPENSES> 814,777 681,830
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 31,632
<INCOME-PRETAX> (692,188) (689,935)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (692,188) (689,935)
<DISCONTINUED> 0 3,063
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (692,188) (692,998)
<EPS-PRIMARY> 0 (0.798)
<EPS-DILUTED> 0 0
</TABLE>
