<PAGE>
As filed on December 7, 1998 File No. 333-61533
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[(AMENDMENT NO. 1)]
PROFORMANCE RESEARCH ORGANIZATION, INC.
(Name of small business issuer in its charter)
DELAWARE 7999 84-1334921
(State of jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
5335 WEST 48TH AVENUE, DENVER, COLORADO 80212
(303) 458-1000
(Address and telephone number of principal executive offices)
5335 WEST 48TH AVENUE, DENVER,
COLORADO 80212 (Address or principal place of
business or intended principal place of business)
WILLIAM D. LEARY
PRESIDENT AND TREASURER
PROFORMANCE RESEARCH ORGANIZATION, INC.
5335 WEST 48TH AVENUE
DENVER, COLORADO 80212
(303) 458-1000
(Name, address and telephone number of agent for service)
Copies of all communications to:
<TABLE>
<S> <C>
John A. Hutchings, Esq. Robert P. Abdo, Esq.
Fay M. Matsukage, Esq. Abdo & Abdo, A Professional Association
Dill Dill Carr Stonbraker & Hutchings, P.C. 710 Northstar West
455 Sherman Street, Suite 300 625 Marquette Avenue
Denver, Colorado 80203 Minneapolis, Minnesota 55402
(303) 777-3737 (612) 333-1526
fax (303) 777-3823 fax (612) 342-2608
</TABLE>
Approximate date of proposed sale to public: As soon as practicable after the
effective date of the Registration Statement
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT (1) PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,150,000 $5.00 $5,750,000 $1,696.25
shares (2)
- -----------------------------------------------------------------------------------------------------------------
Placement Agent's 100,000 $.01 $1,000 $0.30
Warrants warrants
- -----------------------------------------------------------------------------------------------------------------
Common Stock 100,000 $6.00 $600,000 $177.00
underlying shares (3)
Placement Agent's
Warrants
- -----------------------------------------------------------------------------------------------------------------
Total $6,351,000 $1,873.55
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 150,000 shares to cover the Placement Agent's over-allotment
option.
(3) An indeterminate number of additional securities are registered hereunder
which may be issued, as provided in the Placement Agent's Warrants and
Warrant Agreement, in the event provisions against dilution become
operative. No additional consideration will be received by the Registrant
upon issuance of such additional securities.
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.
<PAGE>
PROSPECTUS
Subject To Completion, Dated December 7, 1998
1,000,000 SHARES
PROFORMANCE RESEARCH ORGANIZATION, INC.
COMMON STOCK
----------------------
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 West 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 Agent on
a "best efforts" "all or none" basis, subject to prior sale and subject to
the Company's and the Placement Agent's right to reject orders in whole or in
part. Application will be made for quotation of the Common Stock on the
Nasdaq Small Cap Market under the symbol "PROO" once the Company meets
listing standards. All proceeds from the sale of the Shares will be
transmitted by noon of the next business day following receipt thereof to a
non-interest bearing escrow account with Bank Windsor, Minneapolis, Minnesota
(the "Escrow Agent"). Unless all 1,000,000 Shares are sold within 90 days
from the date of this Prospectus (which may be extended for up to 90
additional days by mutual agreement between the Company and the Placement
Agent), the offering will be withdrawn and the Escrow Agent will promptly
return all funds to purchasers without deduction therefrom or interest
thereon. A purchaser's payment tendered to the Escrow Agent cannot be
returned to the investor until the offering period has expired and the
offering has been withdrawn. See "PLAN OF DISTRIBUTION."
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK WITH THE
POSSIBILITY OF LOSS OF INVESTMENT, ARE SPECULATIVE SECURITIES, AND WILL
RESULT IN IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SELLING PROCEEDS TO THE
PRICE TO PUBLIC COMMISSIONS (1)(2)(4) COMPANY (3)(4)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $5.00 $0.50 $4.50
- --------------------------------------------------------------------------------------------------------
Total............................ $5,000,000 $500,000 $4,500,000
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Placement Agent against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) In addition, the Placement Agent will receive warrants to purchase a number
of shares equal to 10% of the number of Shares sold by the Placement Agent,
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
Agent in the amount of 3% per Share sold, for total maximum expenses of
$250,000. See "USE OF PROCEEDS."
(4) Proformance Research Organization/Weiner, Inc. and/or Vanguard 21st Century
Weiner Inc., entities controlled John C. Weiner Jr., 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 Agent is not entitled to receive any selling commission on the
sale of any such shares. See "PLAN OF DISTRIBUTION."
GLOBAL FINANCIAL GROUP, INC.
100 WASHINGTON SQUARE, SUITE 1319
MINNEAPOLIS, MINNESOTA 33401
(800)321-1894
_________, 1998
<PAGE>
[PHOTOS]
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2
(including amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information
with respect to the Company and the Securities, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements
made in this Prospectus regarding the contents of any contract or document
filed as an exhibit to the Registration Statement are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or document so filed. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the office of the Commission at Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549. Copies of such materials may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission at
http://www.sec.gov.
As a result of this offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements, and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited financial statements certified by independent public
accountants following the end of each fiscal year, proxy statements, and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year following the end of such fiscal quarter.
IN CONNECTION WITH THE OFFERING, THE PLACEMENT AGENT 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.
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Proformance Research Organization, Inc. ("P.R.O." or the "Company")
earns revenue from three sources: (1) providing golf instruction services to
recreational golfers wishing to improve their game; (2) training of golf
instructors for certification and to maintain accreditation with the
Professional Golf Association of America (the "PGA"); and (3) 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 2-4 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 January 1999. 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 line of instructional video tapes and booklets, tied to the
curriculum taught at its Destination Golf Schools and Learning Centers.
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. In addition,
P.R.O. will be utilizing the Slazenger-Registered Trademark- Fitting System
at P.R.O. facilities for the purposes of distributing custom fit putters to
P.R.O. students.
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., Proformance Research Organization, CGT, and CGTA are registered
trademarks of the Company. This prospectus may contain other trade names and
trademarks of the Company.
The Company was founded in Colorado in 1991 under the name World
Associates, Inc. and was reincorporated in Delaware effective July 31, 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 Agent's 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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..... 1,000,000 shares
Common Stock to be outstanding
after the offering...................... 4,987,300 shares (1)
Use of proceeds......................... Estimated net proceeds of $4,250,000 to
be used for site development expenses;
advertising, repayment of short-term
debt, site start-up costs, acquisitions,
product inventory, and working capital.
The report of the independent auditors
contains a going concern qualification
due to operating losses incurred in
recent years, the stockholders'
deficiency, and negative working
capital. See "RISK FACTORS," "USE OF
PROCEEDS," and the Financial Statements.
</TABLE>
SUMMARY SELECTED FINANCIAL INFORMATION
The information shown below should be read in conjunction with the
Company's historical audited financial statements and the notes thereto
appearing elsewhere in this Prospectus. The interim period information is not
necessarily indicative of the Company's results for the remainder of the year.
See the Financial Statements.
<TABLE>
<CAPTION>
TEN MONTHS ENDED OCTOBER 31, YEAR ENDED DECEMBER 31,
----------------------------- -----------------------------
1998 1997 1997 1996
----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues ................................ $ 423,523 $ 102,850 $ 119,072 $ 188,455
Gross profit ............................ $ 208,491 $ 66,191 $ 23,527 $ 181,204
Net loss ................................ $(1,235,790) $ (592,246) $ (692,998) $ (349,004)
Net loss per share ...................... $ (1.37) $ (0.68) $ (0.798) $ (0.418)
</TABLE>
<TABLE>
OCTOBER 31, 1998 DECEMBER 31,
------------------------------- ------------
ACTUAL AS ADJUSTED(2) 1997
----------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ............ $ (890,665) $ 2,809,335 $ (169,137)
Total assets ............................ $ 142,958 $ 3,842,958 $ 68,110
Total liabilities ....................... $ 1,371,050 $ 821,050 $ 559,338
Shareholders' equity (deficiency) ....... $(1,228,092) $ 3,021,908 $ (491,228)
</TABLE>
(1) Excludes 242,200 shares issuable upon conversion of debt outstanding at
October 31, 1998. See Note 6 of Notes to Audited Consolidated Financial
Statements. Also excludes 118,600 shares issuable upon exercise of warrants
outstanding at October 31, 1998.
(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 application
of the net proceeds therefrom. Assumes no conversion of the current
outstanding bonds of the Company.
5
<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 OFFERING INVOLVES
SUBSTANTIAL RISKS ASSOCIATED WITH THE COMPANY AND ITS BUSINESS INCLUDING,
AMONG OTHERS, RISKS ASSOCIATED WITH SUBSTANTIAL INDUSTRY COMPETITION,
INSUFFICIENT REVENUES, AND A LIMITED OPERATING HISTORY.
GOING CONCERN QUALIFICATION; 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 $423,500 in the ten
months ending October 31, 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 $1,235,800 in the ten
months ended October 31, 1998. To date, the Company has not achieved an
operating profit in any period. As of October 31, 1998, the Company had an
accumulated deficit of $2,606,413 (unaudited) and a stockholders' deficiency
of $1,228,092 (unaudited). The report of the Company's auditors on the
financial statements for the last fiscal year raised substantial doubt about
the Company's ability to continue as a going concern. The limited operating
history makes it difficult to predict the Company's future performance. 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. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and the Financial Statements.
SIGNIFICANT LEVERAGE; DEBT SERVICE. As of October 31, 1998, the Company
has outstanding long-term debt of $346,000 and short-term notes payable of
$619,500. 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 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. See the Financial
Statements.
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
6
<PAGE>
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. The
Company does not have any key man life insurance on Mr. Leary.
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 United States, 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, Colorado 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 and 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.
7
<PAGE>
The number of Company employees has increased from 11 full-time employees at
January 31, 1996 to 17 full-time employees at October 31, 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 January 1999) and two
Learning Centers at October 31, 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 and adversely affected. See "BUSINESS."
LACK OF SUFFICIENT DISINTERESTED INDEPENDENT DIRECTORS. The Company has
entered into several transactions with its officers, directors, and principal
shareholders. The Board of Directors, which authorized the transactions,
consists of Mr. Leary, the President of the Company, and two other directors,
both of whom are shareholders of the Company. While the Company believes that
these transactions are on terms that are no less favorable to the Company
than those that could be obtained from unaffiliated third parties, it cannot
be stated that the transactions were approved by a majority of independent
disinterested directors. See "MANAGEMENT" and "CERTAIN TRANSACTIONS."
VOTING CONTROL. Upon completion of the offering, the Company's
President, William D. Leary, will have voting control over approximately
37.2% of the Company's voting stock. See "PRINCIPAL STOCKHOLDERS." One or
more entities 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 entities purchased all
of the Shares offered hereby, Mr. Weiner would own beneficially 21.1% of the
Company's voting stock, and Messrs. Leary and Weiner would own beneficially a
total of 58.3% of the Company's voting stock, excluding shares sold pursuant
to the over-allotment option, sold pursuant to the exercise of outstanding
warrants, and issued upon 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.
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 Agent. 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.
One or more entities 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 entities, 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."
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.
8
<PAGE>
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 4,987,300 shares of Common
Stock outstanding, which reflects the conversion of all outstanding shares of
Series A and Series B Preferred Stock into Common Stock upon the completion
of this offering but does not give effect to the exercise of the Placements
Agent's over-allotment option. In addition, the Company will have outstanding
warrants to purchase 118,600 shares of Common Stock, and 242,200 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 4,987,300
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 3,987,300 outstanding shares are "restricted securities"
within the meaning of Rule 144 and may be resold only in compliance with that
Rule. The holders of 3,687,500 of these shares have agreed with the Company
that they will not sell their shares until 12 months from the completion of
this offering. Of the shares that are not subject to this "lock-up"
arrangement, 80,650 would become eligible for sale under Rule 144 upon the
date of this Prospectus, 10,500 would become eligible in December 1998,
27,750 would become eligible in March 1999, 65,200 in April 1999, 40,250 in
May 1999, and the remainder thereafter. 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, the Common Stock were to be quoted on the
Nasdaq Small Cap Market and priced below $5.00 per share, trading of the
Common Stock would 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 not listed on the Nasdaq
Small Cap Market, resulting in the Common Stock being considered penny stock,
trading, if any, of the Common Stock will be subject to the full range of
Penny Stock Rules.
IMMEDIATE AND SUBSTANTIAL 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 Agent. Purchasers in the offering will suffer
immediate and substantial dilution of $4.40 per share or approximately 88% of
the offering price of the Shares. 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 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. See "DIVIDEND POLICY."
DEPENDENCE ON DESTINATION GOLF SCHOOL AND LEARNING CENTER LEASES. The
Company currently has lease contracts with eight Destination Golf Schools and
two Learning Centers. 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
9
<PAGE>
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. See "BUSINESS."
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. See "BUSINESS."
POTENTIAL INABILITY TO LIST OR DELISTING OF COMMON STOCK ON 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 be unable to meet certain initial listing criteria
for the Nasdaq SmallCap Market unless the Shares covered by the
over-allotment option are sold. Even if the Company is able to list the
Common Stock on the Nasdaq SmallCap Market, it could be delisted. 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. If the Company's Common Stock
is delisted from the Nasdaq SmallCap Market, liquidity of the Company's stock
could be materially and 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 1,000,000 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 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."
IMPACT OF THE YEAR 2000. The Company uses software in its financial,
reservation processing and administrative operations. While the Company has
been informed by substantially all of its business application software
suppliers that their software is Year 2000 compliant, there can be no
assurances that Year 2000 problems will not occur with respect to the
Company's computer systems. In addition, 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. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Impact of the Year 2000."
10
<PAGE>
DILUTION
As of October 31, 1998, the Company had an unaudited net tangible book
value of $(1,233,260) or $(0.31) per share of Common Stock. Net tangible book
value per share of Common Stock represents total tangible assets reduced by
total liabilities, divided by the number of outstanding shares of Common
Stock. Without taking into account any changes in net tangible book value
after October 31, 1998, after giving effect to the sale by the Company of the
1,000,000 Shares offered hereby for net proceeds of $4,250,000, the pro forma
net tangible book value of the Company's Common Stock at October 31, 1998
would have been $3,016,740 or $0.60 per share. Accordingly, after the
offering, the net tangible book value of the shares of Common Stock held by
the present shareholders would have increased $0.91 per share. Concurrently,
new investors purchasing Shares in this offering would suffer substantial
immediate dilution of $4.40 per share.
The following table illustrates the foregoing dilution of a new investor's
equity in a share of Common Stock:
<TABLE>
<S> <C> <C>
Offering price per share of Common Stock ........................ $ 5.00
Net tangible book value per common share before offering ........ $ (0.31)
Increase per share attributable to new investors ................ $ 0.91
Pro forma net tangible book value per common
share after offering .......................................... $ 0.60
Dilution per common share to new investors ...................... $ 4.40
Percentage Dilution ............................................. 88%
</TABLE>
The following table sets forth, as of October 31, 1998, a comparison of
the respective investment and equity of the current shareholders and
investors purchasing Shares in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders ... 3,987,300 79.9% $1,378,321 21.6% $ 0.35
New investors ........... 1,000,000 20.1% 5,000,000 78.4% $ 5.00
--------- ----- ---------- -----
Total ................... 4,989,300 100.0% $6,378,321 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company are estimated to be $4,250,000 after
deducting estimated legal, accounting, and other offering expenses estimated
at $100,000, a 10% selling commission on all of the Shares, and a 3%
non-accountable expense allowance payable to the Placement Agent. To the
extent that more Shares are sold to entities controlled by a director of the
Company for which the Placement Agent will not be paid a selling commission
or expense allowance, the net proceeds will be increased. See "PLAN OF
DISTRIBUTION." The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
------------ -------
<S> <C> <C>
Site Development Expenses (1)................................ $ 1,000,000 23.5%
Advertising (2).............................................. 1,000,000 23.5%
Short-Term Debt (3).......................................... 550,000 12.9%
Site Start-Up Costs (4)...................................... 500,000 11.8%
Acquisitions (5)............................................. 500,000 11.8%
Product Inventory (6)........................................ 300,000 7.1%
Working capital (7).......................................... 400,000 9.4%
------------ -----
Total........................................................ $ 4,250,000 100.0%
------------ -----
------------ -----
</TABLE>
- --------------------
(1) To cover the estimated costs of a new golf practice facility which is
proposed to be constructed in the southwestern United States. See "BUSINESS
- Golf Course Development and Management Strategy."
(2) To cover the cost of advertising and promotions in local, regional, and
national publications, on television, attendance at trade shows, and direct
marketing. See "BUSINESS - Marketing."
(3) To repay loans which bear interest at 8% and 10%, made by various third
party lenders. All of the loans are unsecured. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity
and Capital Resources."
(4) To cover the costs of opening new facilities, which are primarily staff and
instructor salaries and rent paid to the resort. See "BUSINESS -
Acquisitions and Site Start-Up Costs."
(5) The Company proposes to acquire existing golf school operations. See
"BUSINESS - Acquisitions and Site Start-Up Costs."
(6) The Company intends to have equipment for custom club fitting at all
Destination Golf Schools and Learning Center locations, as well as teaching
aids, and other golf-related goods such as clothing and gloves. See
"BUSINESS - Product Sales."
(7) The Company does not intend to use any portion of amounts allocated for
working capital to pay officers' salaries.
These allocations indicate the Company's present intentions for the use
of proceeds. However, future events may require a change in the allocation of
funds. Any changes in proposed expenditures will be made at the discretion of
the Board of Directors of the Company.
The proceeds from any exercise of the Placement Agent's over-allotment
option and warrants will be added to working capital.
Pending such uses, the Company intends to invest the proceeds from this
offering in short term, investment-grade, interest bearing securities.
12
<PAGE>
CAPITALIZATION
The following table sets forth the current liabilities, long-term debt
and capitalization of the Company as of October 31, 1998, and as adjusted to
give effect to (1) the sale by the Company of 1,000,000 Shares offered hereby
at an offering price of $5.00 per Share, (2) the application of the net
proceeds of $4,250,000, and (3) the conversion of all outstanding shares of
Series A and Series B Preferred Stock into Common Stock upon the closing of
the offering. The table should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1998
--------------------------
(UNAUDITED)
ACTUAL ADJUSTED
----------- -----------
<S> <C>
Current liabilities ................................................................ $ 985,960 $ 435,960
----------- -----------
----------- -----------
Long-term debt ..................................................................... $ 346,000 $ 346,000
----------- -----------
Stockholders' deficiency:
Preferred stock, Series A, convertible, cumulative, $.0001 par value per
share, 500,000 shares authorized,
216,600 shares issued and outstanding (1) .................................... 1,083,390 --
Preferred stock, Series B, convertible, cumulative,
$.0001 par value per share, 500,000 shares authorized,
185,200 shares issued and outstanding ........................................ 212,800 --
Common stock, $.0001 par value per share;
10,000,000 shares authorized, 2,581,000 shares issued,
4,987,300 issued as adjusted for the offering (1) ............................ 82,131 5,628,321
Accumulated deficit ............................................................. (2,606,413) (2,606,413)
----------- -----------
Total stockholders' equity ......................................................... (1,228,092) 3,021,908
----------- -----------
Total capitalization ............................................................... $ (882,092) $ 3,367,908
----------- -----------
----------- -----------
</TABLE>
- -------------------
(1) Does not reflect the issuance of additional shares of Series A Preferred
Stock and Common Stock subsequent to October 31, 1998.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future. The Company's Board of Directors plans to
retain earnings for the development and expansion of the Company's business.
The Board of Directors also plans to regularly review the Company's dividend
policy. Any future determination as to the payment of dividends will be at
the discretion of the Board of Directors of the Company and will depend on a
number of factors, including future earnings, capital requirements, financial
condition and such other factors as the Board of Directors may deem relevant.
The Company is not restricted by any contractual agreement by paying
dividends.
13
<PAGE>
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
2-4 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 January 1999; and Tucson National, Tucson, Arizona,
scheduled to open in January 1999. 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.
In addition, P.R.O. is currently in negotiation to open additional
Destination Golf Schools in Myrtle Beach, South Carolina; Orlando, Florida;
Palm Springs, California; Aspen, Colorado; and San Francisco, California.
Such negotiations, however, are preliminary and there is no assurance that
any 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.
14
<PAGE>
TEN MONTHS ENDED OCTOBER 31, 1997 COMPARED TO TEN MONTHS ENDED OCTOBER 31, 1998
TOTAL REVENUE. The Company had total revenue of $102,850 in the ten
months ended October 31, 1997, compared to $423,523 of total revenue in the
ten months ended October 31, 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 ten months of 1997, the Company had one Destination Golf School -
Keystone, Colorado - open for a total of four months. During the first ten
months of 1998, the Company had several sites open during portions of that
period: Wildfire (Phoenix); Carlton Oaks (San Diego area); Rhodes Ranch (Las
Vegas); Keystone; Brooks (Lake Okoboji); Huff House (Catskills); Scottsdale
Learning Center; and Plum Creek (Denver area) Learning Center.
COST OF REVENUE. Cost of revenues in the ten months ended October 31,
1997 was $36,659 or 36% of total revenue, compared to $215,032 or 51% of
total revenue in the ten months ended October 31, 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" below.
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 $628,916 for the ten months ended
October 31, 1997 to $1,380,519 for the ten months ended October 31, 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 receive financing that will allow it to engage in its
planned advertising campaign by January 1999. The Company hopes that engaging
in the planned advertising campaign will 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 the 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.
15
<PAGE>
Selling, general and administrative expenses consisted 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 October 31, 1998
of $346,000 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 presently does not intend to call such indebtedness
for prepayment.
At October 31, 1998, short-term notes payable was $619,500. Proceeds
from this offering in the amount of $550,000 have been allocated for the
repayment of short-term debt. See "USE OF PROCEEDS."
The proceeds from this offering have been allocated primarily for
expansion and growth types of purposes, such as site development for a new
golf practice facility, advertising, the costs of opening new facilities,
acquisitions, and product inventory. Only $550,000 has been allocated for
repayment of short-term debt and bridge loans. Accordingly, it will become
necessary for the Company's existing operations to be able to generate enough
cash to cover existing commitments and obligations, such as lease rent for
the facilities, instructors' salaries, and officers' salaries. The Company is
obligated, pursuant to a five-year employment agreement to pay William D.
Leary, the President of the Company, an annual salary of $120,000. See
"CERTAIN TRANSACTIONS - Leary Employment Agreement."
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, not currently anticipated, 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, the Company's
site manager and certified instructors for Wildfire will generally move to
Keystone for the summer and the staff from
16
<PAGE>
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 and 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.
17
<PAGE>
BUSINESS
THE COMPANY
Proformance Research Organization, Inc. ("P.R.O." or the "Company")
earns revenue from three sources: (1) providing golf instruction services to
recreational golfers wishing to improve their game; (2) training of golf
instructors for certification and to maintain accreditation with the
Professional Golf Association of America (the "PGA"); and (3) 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 January 1999. 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 line of instructional video tapes and booklets, tied to the
curriculum taught at its Destination Golf Schools and Learning Centers.
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. In addition,
P.R.O. will be utilizing the Slazenger-Registered Trademark- Fitting System
at P.R.O. facilities for the purposes of distributing custom fit putters to
P.R.O. students.
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.
CORPORATE HISTORY
The Company was founded in Colorado in January 1991 under the name World
Associates, Inc. It formed a subsidiary in Delaware in February 1996
originally called Team Family, Inc., which changed its name to Proformance
Research Organization, Inc. in January 1997. The Company merged into this
subsidiary effective July 31, 1998, thereby effecting a reincorporation (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.
Golf instruction operations commenced in the summer of 1996 with the
association of Dave Bisbee and the licensing of certain rights to golf
instruction materials from Mr. Bisbee and Sport Solutions, Inc. See "CERTAIN
TRANSACTIONS - Sports Solutions, Inc. ("SSI") License" and "CERTAIN
TRANSACTIONS - Dave Bisbee Distribution Agreement." The Company then
negotiated and signed agreements with various golf courses to operate their
golf schools at such courses, beginning with the agreement with Keystone
Ranch Resort in March 1997. As outlined above, the Company now has six
Destination Golf Schools and two Learning Centers in operation.
INDUSTRY BACKGROUND
The National Golf Foundation, a non-profit golf research organization
(the "NGF"), conducts various survey and studies of golfers in the United
States. According to excerpts from various studies by the NGF, 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.
18
<PAGE>
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 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. As described
more fully below, the Company may expand by acquiring existing golf school
operations.
- - 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. In addition, P.R.O. will be utilizing the Slazenger-Registered
Trademark- Fitting System at P.R.O. facilities for the purposes of
distributing custom fit putters to P.R.O. students.
- - 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. With the
assistance of Vic Kline, 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" and "MANAGEMENT - Key Employees and Consultants."
- - 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."
19
<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.
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. See "CERTAIN
TRANSACTIONS" for information regarding the distribution agreement with Mr.
Bisbee.
<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 September 1998(1)
Keystone, Colorado mid-September
Wildfire Golf Course at 5225 East Pathfinder September 1997 Mid-September September 1999
Desert Ridge Phoenix, Arizona to mid-May
Carlton Oaks Country Club 9200 Inwood Drive March 1998 Year Round November 2000
Santee, California
(San Diego area)
Rhodes Ranch 7881 South Durango Drive March 1998 Mid-September December 1999
Las Vegas, Nevada to mid-May
Brooks Golf Club 1405 Highway 71 June 1998 Mid-May to September 1998(1)
Lake Okoboji, Iowa mid-September
Huff House 100 Lake Anawanda Road June 1998 May to October December 1998
Roscoe, New York
(Catskills Mountains)
Omni Tucson National(2) 2727 W. Club Drive January 1999(2) Mid-September
Tucson, Arizona to mid-May
Bardmoor Golf Club(2) 7919 Bardmoor Boulevard January 1999(2) Mid-September April 2000
Largo, Florida to mid-May
(St. Petersburg area)
LEARNING CENTERS
Scottsdale Learning Center 8111 E. McDonald January 1998 Year Round December 1998
Scottsdale, Arizona
Plum Creek Golf & 311 Players Club Drive June 1998 April to December 1998
Country Club Castle Rock, Colorado September
</TABLE>
- --------------
(1) The renewal of the lease is in process.
(2) Site under contract but not yet open; date indicates planned opening date.
20
<PAGE>
DESTINATION GOLF SCHOOLS
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. 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; Orlando, Florida; Palm Springs,
California; Aspen, Colorado; 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 and pays rent for the use of a portion
of the facility. 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 for summer sites (such as Keystone, Brooks,
Huff House, and Tucson) 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.
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.
ACQUISITIONS AND SITE START-UP COSTS
Management of the Company believes that there are many single-location
golf school operations whose owners may see certain advantages to being part
of a larger organization with several locations. Approximately $500,000 of
the net proceeds of this offering has been allocated for acquisitions.
Management believes that it can acquire such existing golf schools using a
combination of stock and cash. As of the date of this Prospectus, there are
no understandings, agreements, or arrangements for any acquisitions. See "USE
OF PROCEEDS."
The expenses associated with opening new sites pertain to recruiting and
training instructors and staff, rent, and advertising. 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. A portion of the net proceeds of this offering has
been allocated for site start-up costs. See "USE OF PROCEEDS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
21
<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.
DISTRIBUTOR MEMBERSHIP
To facilitate the sales of packages of golf instruction into the
corporate market (called the Premium Links program), P.R.O. intends to
establish a network of Distributor Members in defined geographical locations.
These Distributors have non-exclusive marketing rights to P.R.O.'s Premium
Links programs within their territory. For the marketing rights to these
programs, the Distributor pays a one-time fee of $25,000 which entitles the
Distributor to an extensive training as well as the programs, products, and
services that P.R.O. has created with a rolling commission schedule of up to
25% payable to the Distributor on the sale of Premium Links programs.
PRODUCT SALES
In addition to golf instruction services, P.R.O. sells its own line of
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. On July 21, 1998, P.R.O. signed a
one-year distributor agreement with Renaissance Golf Products Inc. granting
P.R.O. non-exclusive distribution rights to the FILA line of golf goods
including but not limited to golf clubs, bags, balls, gloves, head wear, head
covers, travel cases, umbrellas, and towels (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. The FILA Agreement is automatically renewed each year for a
period of three years unless terminated upon 90 days' written notice.
In addition, P.R.O. will be utilizing the Slazenger-Registered
Trademark-Fitting System at P.R.O. facilities for the purposes of
distributing custom fit putters to P.R.O. students. The Company proposes to
have the equipment for this custom club fitting at all Destination Golf
Schools and Learning Center locations. A portion of the net proceeds from
this offering has been allocated for this type of equipment as well as an
inventory of the items mentioned in the preceding paragraph. See "USE OF
PROCEEDS.
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 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 the owner of one site who intends to
develop a golf course on that site, for management of the golf course.
The near-term plans for that site call for construction of a golf
practice facility first and later a golf course. The golf practice facility
would be more than the typical driving range. The proposal includes landing
areas for the range that resemble conditions typically found on a golf
course, chipping greens, and putting greens. Approximately $1,000,000 of the
net proceeds of this offering have been allocated for this project. As of the
date of this Prospectus, the Company does not have a signed agreement with
the owner of the site and the approvals necessary from local authorities for
the proposed facility construction. See "USE OF PROCEEDS."
There can be no assurance that the Company will be successful in its
negotiations relative to this site or any future sites, or, if successful,
when such sites will become operational. The golf course development and
management
22
<PAGE>
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.
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.
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 (approximately $1,000,000) for an expanded advertising campaign to
stimulate additional awareness and recognition of P.R.O. and its services and
products. See "USE OF PROCEEDS." 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. Proceeds would be used for larger
ads running for consecutive months to establish some degree of name
recognition with its targeted audience. 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.
23
<PAGE>
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. P.R.O.
marketing staff attempts to make direct contact with the corporate market
through advertising in trade journals, appearances at trade shows, and
telephone calls.
INTELLECTUAL PROPERTY
The Company owns the registered trademarks P.R.O., Proformance Research
Organization, CGT and CGTA. While the Company has licensed the rights to use
Player's Edge, Mental Edge, and P.A.R. System, which are registered
trademarks owned by Dave Bisbee and Sports Solutions, Inc., the Company
emphasizes the "P.R.O." trademark on its line of instructional video tapes
and booklets tied to the curriculum taught at its Destination Golf Schools
and learning Centers. See "CERTAIN TRANSACTIONS - Sports Solutions, Inc.
License" and "CERTAIN TRANSACTIONS Dave Bisbee Distribution Agreement."
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 space for
administrative, office, and marketing functions 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
As of October 31, 1998, the Company currently had 17 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.
24
<PAGE>
MANAGEMENT
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 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" and " - Dave Bisbee Distribution Agreement."
25
<PAGE>
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.
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.
GREG BLAYDES, Director of Corporate Development. From July 1993 to
February 1997, Mr. Blaydes was the president and CEO of Pinecrest
Enterprises, which developed a golf learning center at Centennial Airport in
Englewood, Colorado. From 1977 to 1993, he was employed by Griffin
Technology, Inc., which provided computer systems for colleges and
universities. Mr. Blaydes managed that company's business in the western
United States.
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. and/or Vanguard 21st
Century 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 at $5.00 per Share 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. originally had a
non-exclusive Licensing Agreement with SSI to represent the "Mental Edge"
video. Under its current arrangement, the Company purchases the videos as
needed from SSI at a wholesale price and resells them to its customers.
DAVE BISBEE DISTRIBUTION AGREEMENT. In addition, to the agreement with
SSI, P.R.O. has a Distribution Agreement with Dave Bisbee to sell products
and services produced by him including, but not limited to the "Player's Edge
Instructional Series" and the Instructor Certification Workbook/Learning
Center Business Plan for an indefinite period. Mr. Bisbee was issued 87,500
shares of Common Stock of the Company in exchange for these exclusive
world-wide distribution rights.
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.
ADVANCES TO OFFICER. During 1997, the Company advanced varying amounts
to William D. Leary, the President of the Company. The balance of these
advances at December 31, 1997 and October 31, 1998 was $40,300. The advances
are unsecured and have no set interest or repayment terms.
LOANS MADE BY GREG BLAYDES. From December 1997 through February 1998,
Greg Blaydes, the Director of Corporate Development for the Company loaned
the Company a total of $108,000. The loans were originally evidenced by
promissory notes which bore interest at 10% per annum. They were later
converted into 12% bonds, due 2002, which bear interest at 12% per annum and
are convertible at the holder's option into shares of Common Stock at $1.43
per share.
LOANS GUARANTEED BY WILLIAM D. LEARY. From June 15, 1998 through October
19, 1998, the Company has borrowed a total of $290,000 from five individuals,
one of whom is Louis G. Royston, Jr., an employee. A total of
26
<PAGE>
61,000 shares of Common Stock were issued as inducements for making the
loans. As of November 4, 1998, $42,500 is outstanding. All of the related
promissory notes have been personally guaranteed by William D. Leary and bear
interest at 10% per annum. In the event of default by the Company, the debt
defaults to Mr. Leary, who then has 90 days to remit the balance. The Company
has allocated proceeds from this offering to pay these loans. See "USE OF
PROCEEDS."
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 members of
the Company's board of directors who do not have an interest in the
transactions and who have access, at the Company's expense, to the Company's
independent legal counsel.
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.
The Company has no stock option plans.
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
sale of the Shares offered hereby:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (2)(3)
--------------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED OFFERING OFFERING
<S> <C> <C> <C>
William D. Leary (4).................................. 1,856,400 46.5% 37.2%
Leah Leary (5)........................................ 946,200 23.7% 19.0%
William Childs (6).................................... 560,000 13.8% 11.1%
Robert B. Lange ...................................... 154,000 3.9% 3.1%
John C. Weiner (7).................................... 52,500 1.3% 1.1%
All executive officers and directors as a
group (3 persons) (7)(8).............................. 2,062,900 51.7% 41.4%
</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) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
the date of this Prospectus, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of Common Stock
owned by such persons, but are not deemed to be outstanding for the
purpose of computing the
27
<PAGE>
percentage owned by any other person. Based on 3,987,300 shares of Common
Stock outstanding as of October 31, 1998, and 4,987,300 shares of Common
Stock outstanding after this offering.
(3) Assumes no exercise of Placement Agent's 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. Includes 896,200 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
910,200 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) Includes 70,000 shares issuable upon conversion of a convertible debenture.
(7) 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 1,052,500 shares, or 21.1% of the shares outstanding,
after the offering.
(8) Includes 50,000 shares owned by Sean Leary and Keenan Leary and 896,200
shares owned by Leah Leary.
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 1,000,000 shares of Preferred Stock, par value
$0.0001 per share.
COMMON STOCK
As of October 31, 1998, there were 3,987,300 shares of Common Stock
outstanding, which were held of record by approximately 130 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 3,687,500 of such shares have agreed not to sell
their shares for a period of 12 months from the completion of this offering.
See "SHARES ELIGIBLE FOR FUTURE SALE." There will be 4,987,300 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 October 31,
1998, 242,200 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 118,600 shares of Common Stock.
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.
28
<PAGE>
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 1,000,000 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 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 will be made to have the Common Stock approved for quotation
on the Nasdaq Small Cap Market under the symbol "PROO" once the Company meets
listing standards.
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.
29
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby are being offered on a "best efforts" "all or
none" basis by Global Financial Group, Inc. (the "Placement Agent") as the
Company's exclusive selling agent. The Placement Agent will receive a selling
commission equal to 10% of the initial public offering price for all Shares
sold by the Placement Agent, and a non-accountable expense allowance equal to
3% of the initial public offering price for all Shares sold in the offering.
The Placement Agent may syndicate the Shares through certain securities
dealers at the initial public offering price less a selling concession to be
negotiated between the Placement Agent and any such dealer and to be paid by
the Placement Agent out of the foregoing compensation.
The Company has granted the Placement Agent an option, exercisable for a
period of up to 30 days after the date of closing, to sell at a purchase
price of $5.00 per Share up to 150,000 additional Shares in order to cover
over-allotments. The Company has agreed to pay the Placement Agent a selling
commission of 10% of the initial public offering price for each of the option
Shares sold.
Proformance Research Organization/Weiner, Inc. and/or Vanguard 21st
Century Weiner Inc., entities controlled John C. Weiner Jr., 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 Agent will not receive any selling commission or
other compensation on the sale of any such Shares.
All proceeds from the sale of the Shares will be transmitted by noon of
the next business day following receipt thereof to a non-interest bearing
escrow account with Bank Windsor, Minneapolis, Minnesota (the "Escrow
Agent"). Unless all 1,000,000 Shares are sold within 90 days from the date of
this Prospectus (which may be extended for up to 90 additional days by mutual
agreement between the Company and the Placement Agent), the offering will be
withdrawn and the Escrow Agent will promptly return all funds to purchasers
without deduction therefrom or interest thereon. A purchaser's payment
tendered to the Escrow Agent cannot be returned to the investor until the
offering period has expired and the offering has been withdrawn.
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 Agent 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 Placement Agent against such
certain liabilities, including liabilities under the Securities Act of 1933.
In connection with the offering, the Placement Agent may effect
transactions which stabilize or maintain the market price of the securities
offered hereby at a level above that which might otherwise prevail in the
open market. Such transactions may be effected in the over-the-counter market
or otherwise. Such stabilizing, if commenced, may be discontinued at any time.
Upon the closing of this offering, the Company has agreed to sell to the
Placement Agent for nominal consideration 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 (the "Placement Agent's Warrants"). The
Placement Agent's Warrants are exercisable for a four-year period commencing
one year from the date of this Prospectus. The Placement Agent's Warrants may
not be sold, transferred, assigned, or hypothecated for a period of one year
from the date of this Prospectus, except to officers of the Placement Agent
or any successors to the Placement Agent, or except as a result of death of
any such officers. The Placement Agent's Warrants contain antidilution
provisions providing for appropriate adjustment of the number of shares
subject to the Warrants under certain circumstances. The holders of the
Placement Agent's Warrants have certain demand and piggyback registration
rights with respect to the underlying shares of Common Stock.
The Placement Agent assisted the Company in a private placement of
Series A Preferred Stock and debt securities, for which it received
compensation in the form of a 10% selling commission and warrants to purchase
shares of Common Stock. The warrants, which are exercisable for a five-year
period, entitle the Placement Agent to purchase
30
<PAGE>
up to 19,600 shares at $1.71 per share and 9,400 shares at $6.00 per share.
There are no registration rights associated with these warrants.
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 4,987,300 shares of Common Stock outstanding,
based on the number of shares of Common Stock outstanding as of October 31,
1998. In addition, the Company will have outstanding warrants to purchase
118,600 shares of Common Stock, and 242,200 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 4,987,300 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 3,987,300 outstanding shares are "restricted securities"
within the meaning of Rule 144 and may be resold only in compliance with that
Rule. In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for
at least one year, is entitled to sell, within any three-month period, that
number of shares that does not exceed the greater of (a) one percent of the
then outstanding shares or (b) the average weekly trading volume of the then
outstanding shares during the four calendar weeks preceding each such sale.
Furthermore, a person who is not deemed an "affiliate" of the Company and who
has beneficially owned shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described
above.
The holders of 3,687,500 of these shares have agreed with the Company
that they will not sell their shares until 12 months from the completion of
this offering. Of the shares that are not subject to this "lock-up"
arrangement, 80,650 would become eligible for sale under Rule 144 upon the
date of this Prospectus, 10,500 would become eligible in December 1998,
27,750 would become eligible in March 1999, 65,200 in April 1999, 40,250 in
May 1999, and the remainder thereafter.
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."
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Dill Dill Carr Stonbraker & Hutchings, P.C.,
Denver, Colorado. Certain legal matters in connection with the sale of the
securities offered hereby will be passed upon for the Placement Agent by Abdo
& Abdo, a Professional Association, Minneapolis, Minnesota.
EXPERTS
The financial statements of World Associates, Inc. as of and for the
period ending December 31, 1997, included in this Prospectus have been
audited by Stark Tinter & Associates, LLC, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and
accounting, in giving said reports.
31
<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>
<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, 500,000 584,500
shares authorized, 116,900 shares issued and outstanding
Preferred stock, Series B, convertible, cumulative, no stated value, 500,000 212,800
shares authorized, 185,200 issued and outstanding
Common stock, no stated value, 10,000,000 shares authorized, 897,534 shares, 82,095
issued and outstanding
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 1,429 14 14
for loans received (Note 7)
Stock issued in consideration 78,035 780 780
for services rendered
(Note 7)
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 1,071 11 11
for loans received (Note 7)
Stock issued in consideration 5,500 55 1,250 6,250 6,305
for services rendered
(Note 7)
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>
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>
Note 2: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation at December 31, 1997:
<TABLE>
<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>
<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.
Note 6. LONG TERM DEBT
Following is a summary of long term debt at December 31, 1997:
<TABLE>
<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,
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C>
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.
Net liabilities of discontinued operations consisted of the following at
December 31, 1997:
<TABLE>
<S> <C>
Accounts payable $ 1,234
Due to distributors 17,800
Short-term note payable 35,000
Accrued interest 1,106
-------
$55,140
-------
-------
</TABLE>
F-8
<PAGE>
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 statutory
tax rates to the pre-tax loss differs from amounts reported in the financial
statements because of the increase in the valuation allowance.
F-9
<PAGE>
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.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Current assets
Cash $ 38,623
Accounts Receivable 13,305
Inventory 3,067
Due from officer 40,300
-----------
Total current assets 95,295
Property and equipment - net of accumulated depreciation 42,495
Other assets 5,168
-----------
$ 142,958
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable (Note 4) $ 469,000
Note payable, employee 150,500
Accounts payable and accrued expenses 347,435
Deferred revenue 19,025
-----------
Total current liabilities 985,960
-----------
Long term debt (Note 5)
Notes payable, stockholder 106,000
Bonds payable - stockholders 235,000
Bonds payable 5,000
-----------
Total long term debt 346,000
-----------
Net liabilities from discontinued operations (Note 6) 39,090
-----------
Stockholders' equity (deficiency) (Note 7)
Preferred stock, Series A, convertible, cumulative, no stated value, 1,083,390
500,000 shares authorized, 216,600 shares issued and outstanding
Preferred stock, Series B, convertible, cumulative, no stated value, 212,800
500,000 shares authorized, 185,200 issued and outstanding
Common stock, no stated value, 10,000,000 shares authorized, 82,131
901,104 shares, issued and outstanding
Accumulated deficit (2,606,413)
-----------
Total stockholders' deficiency (1,228,092)
-----------
$ 142,958
-----------
-----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-11
<PAGE>
WORLD ASSOCIATES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ 423,523 $ 102,850
Cost of revenues 215,032 36,659
----------- -----------
Gross profit 208,491 66,191
----------- -----------
Operating expenses:
Sales, general and administrative 1,380,519 628,916
Depreciation 3,000 3,316
----------- -----------
Total operating expenses 1,383,519 632,232
----------- -----------
Operating loss (1,175,028) (566,041)
Interest expense 60,762 23,142
----------- -----------
Loss from continuing operations (1,235,790) (589,183)
Discontinued operations:
Loss from operations of Team Family segment, estimated
to be disposed of on or before December 31, 1998 (Note 8)
-- 3,063
----------- -----------
Net Loss $(1,235,790) $ (592,246)
----------- -----------
----------- -----------
Per share information:
Weighted average shares outstanding 901,104 868,188
----------- -----------
----------- -----------
Loss per common share
Loss from continuing operations $ (1.371) $ (0.679)
----------- -----------
----------- -----------
Loss from discontinued operations -- $ (0.004)
----------- -----------
----------- -----------
Net loss per common share $ (1.371) $ (0.682)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-12
<PAGE>
WORLD ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $(1,235,790) $ (592,246)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,000 3,316
Net Changes in operating assets and liabilities 134,840 68,801
----------- -----------
Net cash (used in) operating activities (1,097,950) (520,129)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (27,614) (4,176)
Other -- (1,505)
----------- -----------
Net cash (used in) investing activities (27,614) (5,681)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Preferred Stock 498,890 472,315
Proceeds from issuance of Common Stock 36 --
Proceeds from debt issuance 660,500 60,081
----------- -----------
Net cash provided (used) by financing activities 1,159,426 532,396
----------- -----------
Net increase in cash 33,862 6,586
Cash and Cash Equivalents, Beginning of Year 4,761 5,315
----------- -----------
Cash and Cash Equivalents, End of Year $ 38,623 $ 11,901
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-13
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principals 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 the generally accepted accounting principals 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.
2. RECENT PRONOUNCEMENT
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines
for all items that are to be recognized under accounting standards as
components of comprehensive income to be reported in the financial
statements. The statement is effective for all periods beginning after
December 15, 1997 and reclassification of financial statements for earlier
periods will be required for comparative purposes. To date, the Company has
not engaged in transactions which would result in any significant difference
between its reported net loss and comprehensive net loss as defined in the
statement.
3. CAPITAL STOCK
During the ten months ended October 31, 1998, the Company issued 3,570
shares of Common Stock for $36 and issued 99,700 shares of Series A
Convertible Preferred Stock for $498,890. There were no offering expenses.
4. NOTES PAYABLE
At October 31, 1998, the Company had various outstanding notes which are
due and payable no later than October 31, 1999. The notes are unsecured and
accrue interest at rates between 8% and 10%.
5. LONG TERM DEBT
Following is a summary of long term debt at October 31, 1998:
<TABLE>
<S> <C>
10% promissory note payable to stockholder, convertible to a 12%
bond, interest payable semi-annually due 2002. $106,000
12% convertible bonds payable to stockholders, interest payable semi-
annually (in default), convertible at any time into Series A
Convertible Preferred Stock at a rate of $5 per share, annually
redeemable on the anniversary date of issuance at the holder's option,
unsecured. 235,000
</TABLE>
F-14
<PAGE>
WORLD ASSOCIATES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<S> <C>
12% convertible bonds payable, interest payable
semi-annually (in default), convertible at any time into
Series A Convertible Preferred Stock at a rate of $5 per
share, annually redeemable on the
anniversary of the date of issuance at the holder's option, unsecured 5,000
--------
$346,000
--------
--------
</TABLE>
6. 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 October 31, 1998,
the disposal had not yet been completed.
7. PROFORMA STOCKHOLDER EQUITY
Assuming the conversion of the Series A and Series B Preferred
Stock upon the closing of the Company's anticipated Initial Public Offering
and including the net proceeds of such offering, the Stockholders' equity
section of the Company's Balance Sheet would be as follows:
<TABLE>
<CAPTION>
Proforma
Stockholders'
Equity
-------------
<S> <C> <C>
Stockholders' equity (deficiency)
Preferred stock, Series A, convertible, cumulative, no $ 1,083,390 $ --
stated value, 500,000 shares authorized, 216,600
shares issued and outstanding
Preferred stock, Series B, convertible, cumulative, no 212,800 --
stated value, 500,000 shares authorized, 185,200
issued and outstanding
Common stock, no stated value, 10,000,000 shares 82,131 5,628,321
authorized, 901,104 shares, issued and
outstanding (4,987,300) shares on a proforma
basis)
Accumulated deficit (2,606,413) (2,606,413)
------------ -------------
Total stockholders' deficiency $ (1,228,092) $ 3,021,908
------------ -------------
------------ -------------
</TABLE>
F-15
<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 Agency Agreement filed as Exhibit 1.1 to this Registration Statement
provides for indemnification by the Placement Agent 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.........................................................
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 and the NASD filing fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1995, the Registrant has issued and sold the unregistered
securities set forth in the tables below. The information has been adjusted
to reflect the conversion ratios of 3.5-to-1 for the Series A and B Preferred
Stock.
COMMON STOCK:
<TABLE>
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
12/31/95 - 3 consultants and 2 directors 129,800 $.0036/share consulting services
04/04/96 rendered in connection
with the development of
the Physical Edge golf
program and services as
directors valued at
$463.56
07/01/96 Dave Bisbee 87,500 $.0036/share consideration for
Distribution Agreement
07/11/96 - Louis G. Royston, Jr. 28,000 $.0036/share accounting services
06/30/97 (Employee) valued at $100
11/01/96 - Louis G. Royston, Jr. and 13 68,500 $.0036/share loan inducements valued
10/26/98 other individuals at $244.77
10/23/98 - 5 individuals 7,000 $0.01/share loan inducements valued
11/02/98 at $70
</TABLE>
II-2
<PAGE>
SERIES A PREFERRED STOCK:
<TABLE>
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
10/31/96 - 3 individuals 35,000 $1.43/share conversion of debentures
09/14/98 in the total amount of
$50,000
02/15/96 - 70 individuals 508,200 $1.43/share $726,000 cash
10/13/98
03/31/98- 26 individuals (through 196,000 $1.43/share $280,000 cash
07/10/98 Global Financial Group, Inc.)
</TABLE>
SERIES B PREFERRED STOCK:
<TABLE>
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
02/22/96 William Childs 280,000 $0.36/share $100,000 cash
03/14/97 - Louis G. Royston, Jr. 175,700 $0.36/share $62,500 cash
07/31/97 (Employee), 2 Royston
family members and one
other individual
</TABLE>
CONVERTIBLE DEBENTURES:
<TABLE>
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS PRINCIPAL AMOUNT CONVERSION
<S> <C> <C> <C>
11/30/95 - John C. Weiner (director), $430,500 Convertible into shares of Series A
05/18/98 Louis G. Royston, Jr. Preferred Stock at a conversion price of
(Employee), William Childs, $1.43 per share
and 11 other individuals
</TABLE>
COMMON STOCK PURCHASE WARRANTS:
<TABLE>
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF WARRANTS EXERCISE PRICE CONSIDERATION
<S> <C> <C> <C> <C>
03/31/98 - 25 individuals (through 94,000 $6.00 per share bridge loan inducement
11/02/98 Global Financial Group, Inc.)
03/31/98 - Global Financial Group, Inc. 9,400 $6.00 per share compensation for
11/02/98 obtaining bridge loans
03/31/98 - Global Financial Group, Inc. 19,600 $1.71 per share compensation for
07/10/98 placement of Series A
Preferred Stock
</TABLE>
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 Section 4(2). 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. The securities were offered
and sold by the registrant without any underwriters, except for the Global
Financial Group, Inc. assistance noted above. All of the purchasers were
deemed to be sophisticated with respect to an investment in securities of the
registrant by virtue of their financial condition and/or relationship to
members of
II-3
<PAGE>
management of the registrant. For sales made with the assistance of Global
Financial Group, Inc., Global was paid a cash sales commission of 10% of the
cash consideration received by the registrant and the warrants described
above.
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.
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-4
<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 4th day of December, 1998.
PROFORMANCE RESEARCH ORGANIZATION, INC.
By: /s/ William D. Leary
--------------------------------
William D. Leary
PRESIDENT, TREASURER AND DIRECTOR
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Treasurer and Director
(Principal Executive, Financial and
/s/ William D. Leary Accounting Officer) December 4, 1998
- ----------------------------------------- ----------------
William D. Leary
/s/ William D. Leary Director December 4, 1998
- ----------------------------------------- ----------------
Robert B. Lange, by William D. Leary, his
attorney-in-fact
/s/ William D. Leary Director December 4, 1998
- ----------------------------------------- ----------------
John C. Weiner, by William D. Leary, his
attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Title
- ------- -----
<S> <C>
1.1 Agency Agreement dated ______________, 1998 between the Company and
Global Financial Group, Inc.
1.2 Escrow Agreement dated September 30, 1998 among the Company, Global
Financial Group, Inc. and Bank Windsor as escrow agent
1.3 Warrants to Purchase Common Stock to be issued to Global Financial
Group, Inc.
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. (To be filed by
amendment)
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
10.7 Consulting Services Agreement between Sunkyong U.S.A., Inc. and the
Company dated May 6, 1997
10.8 Distribution Agreement between Renaissance Golf Products Inc. and the
Company dated July 21, 1998
10.9 Amendment to Common Stock Purchase Agreement with Proformance Research
Organization/Weiner, Inc. dated November 2, 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.
24.1* Powers of Attorney. Reference is made to page II-4 of the initial
Registration Statement.
27 Financial Data Schedule
</TABLE>
- -----------------
* Filed previously
II-6
<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. 333-61533) 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 1,000,000 shares of
Preferred Stock ($0.0001 par value). If the Shares are sold, the Shares
will represent at least 18.69% of the Company's shares of common stock
outstanding after the public offering. Common stock underlying outstanding
options and warrants and convertible debt 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, except as disclosed in
the Registration Statement. 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) During the period of the offering of the Shares and for one
(1) year from the
2
<PAGE>
date the Commission declares the Registration Statement to be effective
("Effective Date"), the Company will not sell any securities, except any
shares issued upon the exercise of any options or warrants outstanding
or conversion of outstanding convertible debt on the Effective Date and
except the Warrants) without the Agent's prior written consent, which
will not be unreasonably withheld.
h) The Company has caused each of its officers and directors
and has used its best efforts to cause each of its shareholders to
enter into an agreement with the Company 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 twelve (12) months from the
date of Completion of the Offering 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 92% of the
Company's outstanding common stock. As of the date of the Offering, the
Company represents and warrants that there are no more than 100,000
shares of common stock that are eligible to be traded in the secondary
market upon Completion of the Offering. The balance of the issued and
outstanding shares as of the date hereof are restricted securities and
subject to the provisions of Rule 144 with respect to secondary market
trading. No such shares are eligible for unrestricted sale prior to
March 1, 1999.
i) Except as set forth in the Registration Statement and
Prospectus, the Company has no subsidiaries nor contemplates acquiring
subsidiaries or engaging in mergers with or the acquisition of any
companies.
j) 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.
k) 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.
l) The Company's securities, however characterized, are not
subject to preemptive rights.
m) 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.
n) 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.
3
<PAGE>
o) The Company is eligible to use Form SB-2 for the offering of
the Shares.
p) 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.
q) 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.
r) 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.
s) 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.
t) 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.
u) 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.
v) The Company has appointed Corporate Stock Transfer,
370-17th Street, Suite 2350, Denver, Colorado 80202-4614, 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.
4
<PAGE>
w) The Company will use the proceeds from the sale of the Shares
as set forth in the Registration Statement and Prospectus.
x) 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.
y) Except as set forth in the Registration Statement and
Prospectus, 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.
z) 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.
aa) 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.
bb) 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
"Plan of Distribution" in the Prospectus.
j) The Agent will, reasonably promptly after the closing date,
supply the Company with all information required from the Agent for
compliance with Rule 463 under the Act 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
7
<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 sold to Weiner, Inc. pursuant to a July 15, 1998 Common Stock
Purchase, as Amended ("Weiner Subscription Agreement"). This
commission shall be payable in certified funds upon the release of the
funds which have been deposited in the escrow account.
g) The Company hereby grants to the Agent an Option (the
"Option") for a period of thirty (30) days after Closing to sell at
a purchase price of $5.00 per Share up to 150,000 additional Shares
in order to cover over-allotments. 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 Option Shares sold by the
Agent at the public offering price of $5.00 per Share.
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 $150,000.00. THE AGENT
ACKNOWLEDGES THAT IT HAS RECEIVED $5,000 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 $25,000.
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;
8
<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 ("Warrant Shares"). Each Warrant shall entitle
the holder to purchase one share of the Company's common stock.
Further, the Company agrees to sell to the Agent Warrants to purchase
one share of common stock for a purchase price of $.01 per Warrant for
each ten (10) Option Shares sold under Section 3(g) of this Agreement.
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
9
<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:
10
<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
11
<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,
12
<PAGE>
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, if eligible. 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 Arizona, California, Colorado, Florida, Hawaii, Illinois, Iowa,
Minnesota, Nevada, New Jersey, New York, North Carolina, Ohio, South
Carolina, Washington, D.C., 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.
13
<PAGE>
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 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.
14
<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 not 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
16
<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
17
<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 Dill Dill Carr Stonbraker & Hutchings, P.C. 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, which default has not
been disclosed in the Registration Statement and Prospectus, 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
18
<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,
which have not been disclosed in the Registration Statement and
Prospectus.
(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.
19
<PAGE>
(xv) The Company has an authorized capitalization of
20,000,000 shares of common stock ($0.0001 par value) and 1,000,000
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 $250,000 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 5% 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.
21
<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.
22
<PAGE>
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>
FUND ESCROW AGREEMENT
THIS AGREEMENT is made this 30th day of September, 1998, by and among
PROFORMANCE RESEARCH ORGANIZATION, INC., a Delaware corporation (the
"Company"), GLOBAL FINANCIAL GROUP, INC. (the "Placement Agent") and BANK
WINDSOR, Minneapolis, Minnesota (the "Escrow Agent").
WHEREAS, the Company desires to make a public offering of 1,000,000 shares of
its common stock (the "Shares") under an arrangement whereby all of the
Shares are to be offered to investors at the offering price of 5.00 per Share
(the "Public Offering"); and
WHEREAS, the Shares are to be registered on a registration statement filed under
the Securities Act of 1933, as amended (File No. 333-61533); and
WHEREAS, the Company has engaged Global Financial Group, Inc. to act as a
Placement Agent for the Company with respect to the Public Offering of
securities proposed to be made under the aforesaid registration statement; and
WHEREAS, provision must be made to impound in escrow the gross proceeds which
may be received from the sale of all 1,000,000 Shares; and
WHEREAS, the Company, the Placement Agent, and the Escrow Agent desire to enter
into an agreement with respect to the above-described escrow;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
covenants herein contained, the parties hereto agree as follows:
1. The Placement Agent and any broker-dealer participating in the Public
Offering, by noon of the next business day following receipt thereof,
shall deliver to the Escrow Agent all proceeds from the sale of all
1,000,000 Shares in the Public Offering at the offering price of $5.00 per
Share, or an aggregate amount of $5,000,000, together with a written
account of each sale which shall set forth, among other things, each
subscriber's name and address, the number of Shares subscribed for, and
the amount paid therefor.
2. All monies delivered to the Escrow Agent pursuant hereto shall be
deposited immediately by the Escrow Agent in a separate non-interest
bearing account designated substantially as follows: "Proformance
Research Organization, Inc. Escrow Account" (the "Escrow Account"). The
Escrow Account shall be designated Account No. 1020716 and be created and
maintained subject to the customary rules and regulations of the Escrow
Agent pertaining to such accounts.
3. During the Escrow Period (as hereinafter defined), all amounts deposited
in the Escrow Account shall not become the property of the Company or any
other entity, or be subject to the debts of the Company or any other
entity, except as expressly provided herein with respect to payments by
the Escrow Agent to the Company and the Placement Agent, and the Escrow
Agent shall make or permit no disbursements from the Escrow Account except
as expressly provided herein. The Escrow Agent shall not be required to
make any disbursement until all funds deposited with it have cleared and
been finally paid.
<PAGE>
4. (a) The Escrow Period shall begin with the commencement of the Public
Offering under the aforesaid Registration Statement, which date
shall be the effective date of the Registration Statement (the
"Offering Date").
(b) The Escrow Period shall terminate upon the earliest of:
(i) gross proceeds of $5,000,000 in funds cleared in Minneapolis
having been deposited in the Escrow Account; or
(ii) 90 days from the Offering Date (which date may be extended for
up to an additional 90 days, upon the mutual agreement of the
Company and the Placement Agent); or
(iii) notice of the termination of the Public Offering having been
provided the Escrow Agent by the Company and the Placement
Agent.
5. In the event the Escrow Period terminates pursuant to the provisions of
paragraph 4(b)(i) hereof, the Escrow Agent shall deliver and pay over to
the Company on the Closing Date, as defined in the Agency Agreement, all
amounts deposited in the Escrow Account, less an amount equal to $0.50 per
Share sold in the Public Offering on Shares not directed by the Company
(the selling commission) and $ -0- (the unpaid nonaccountable expense
allowance), which amounts shall be paid to the Placement Agent on the
Closing Date. On the making of the payments by the Escrow Agent as
provided for in this paragraph, the Escrow Agent shall be completely
discharged and released of any and all further liabilities or
responsibilities hereunder.
6. In the event the Escrow Period terminates pursuant to the provisions of
paragraph 4(b)(ii) or paragraph 4(b)(iii) hereof, the Escrow Agent shall,
as promptly as possible after such termination and on the basis of its
records of the Escrow Account, return to Southwest Securities on behalf of
each of the subscribers of the Company's securities in the Public
Offering, the amounts paid in by each subscriber for the purchase of the
Shares. Each amount payable to each subscriber pursuant to this paragraph
shall be deemed to be the property of each subscriber, free and clear of
any or all claims of the Company or of any of its creditors, and the
respective agreements to purchase the Shares made and entered into in the
Public Offering shall thereupon be deemed, IPSO FACTO, to be cancelled
without any further liability of said subscribers to pay for the Shares
subscribed for. The Escrow Agent shall be required to make such payment
only to Southwest Securities. At such time as the Escrow Agent shall have
made all of the payments and remittances provided for in this paragraph,
the Escrow Agent shall be completely discharged and released of any and
all further liabilities and responsibilities hereunder.
7. The Company agrees to give to the Escrow Agent prompt and appropriate
written notice of the Offering Date, any extension of the offering period,
and the Closing Date.
8. The Escrow Agent, in its actions pursuant to this Agreement, shall be
fully protected in every reasonable exercise of its discretion and shall
have no obligations hereunder either to the Company or to any other party,
except as expressly set forth herein. The Escrow Agent undertakes to
perform only such duties as are expressly set forth herein. No duties or
obligations of the Escrow Agent not expressly set forth shall be inferred
from this Agreement.
9. The Escrow Agent has waived its fee for its services under this Agreement.
2
<PAGE>
10. The Escrow Agent shall have no obligation to anyone to invest any of the
deposited funds.
11. The Escrow Agent shall not issue any certificate of deposit, stock
certificate, or any other instrument or document representing any interest
in the deposited funds, but written notice acknowledging receipt of the
deposited funds from the Placement Agent will be delivered from time to
time by the Escrow Agent to the Company. The Escrow Agent shall give the
Company prompt written notice if and when collected funds deposited in the
Escrow Account total $5,000,000.
12. In performing any of its duties hereunder, the Escrow Agent shall not
incur any liability to anyone for any damages, losses, or expenses, except
for willful default or gross negligence, and it shall, accordingly, not
incur any such liability with respect to (i) any action taken or omitted
in good faith upon advice of its counsel or counsel for the Company given
with respect to any questions relating to the duties and responsibilities
of the Escrow Agent under this Agreement, or (ii) any action taken or
omitted in reliance upon any instrument, not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed and
presented by a proper person or persons, and to conform with the
provisions of this Agreement.
13. If at any time a dispute shall exist as to the duties of the Escrow Agent
and the terms hereof, or the Escrow Agent has not been able to locate a
subscriber to return his funds, the Escrow Agent may deposit said funds
with the Clerk of the United States District Court for the District of
Minnesota, located in Hennepin County, Minnesota, and may interplead the
parties hereto. Upon so depositing such funds and filing its complaint in
interpleader, the Escrow Agent shall be completely discharged and released
from all further liability or responsibility under the terms hereof. The
parties hereto, for themselves, their heirs, successors, and assigns, do
hereby submit themselves to the jurisdiction of said court and do hereby
appoint the Clerk of said Court as their agent for service of all process
in connection with the proceedings mentioned in this paragraph.
14. The Company and the Placement Agent hereby agree to indemnify and hold
harmless the Escrow Agent against any and all losses, claims, damages,
liabilities, and expenses, including reasonable costs of investigation and
counsel fees and disbursements, which may be imposed upon the Escrow Agent
or incurred by the Escrow Agent in connection with its acceptance of
appointment as Escrow Agent hereunder, or the performance of its duties
hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof.
15. The Escrow Agent is hereby expressly authorized and directed to disregard
any and all notices or warnings given by any of the parties hereto, other
than those notices and warnings specifically called for in this Agreement,
or by any other person or corporation, excepting only orders or process of
court, and is hereby expressly authorized to comply with and obey any and
all orders, judgments, or decrees of any court, and in case the Escrow
Agent obeys or complies with any such order, judgment, or decree of any
court, it shall not be liable to any of the parties hereto or to any other
person, firm, or corporation by reason of such compliance, notwithstanding
that any such order, judgment, or decree may be subsequently reversed,
modified, annulled, set aside, or vacated, or found to have been entered
without jurisdiction.
16. This Agreement constitutes an integrated contract and is the entire
agreement among the parties, apart from the corporate resolution of the
Company dated August 10, 1998, authorizing the Public Offering,
3
<PAGE>
a copy of which is attached hereto and incorporated herein by this
reference. No parol evidence may be considered in determining the meaning
of any term used herein or in interpreting this Agreement.
17. All notices, demands, or requests required or authorized hereunder shall
be deemed given sufficiently if in writing and sent by registered mail or
certified mail, return receipt requested and postage prepaid, or by tested
telex, telegram, or cable to:
in case of the Company: with a copy to:
Proformance Research Organization, Inc. Fay M. Matsukage, Esq.
5335 W. 48th Avenue Dill, Dill, Carr, Stonbraker &
Denver, Colorado 80212 Hutchings, P.C.
Attention: William D. Leary, President 455 Sherman Street, Suite 300
Denver, Colorado 80203
in the case of the Placement Agent: with a copy to:
Global Financial Group, Inc. Robert P. Abdo, Esq.
100 Washington Avenue South Abdo & Abdo
Suite 1319 710 Northstar West
Minneapolis, Minnesota 55401 625 Marquette Avenue
Attention: Kevin S. Miller, President Minneapolis, Minnesota 55402
and in case of the Escrow Agent: with a copy to:
Bank Windsor -----------------------------
740 Marquette Avenue -----------------------------
Minneapolis, Minnesota 55402 -----------------------------
Attention: _____________________ -----------------------------
18 The validity, interpretation, and construction of this Agreement and of
each part hereof shall be governed by the laws of the State of Minnesota.
4
<PAGE>
IN WITNESS WHEREOF, the Company, the Placement Agent, and the Escrow Agent have
executed this Agreement on the day and year first above written.
"Company"
PROFORMANCE RESEARCH ORGANIZATION, INC.
By: /s/ William D. Leary
-------------------------------------
William D. Leary, President
"Placement Agent"
GLOBAL FINANCIAL GROUP, INC.
By: /s/ Kevin S. Miller
-------------------------------------
Kevin S. Miller, President
"Escrow Agent"
BANK WINDSOR
By: /s/ Kevin Howk, VP
-------------------------------------
Authorized officer
5
<PAGE>
EXHIBIT "A"
WARRANT CERTIFICATE NO. W1998-_______
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE OFFERED
FOR SALE, SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT MADE UNDER THE ACT, OR PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION, WHICH EXEMPTION IS AVAILABLE IN THE OPINION
OF COUNSEL TO THE COMPANY.
AGENT'S WARRANT
EXERCISABLE ON OR AFTER __________, 199__, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME _______________, 2003
CERTIFICATE FOR ________ WARRANTS
WARRANTS TO PURCHASE COMMON STOCK OF
PROFORMANCE RESEARCH ORGANIZATION, INC. UNDER
THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that GLOBAL FINANCIAL GROUP, INC. ("Holder") or assigns, is
the owner of the number of Warrants set forth above, each of which represents
the right to purchase from Proformance Research Organization, Inc., a Delaware
corporation (the "Company"), at any time on or after ______________, 199__, but
not later than 5:00 p.m. Minneapolis time, ___________________, 2003, upon
compliance with and subject to the conditions set forth herein, one share for
each Warrant (subject to adjustments referred to below) of the Common Stock of
the Company, par value $0.0001 per share (such shares or other securities or
property purchasable upon exercise of the Warrants being herein called the
"Shares").
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this Warrant
may be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common
<PAGE>
Stock), by written notice of exercise delivered to the Company ten (10) days
prior to the intended date of exercise and by the surrender of this Warrant
(properly endorsed if required) at the principal office of the Company and by
paying in full, in cash or by certified or official bank check payable to the
order of the Company, the purchase price of $6.00 per share (subject to
adjustments as noted subsequently).
In lieu of payment of cash or cash equivalents, the Holder may
exercise this Warrant as to a portion of the Shares issuable hereunder, by
surrender to the Company for cancellation of that portion of this Warrant
which entitles the Holder to purchase such number of Shares (the "Surrendered
Warrants") where the difference between the Quoted Price (as defined
hereafter) and the Purchase Price, when multiplied by the number of the
Surrendered Warrants, equals (rounding to the next whole number of Warrants)
the aggregate Purchase Price of the Shares being purchased pursuant to the
non-surrendered portion of this Warrant. Solely for the purpose of exercise
of this Warrant, by surrender of the Surrendered Warrants, the Quoted Price
shall equal the average closing price for the Common Stock for the
immediately preceding three (3) trading days as quoted by a national
securities exchange, as defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or if quoted by more than one such exchange,
the highest of such quoted prices; or, if not quoted on any national
securities exchange, the average closing price for the Common Stock as
reported on the NASDAQ National Market System; or, if not quoted on any
national securities exchange or on the NASDAQ National Market System, the
average closing bid price offered by any market maker (other than the Holder
hereof or an affiliate of the Holder) as reported by NASDAQ, subject to the
requirement that there are at least four market makers; in each case, as of
the close of business for the three (3) business days preceding the date that
the election to exercise is tendered or sent to the Company. If the Common
Stock is not admitted to trading on any national securities exchange, is not
quoted on NASDAQ National Market System, and there are not at least four
market makers with bid quotations on NASDAQ, exercise of the Warrants by
surrender of a portion of this Warrant shall not be available.
THIS WARRANT MAY NOT BE TRANSFERRED OR DIVIDED INTO TWO OR MORE
WARRANTS OF SMALLER DENOMINATIONS, NOR MAY ANY COMMON STOCK ISSUED PURSUANT
TO EXERCISE OF THIS WARRANT BE TRANSFERRED UNLESS THIS WARRANT OR SHARES HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES
ACT") AND APPLICABLE STATE LAWS, OR UNLESS THE HOLDER OF THE CERTIFICATE
OBTAINS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL
THAT THE PROPOSED TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION PURSUANT TO
EXEMPTIONS UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS.
2. ISSUANCE OF SHARES. The Company agrees that the shares purchased
hereby shall be deemed to be issued to the record Holder hereof as of the
close of business on the date on which this Warrant shall have been
surrendered and the payment made for such shares as aforesaid. Subject to
the provisions of the next succeeding paragraph, certificates for the shares
of stock so purchased shall be delivered to the Holder hereof within a
reasonable time, not exceeding ten (10) days after the rights represented by
this Warrant shall have been so exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with
respect to which this Warrant shall not then have been exercised shall also
be delivered to the Holder hereof within such time.
2
<PAGE>
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. COVENANTS OF COMPANY. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be duly authorized and issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the foregoing, the
Company covenants and agrees that it will from time to time take all such
action as may be required to assure that the par value per share of the
Common Stock is at all times equal to or less than the then effective
purchase price per share of the Common Stock issuable pursuant to this
Warrant. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. ADJUSTMENTS. The above provisions are, however, subject to the
following provisions:
a) These Warrants are issued in connection with the Company's
issuance of Common Stock ("Shares") described in the Company's Prospectus
dated _________, 1998 ("Prospectus"), the date thereof being the Effective
Date.
b) In case the Company shall at anytime hereafter subdivide or
combine the outstanding shares of Common Stock or declare a dividend
payable in Common Stock, the exercise price of this Warrant in effect
immediately prior to the subdivision, combination or record date for such
dividend payable in Common Stock shall forthwith be proportionately
increased, in the case of combination, or decreased, in the case of
subdivision or dividend payable in Common Stock, and each share of Common
Stock purchasable upon exercise of the Warrant shall be changed to the
number determined by dividing the then current exercise price by the
exercise price as adjusted after the subdivision, combination, or dividend
payable in Common Stock.
c) No fractional shares of Common Stock are to be issued upon the
exercise of the Warrant, but the Company shall pay a cash adjustment in
respect of any fraction of a share which would otherwise be issuable in an
amount equal to the same fraction of the market price per share of Common
Stock on the date of exercise as determined in good faith by the Company.
d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that holders
of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate
3
<PAGE>
provision shall be made whereby the Holder hereof shall hereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such
shares of stock, securities or assets as may be issued and payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions
hereof (including without limitation provisions for adjustments of the
Warrant purchase price and of the number of share purchasable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation, merger, or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the registered Holder hereof at the last address of such
holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled
to purchase.
e) If the Company shall at any time or from time to time (i)
distribute (otherwise than as a dividend in cash or in Common Stock or
securities convertible into or exchangeable for Common Stock) to the
holders of Common Stock any property or other securities, or (ii) declare
a dividend upon the Common Stock (to the extent payable otherwise than out
of earnings or earned surplus, as indicated by the accounting treatment of
such dividend in the books of the Company, and otherwise than in Common
Stock or securities convertible into or exchangeable for Common Stock),
the Company shall reserve and the Holder of this Warrant shall thereafter
upon exercise hereof be entitled to receive, with respect to each share of
Common Stock purchased hereunder, without any change in, or payment in
addition to, the exercise price, the amount of any property or other
securities which would have been distributable to such holder had such
holder been a holder of one share of Common Stock on the record date of
such distribution or dividend (or if no record date was established by the
Company, the date such distribution or dividend was paid).
f) In the event the Company spins off a subsidiary by
distributing to the shareholders of the Company as a dividend or
otherwise, the stock of a subsidiary, the Company shall reserve for the
life of this Warrant shares of the subsidiary to be delivered to the
holder of the warrants upon exercise to the same extent as if they were
owners of record of the Warrant Stock on the record date for payment of
the shares of the subsidiary.
g) Upon any adjustment of the Warrant purchase price, then and in
each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown
4
<PAGE>
on the books of the Company, which notice shall state the Warrant
purchase price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is
based.
5. COMMON STOCK. As used herein, the term "Common Stock" means the
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed a sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder hereof
to any voting rights or other rights as a stockholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. This Warrant may
not be sold, transferred, assigned or hypothecated for twelve months immediately
after the effective date, except that it may be (i) transferred, assigned or
hypothecated to officers of Holder, (ii) transferred by operation of law as a
result of the death of any such officer, and (iii) transferred to any successor
to the business of Holder. The Holder of this Warrant, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant,
or transferring any Common Stock issued upon the exercise hereof, of such
holder's intention to do so, describing briefly the manner of any proposed
transfer. Promptly upon receiving such written notice, the Company shall
present copies thereof to the Company counsel, and if in the opinion of such
counsel, the proposed transfer complies with federal and state securities laws
and may be effected without registration or qualification (under any federal or
state law), the Company, as promptly as practicable, shall notify such holder of
such opinion, whereupon such holder shall be entitled to transfer this Warrant
or to transfer shares of Common Stock received upon the previous exercise of
this Warrant, provided that an appropriate legend may be endorsed on this
Warrant or the certificates for such shares respecting restrictions upon
transfer thereof which is necessary or advisable in the opinion of counsel to
the Company to prevent further transfers which would be in violation of Section
5 of the Securities Act of 1933.
If, in the opinion of Company's counsel referred to in this
paragraph 7, the proposed transfer or disposition of shares described in the
written notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. REGISTRATION RIGHTS.
a) PIGGYBACK RIGHTS. If at any time with the period beginning
one (1) year and ending five (5) years after the Effective Date the
Company proposes to claim an exemption under Section 3(b) for a public
offering of any of its securities or pursuant to the exemption from such
registration provided by Regulation A any of its securities, or pursuant
to a
5
<PAGE>
registration of its shares (except by a Form S-8, S-4 or other
inappropriate form for registration), it shall, each time the Company
determines to proceed with the actual preparation and filing of a
registration statement, give written notice to all registered holders
of Warrants, and all registered holders of shares of Common Stock
acquired upon the exercise of Warrants, of its intention to do so and,
on the written request of the holders of at least 25% of the shares
issued or issuable upon exercise of the Warrants given within twenty
(20) days after receipt of any such notice (which request shall specify
the Warrants or shares of Common Stock intended to be sold or disposed
of by such registered holder and describe the nature of any proposed
sale or other disposition thereof), the Company will use its best
efforts to cause all such Warrants and/or shares, the registered
holders of which shall have requested the registration or qualification
thereof, to be included in such notification or registration statement
proposed to be filed by the Company; provided, however, that no such
inclusion shall be required (i) if the Shares may then be sold by the
holder thereof without limitation under Rule 144(k), or comparable
successor rule of the Securities and Exchange Commission, or (ii) if
the managing underwriter of such offering reasonably determines that
including such Shares would unreasonably interfere with such offering.
The Company will pay all expenses of registration. The Warrant holders
shall pay all commissions or discounts applicable to the sale of the
included Shares, together with any expenses of counsel retained by them
in connection with their sale of the Shares. If any such registration
shall be underwritten in whole or in part, the Company may require that
the shares requested for inclusion pursuant to this section be included
in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters.
b) REGISTRATION RIGHTS. At any time within the period beginning
one year after the Effective Date and ending five (5) years after the
Effective Date, if Company receives a written request from the record
holder or holders of an aggregate of at least twenty-five (25%) percent of
the aggregate number of Shares of Company's Common Stock that have been or
may be acquired upon the exercise of this Warrant (such shares being
hereafter referred to as the "Purchased Shares") not theretofore
registered under the Securities Act of 1933 and sold, the Company shall
prepare and file a registration statement under the Securities Act of 1933
covering the Purchased Shares which are the subject of such request and
shall use its best efforts to cause such registration statement to become
effective. In addition, upon the receipt of such request, the Company
shall promptly give written notice to all other record holders of
Purchased Shares that such registration is to be effected. The Company
shall include in such registration statement such Purchased Shares for
which it has received written requests to register by such other record
holders within 30 days after the Company's written notice to such other
record holders. The Company shall be obligated to prepare, file and cause
to become effective only one (1) registration statement relating to the
Shares of Company Common Stock underlying this Warrant and all other
warrants designated with the prefix W1998-. In the event that (i) the
holders of a majority of the Purchased Shares for which registration has
been requested pursuant to this section determine for any reason not to
proceed with a registration at any time before the registration statement
has been declared effective by the Securities and Exchange Commission (the
"Commission"), and such holders request the Company to withdraw such
registration statement, if theretofore filed with the Commission, with
respect to the
6
<PAGE>
Purchased Shares covered thereby, and (ii) the holders of such
Purchased Shares agree to bear their own expenses incurred in
connection therewith and to reimburse the Company for the expenses
incurred by it attributable to the registration of such Purchased
Shares, then the holders of such Purchased Shares shall not be deemed
to have exercised their right to require the Company to register
Purchased Shares pursuant to this section 8(b). Notwithstanding the
foregoing, the holders of this Warrant Certificate shall not have the
rights provided by this Section 8(b) if the shares may be sold by the
holder thereof without limitation under Rule 144(k), or comparable
successor rule of the Securities and Exchange Commission. The Company
may delay the filing of any registration statement requested pursuant
to this section to a date not more than ninety (90) days following the
date of such request if, in the opinion of the Company's principal
investment banker at the time of such request, such a delay is
necessary in order not to adversely affect financing efforts then
underway at the Company or, if in the opinion of the Company, such a
delay is necessary or advisable to avoid disclosure of material
nonpublic information.
c) 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 Purchased Shares in
preparing and signing any registration statement or Regulation A
Registration Statement, in addition to the registration statements or
Regulation A Registration Statements discussed above, required in order to
sell or transfer the Warrants or Purchased 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.
d) (i) The Company shall comply with the requirements of
paragraphs 8(a), 8(b)(with respect to first notice only) and
8(c) of paragraph 8 (including the related requirements of
paragraph 8(e) of this Section), at its own expense, excluding
underwriting commissions, discounts, transfer taxes, or
similar expenses or an underwriter's expense allowance
attributable to the Warrants and/or Purchased Stock.
(ii) The Company shall be required to comply with only one
notice given pursuant to paragraph 8(b) of this Section.
(iii) The Company's obligation under said paragraphs 8(a),
8(b) and 8(c) shall be conditioned as to each public offering,
upon a timely receipt by the Company in writing of:
(A) Information as to the terms of such public
offering furnished by or on behalf of each holder
intending to make a public distribution of his or its
Warrants, Purchased Stock, or stock underlying the
Warrants; and,
(B) Such other information as the Company may
reasonably require from such holder(s), or any
underwriter for any of them, for
7
<PAGE>
inclusion in such registration statement or
Regulation A Offering Statement or post-effective
amendment.
e) REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of paragraph 8 to effect the registration of
any shares under the Securities Act, the Company shall:
(i) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such securities,
and use its best efforts to cause such registration statement to
become and remain effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed nine
(9) months;
(ii) prepare and file with the Securities and Exchange
Commission such amendments to such registration statement and
supplements to the prospectus contained therein as may be necessary
to keep such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities, not
to exceed nine (9) months;
(iii) furnish to the Holder and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
such other documents as the Holder and underwriters may reasonably
request in order to facilitate the public offering of such
securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under the state
securities or blue sky laws of Minnesota and such additional
jurisdictions, not to exceed five in number, as the underwriters or
the holders of a majority of the Purchased Shares for which
registration has been requested may reasonably request within twenty
(20) days following the original filing of such registration
statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified; and
(v) prepare and promptly file with the Securities and
Exchange Commission and promptly notify the Holder of the filing of
such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act of
1933, any event shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.
8
<PAGE>
9. MISCELLANEOUS. This Agreement shall inure to the benefit of, and be
binding upon, the successors of the Agent and of the Company. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person, company or corporation, other than the parties hereto and their
successors and the controlling persons in paragraph 7 hereof, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision hereof. The term "successors" shall not include any purchaser of the
Securities merely by reason of such purchase. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, Proformance Research Organization, Inc. has caused
this Warrant to be signed by its duly authorized officer and this Warrant to be
dated ________________, 1998.
PROFORMANCE RESEARCH
ORGANIZATION, INC.
By
---------------------------------
Its
--------------------------------
9
<PAGE>
LEASE
THIS LEASE, made in duplicate this 1st day of May, 1997, by and between
FERNAL INC. hereinafter called "Landlord" and WILLIAM D. LEARY AND
PROFORMANCE RESEARCH ORGANIZATION, OF 5335 W. 48 AVE, DENVER, COLO 80212
hereinafter called "Tenant",
W I T N E S S E T H:
That in consideration of the payment of the rent and the keeping and
performance of the covenants and agreements by Tenant as hereinafter set
forth, Landlord has agreed to Lease and hereby does lease and demise unto
Tenant NORTH SECTION OF FLOOR 2 IN THE MARTISCHANG BLDG. 5335 W. 48 AVE
DENVER COLO
TO HAVE AND TO HOLD the same with all the appurtenances unto Tenant from
12:00 o'clock noon on the 1st day of May 1997, for, during and until 12:00
o'clock noon on the 30th day of Nov. [30 months] 1999, at and for a minimum
total rental of SEVENTY EIGHT THOUSAND NINE HUNDRED FORTY TWO 11/100
($78,942.11) Dollars payable in equal monthly installments of (Except as
otherwise referenced) 1st 12 months $2,509.00 MO. LAST 6 MONTHS, $2,819.11
2ND 12 MONTHS $2,659.54 MO. ($ ) Dollars on the 1st day of each and
every month during said term, in advance, until all rental due hereunder has
been paid. All rental shall be paid without notice at the office of the
Landlord or its Agent, in Denver, Colorado, or such other place as the
Landlord from time to time in writing may designate.
1. A security and damage deposit of $2,819.11 will be paid by agreed
due date, JUNE 15, 1997.
2. All parking is controlled by the landlord and at this time there
are 4 cars at an additional $120.00 per month "GUESSTIMATE" payable monthly.
Trash removal is a minimum of 30.00 monthly payable [GUESSTIMATE]
additional
Electrical is a minimum of $125.00 monthly and payable monthly
[GUESSTIMATE] additional.
Space is leased as is.
Items under 2 may be increased as required.
3. Should taxes increase years 1997-98 & 99 tenant will pay its
proportionate share of square footage.
3A. Fire extinguishers as per Denver ordinance
QUIET ENJOYMENT
4. Landlord agrees to warrant and defend Tenant in the quiet enjoyment
and possession of the demised premises during the term of this Lease.
CHARACTER OF OCCUPANCY
5. Tenant agrees that the demised premises shall be used and occupied
only as OFFICE OF ADMINISTRATION in a careful, safe and proper manner, and that
it will pay on demand for any damage to the premises caused by the misuse of
same by it, or its agents or employees;
That it will not use or permit the demised premises to be used for
any purposes prohibited by the laws of the United States or the State of
Colorado, or the ordinances of the City of and County of Denver.
That it will not use or keep any substance or material in or about
the demised premises which may violate or endanger the validity of the
insurance on said building or increase the hazard of the risk, or which may
prove offensive or annoying to other tenants of the building;
That it will not permit any nuisance in the demise premises.
INSPECTION AND ALTERATIONS BY LANDLORD
6. The Landlord shall have the right at any time to enter the demised
premises to examine and inspect the same, to to make such repairs, additions,
or alterations as it may deem necessary or proper for the safety, improvement
or preservation thereof, and shall at all times have the right, at its
election to make such alterations or changes to other portions of said
building as it may from time to time deem necessary and desirable.
Tenant shall make no alterations in or additions to the demised
premises without first obtaining the written consent of Landlord, and all
additions or improvements made by the Tenant (except only movable office
furniture) shall be deemed as part of the real estate and permanent structure
thereon and shall remain upon and be surrendered with said premises as a part
thereof at the end of the said term, by lapse of time, or otherwise.
SUBLETTING
7. Tenant agrees that it will not sublet the demised premises or any
part thereof, nor assign this Lease, or any interest therein, without the
written consent of the Landlord first had and obtained.
INSOLVENCY
8. Any assignment for the benefit of creditors or by operation of law
shall not be effective to transfer any rights hereunder to the said assignee
without the written consent of Landlord first having been obtained.
It is further agreed between the parties hereto that if
<PAGE>
Tenant shall be declared insolvent or bankrupt, or if any assignment of
Tenant's property shall be made for the benefit of creditors or otherwise, or
if Tenant's leasehold interest herein shall be levied upon under execution,
or seized by virtue of any writ of any court of law, or a Trustee in
Bankruptcy or a Receiver be appointed for the property of Tenant, whether
under the operation of State or Federal statutes, then and in any such case,
Landlord may, at its option, immediately, with or without notice (notice
being expressly waived) terminate this lease and immediately retake
possession of said premises, using such force as may be necessary, without
being guilty of any manner of trespass or forcible entry or detainer, and
without the same working any forfeiture of the obligations of Tenant
hereunder.
BREACH
9. The Tenant agrees to observe and perform the conditions and
agreements herein set forth to be observed and performed by the Tenant, and
further agrees that if default is made by the Tenant in the payment of said
rent, or any part thereof, or if the Tenant shall fail to observe or
perform any of said conditions or agreements, and such default shall continue
for a period of five (5) days, then and in that event, and as often as the
same may happen, it shall be lawful for the Landlord, at its election, with
or without previous notice, to terminate this Lease and to re-enter and
repossess itself of said premises, with or without legal proceedings, using
such force as may be necessary, and to remove therefrom any personal property
belonging to the Tenant without prejudice to any claim for rent or for the
breach of covenants hereof, or without being guilty of any manner of trespass
or forcible entry or detainer.
RIGHT OF LANDLORD TO POSSESSION
10. If the rent above reserved or any part thereof shall be in default,
or in case of a breach of any of the covenants or agreements herein on the
part of Tenant continued for a period of five (5) days after written notice
of such breach has been given by Landlord to Tenant, or if Tenant shall
abandon or vacate said premises before the end of the term of this Lease,
Landlord may, at its option, and without notice, and using such force as may
be necessary enter said premises, remove any signs of Tenant therefrom, and
re-let the same or any part thereof as it may see fit for the account of
Tenant, without thereby avoiding or terminating this Lease and, for the
purpose of such re-letting, Landlord is authorized to make any repairs,
changes, alterations or additions in or to said demised premises as may, in
the opinion of Landlord, be necessary or desirable for the purpose of such
re-letting, and if a sufficient sum shall not be realized from such
re-letting (after payment of all the costs and expenses of such repairs,
changes or alterations, and the expense of such re-letting and the collection
of rent accruing therefrom) each month to equal the monthly rental agreed to
be paid under the provisions of this Lease, then Tenant agrees to pay such
deficiency each month upon demand therefor.
INJURY TO PERSON OR PROPERTY
11. All personal property of any kind or description whatsoever in the
demised premises shall be at the Tenant's sole risk. The Tenant agrees
neither to hold nor attempt to hold Landlord liable for any injury or damage,
either proximate or remote, occurring through or caused by any repairs,
alterations, injury or accident to the demised premises, to adjacent premises
or other parts of the building not herein demised, whether by reason of the
negligence or default of the owners or occupants thereof, or any other
person, or otherwise, nor liable for any injury or damage occasioned by gas,
smoke, rain, snow, defective electric wiring or the breakage or stoppage of
plumbing or sewerage upon or in the building or adjacent premises, whether
said breakage or stoppage results from freezing or otherwise.
REMOVAL OF TENANT'S PROPERTY
12. If the Tenant shall fail to remove all effects from said premises
upon the abandonment thereof or upon the termination of this Lease for any
cause whatsoever, the Landlord, at its option, may remove the same in any
manner that it shall choose, and store the said effects without liability to
the Tenant for loss thereof, and the Tenant agrees to pay the Landlord on
demand any and all expenses incurred in such removal, including Court costs
and attorney's fees and storage charges on such effects for any length of
time the same shall be in the Landlord's possession; or the Landlord, at its
option, without notice, may sell said effects, or any of the same, at private
sale and without legal process, for such prices as the Landlord may obtain,
and apply the proceeds of such sale upon any amounts due under this Lease
from the Tenant to the Landlord and upon the expense incident to the removal
and sale of said effects, rendering the surplus, if any, to the Tenant.
INDEMNITY TO LANDLORD
13. The Tenant agrees to indemnify and save harmless Landlord of and
from all liability for damages or claims against Landlord on account of
injuries to the person or property of any other tenant in the building or to
any person rightfully in said building for any purpose whatsoever where the
injuries are caused by the negligence or misconduct of the Tenant, its
agents, servants or employees, or any other person entering upon the premises
under express or implied invitation of Tenant, or where such injuries are the
result of the violation of the laws or ordinances, governmental orders of any
kind, or any of the rules and regulations hereinafter provided for by any of
such persons.
TENANT'S FURNISHINGS
14. The Tenant hereby conveys to the Landlord all of the personal
property situated on the leased premises as security for the payment of all
rentals due or to become due hereunder. Said property shall not be removed
therefrom without the consent of the Landlord until all rent due or to become
due hereunder shall have first been paid and discharged. It is intended by
the parties hereto that this instrument shall have the effect of a mortgage
or lien upon such property, and the Landlord, upon default of the Tenant in
the payment of rent, may take possession of said property either to its own
use or to sell the same for the best price that can be obtained at public or
private sale, and out of the money arising therefrom pay the amount due the
Landlord, and all costs growing out of the execution of the provisions
hereof, paying the surplus, if any, to the Tenant. If said property, or any
portion thereof, shall be offered at public auction, the Landlord may become
the purchaser thereof.
REPAIRS
15. Tenant agrees to keep the demised premises in as good order,
condition and repair as when they were entered upon, loss by fire (unless
caused by the negligence of the Tenant, its agents, employees or invitees)
inevitable accident or ordinary wear excepted.
SURRENDER OF POSSESSION
16. The Tenant agrees to deliver up and surrender to the Landlord
possession of said premises at the expiration of termination of this Lease,
by lapse of time or otherwise, in as good repair as when the Tenant obtained
the same at the commencement of said term, excepting only ordinary wear and
decay, or damage by the elements (occurring without the fault of the Tenant or
other persons permitted by the Tenant to occupy or enter the demised
premises or any part thereof) or by Act of God, or by insurrection, riot,
invasion or commotion, or of military or usurped power.
FIRE, RESTORATION OF PREMISES
17. If the demised premises, or said building shall be so damaged by
fire or other casualty as to render said premises wholly untenantable, and if
such damage shall be so great that a competent architect, in good standing in
the City and County of Denver, selected by the Landlord, shall certify in
writing to the Landlord and the Tenant that said premises, with the exercise
of reasonable diligence, cannot be made fit for occupancy within one hundred
twenty (120) days from the happening thereof, then this Lease shall cease and
terminate from the date of the occurrence of such damage; and the Tenant
thereupon shall surrender to the Landlord said premises and all interest
therein hereunder, and the Landlord may re-enter and take possession of said
premises and remove the Tenant therefrom. The Tenant shall pay rent, duly
apportioned, up to the time of such termination of this Lease.
If however, the damage shall be such that such an architect so shall
certify that said demised premises can be made tenantable within said one
hundred twenty (120) days from the happening of such damage by fire or other
casualty, then the Landlord shall repair the damage so done with all
reasonable speed and the rent shall be abated only for the period during
which the Tenant shall be deprived of the use of said premises by reason of
such damage and the repair thereof.
If said demised premises, without the fault of the Tenant, shall be
slightly damaged by fire or other casualty, but not so as to render the same
untenantable, the Landlord, after receiving notice in writing of the
occurrence of the damage, shall cause the same to be repaired with reasonable
promptness, but in such event there shall be no abatement of its rent.
If the fire or other casualty causing injury to the demised premises or
other parts of the building shall have been caused by the negligence or
misconduct of the Tenant, its agents, servants or employees, or of any other
person entering upon the premises under express or implied invitation of the
Tenant, such injury shall be repaired by the Landlord at the expense of the
Tenant, despite contrary provision, if any, appearing in this Lease.
In the case the building throughout be so injured or damaged, whether by
fire or otherwise (though said demised premises may not be affected) that the
Landlord within sixty (60) days after the happening of such injury, shall
decide to reconstruct, rebuild, or raze said building, then upon thirty (30)
days notice in writing to that effect given by the Landlord to the Tenant,
this Lease shall cease and terminate from the date of the occurrence of said
damage, and the Tenant shall pay the rent properly apportioned up to such
date, and both parties thereto shall be free and discharged of all further
obligations hereunder.
ACCEPTANCE OF PREMISES BY TENANT
18. The taking possession of said premises by the Tenant shall be
conclusive evidence as against the Tenant that said premises were in good and
satisfactory condition when possession of the same was taken.
AMENDMENT OR MODIFICATION
19. The Tenant acknowledges and agrees that it has not
<PAGE>
relied upon any statements, representations, agreements or warranties,
except such as are expressed herein, and that no amendment or modification of
this Lease shall be valid or binding unless expressed in writing and executed
by the parties hereto in the same manner as the execution of this Lease.
PAYMENTS AFTER TERMINATION
20. No payments of money by the Tenant to the Landlord after the
termination of this Lease, in any manner, or after the giving of any notice
(other than a demand for the payment of money) by the Landlord to the Tenant,
shall reinstate, continue or extend the term of this Lease or affect any
notice given to the Tenant prior to the payment of such money, it being
agreed that after the service of notice or the commencement of a suit or
after final judgment granting the Landlord possession of said premises, the
Landlord may receive and collect any sums of rent due, or any other sums of
money due under the terms of this Lease, and the payment of such sums of
money, whether as rent or otherwise, shall not waive said notice, or in any
manner affect any pending suit or any judgment theretofore obtained.
HOLDING AFTER TERMINATION
21. It is mutually agreed that if, after the expiration of this Lease,
the Tenant shall remain in possession of said premises, without a written
agreement as to such holding, then such holding over shall be deemed and
taken to be a holding upon a tenancy from month to month at a monthly rental
equivalent to the last monthly payment hereinbefore provided for, payable in
advance on the same day of each month as above provided, all other terms and
conditions of this Lease remaining the same.
AVAILABILITY OF PREMISES AND ACCEPTANCE
22. That, if for any reason the said demised premises shall not be ready
or available for occupancy on the date specified herein, this Lease shall
nevertheless continue in full force and effect and the Tenant shall have no
right to rescind, cancel or terminate the same and the Landlord shall not be
liable for damages, if any, sustained by the said Tenant on account of
failure to obtain possession at the date specified for commencement of the
term herein. The Tenant acknowledges that he has examined the demised
premises and appurtenances, and the taking possession of said premises by the
Tenant shall be conclusive evidence as against the Tenant, that the said
premises and appurtenances were in good and satisfactory condition when
possession of the same were taken.
EMINENT DOMAIN
23. In the event the demised premises or any part thereof shall be taken
or condemned for public purposes by the proper authority, then and in that
event the rental shall be adjusted in a fair and appropriate manner depending
upon the portion of the demised premises so taken, otherwise insofar as the
remainder of the demised premises are concerned, the said Lease shall remain
in full force and effect at the option of the Landlord.
It is further agreed that in the event of condemnation proceedings, the
Tenant shall have no claims against the Landlord other than the adjustment of
rent as hereinabove mentioned or be entitled to any portion of any amount
that may be awarded as damages or paid as a result of said proceedings, or as
the result of of any agreement made with the Landlord.
It is further agreed that the reducing or increasing the width of or
otherwise changing the side walks adjoining the building of which the demised
premises are a part or the widening, narrowing, improving or changing of
streets or alleys adjacent to or around the building of which the demised
premises are a part, or the changing in parking regulations or prohibited
parking or anything else that shall in any manner effect vehicular traffic
shall in no way effect the within Lease or entitle the Tenant to any
reduction, rebate, allowance or any adjustment of rental or otherwise under
the within Lease.
SECURITY DEPOSIT
24. Concurrently with the execution hereof, Tenant has deposited with
the Landlord the sum of $2819.11, as security for the payment of rent
reserved herein and the performance of the covenants contained herein. In the
event that the Tenant shall fail to make the payment of rental when due or
shall fail to perform in accordance with the covenants and conditions herein
set forth, said sum shall be retained by the Landlord and applied towards
Landlord's damages as a result of Tenant's default. In the event that the
Tenant shall make all payments herein required and fully perform in accordance
with the terms and covenants herein contained, said sum shall be returned to
the Tenant without interest at the end of the term hereof.
RULES AND REGULATIONS
25. It is further agreed that the following rules and regulations shall
be and are hereby made a part of this Lease, and the Tenant agrees that its
employees and agents, or any others permitted by the Tenant to occupy or
enter said premises, will at all times abide by said rules and regulations
and that a default in the performance and observance thereof shall operate
the same as any other defaults herein:
(1) The sidewalks, entries, passages, stairways and elevators shall not
be obstructed by the Tenants, or its agents, or used by them for any purpose
other than ingress and egress to and from their offices.
(2) (a) Furniture, equipment or supplies shall be moved in or out of
the building only upon the elevator designated by the Landlord (if
the building is so equipped), and then only during such hours and in
such manner as may be prescribed by the Landlord.
(b) No safe or article, the weight of which may constitute a hazard
or danger to the building or its equipment shall be moved into the
premises.
(c) Safes and other equipment, the weight of which is not
excessive, shall be moved into, from or about the building only during
such hours and in such manner as shall be prescribed by the Landlord,
and the Landlord shall have the right to designate the location of
such articles in the space hereby demised.
(3) Signs, notices, advertisement, or other inscriptions shall not be
placed upon the transoms or upon any other part of the building except upon
the glass of the doors and windows opening from the halls into the demised
premises, and then only by such sign writers, and of such size, form and color,
as shall be first specified by the Landlord.
(4) The light through the transoms and glass partitions opening into the
halls and other parts of the building shall not be obstructed in any way by
the Tenant.
(5) Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of the Tenant, its agents or
employees, shall be paid by the Tenant. No person shall waste water by tying
back or wedging the faucets, or in any other manner.
(6) No animals shall be allowed in the offices, halls, corridors and
elevators in the building.
(7) Bicycles or other vehicles shall not be permitted in the offices,
halls, corridors and elevators in the building, nor shall any obstruction of
sidewalks or entrances of the building by such be permitted.
(8) No person shall disturb the occupants of this or adjoining buildings
or premises by the use of any radio or musical instrument or by the making of
loud or improper noises.
(9) The Tenant shall not allow anything to be placed on the outside
window ledges of the building, nor shall anything be thrown by the Tenant, its
agents or employees, out of the windows or doors, or down the courts, elevator
shafts, or skylights of the building.
(10) No additional lock or locks shall be placed by the Tenant on any
door in the building unless written consent of the Landlord shall first have
been obtained. A reasonable number of keys to the demised premises and to the
toilet rooms will be furnished by the Landlord, and neither the Tenant, its
agent or employees, shall have any duplicate key made. At the termination of
this tenancy, the Tenant shall promptly return to the Landlord all keys to
offices, toilet rooms or vaults.
(11) If the Tenant desires telegraphic, telephonic or other electric
connections, Landlord or its agent will direct the electricians as to where
and how the wires may be introduced, and without such direction, no boring or
cutting of wires will be permitted. Any such installation and connection
shall be made at Tenant's expense.
(12) No awnings shall be placed over the windows except by the consent of
the Landlord.
(13) The Tenant, before closing and leaving the demised premises at any
time, shall see that all windows are closed in order to avoid possible
damage from fire, storm or freezing.
(14) The Tenant shall not install or operate any steam or gas engine or
boiler, or carry on any mechanical business, in the demised premises. The use
of oil, gas or inflammable liquids for heating, lighting or any other purpose
is expressly prohibited. Explosives or other articles deemed extra hazardous
shall not be brought into the building.
(15) Any painting or decoratings as may be agreed to be done by and at
the expense of the Landlord shall be done during regular working hours;
should the Tenant desire such work done on Sundays, holidays or outside of
regular working hours, the Tenant shall pay the extra cost thereof.
(16) The Tenant shall not mark upon, paint signs upon, cut, drill into,
drive nails or screws into, or in any way deface the walls, ceilings,
partitions or floors the demised premises or of the building, and any
defacement, damage or injury caused by the Tenant, its agent or employees,
shall be paid for by the Tenant.
(17) The Landlord shall at all times have the right, by its officers or
agents, to enter the demised premises to show the same to persons wishing to
lease them, and may at any time within fifteen days next preceding the
termination of this tenancy, place upon the doors and windows of the premises
the notice "For Rent", which said notice shall not be removed by the Tenant.
(18) The Landlord reserves the right to make such other and further
reasonable rules and regulations as in its judgment may from time to time be
needful and desirable for the safety, care and cleanliness of the premises
and for the preservation of good order therein.
SUBORDINATION
26. This Lease is subject and subordinate to all present mortgages or
Deeds of Trust effecting the real estate on which the building is located and
the building of which the leased premises form a part, and to all renewals or
extensions thereof, and to any mortgage or Deed of Trust which may hereafter
be executed affecting the same.
<PAGE>
AMENDMENT OR MODIFICATION
27. Tenant acknowledges and agrees that he has not relied upon any
statements, representations, agreements or warranties, except such as are
expressed herein, and that no amendment or modification of this Lease shall
be valid or binding unless expressed in writing and executed by the parties
hereto in the same manner as the execution of this Lease.
SEVERABILITY
28. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, there be
added as a part of this Lease a clause or provision as similar in terms to
such illegal, invalid or unenforceable clause or provision as may be possible
and be legal, valid and enforceable.
GRAMMATICAL CHANGES AND PARAGRAPH HEADINGS
29. Whenever the word "Landlord" and "Tenant" are used herein, said
wording shall include "Landlords" and "Tenants" and shall apply to persons,
both men and women, companies, partnerships and corporations, and in reading
this Lease, the necessary grammatical changes required to make the provisions
alone mean and apply as aforesaid shall be made in the same manner as though
written into this Lease.
The paragraph headings are inserted herein only as a matter of
convenience and for reference, and in no way define, limit or describe the
scope or intent of this Lease, nor in any way affect this Lease.
WAIVER
30. No waiver of any breach of any one or more of the conditions or
covenants of this Lease by the Landlord shall be deemed to imply or
constitute a waiver or any succeeding or other breach hereunder.
SUCCESSORS AND ASSIGNS
31. All terms, conditions and covenants to be observed and performed by
the parties hereto shall be applicable to and binding upon their respective
heirs, administrators, successors, executors and assigns.
METHOD OF GIVING NOTICE
32. Whenever under this Lease, provision is made for notice of any
kind, it shall be deemed a sufficient notice and service thereof if the said
notice to the Tenant is in writing and addressed to the last known business
address of the Tenant or addressed to the demised premises and deposited in
the mail; and the notice to the Landlord shall be deemed sufficient notice
and service thereof if the said notice is in writing addressed to the
Landlord's last known business address and deposited in the mail.
Notices may be sent to only one Tenant or Landlord where the Tenant
or Landlord consists of more than one person.
EXHIBIT A ATTACHED: FORMS A PART OF THIS LEASE
Exhibit B Attached: Forms a part of this lease
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
FERNAL INC /s/ WILLIAM D. LEARY
- ----------------------------------- ----------------------------------
/s/ Al Martischang President &
- ----------------------------------- ----------------------------------
/s/ William D. Leary
- ----------------------------------- ----------------------------------
President P.R.O. INC.
- ----------------------------------- ----------------------------------
Landlord Tenant
GUARANTY
FOR VALUE RECEIVED, and in consideration of the giving of the within
lease, the undersigned guarantees to the Landlord, its successors and
assigns, the full performance and observance of all the covenants,
conditions and agreements therein provided to be performed and observed by
the Tenant, without requiring any notice of nonpayment, nonperformance or
nonobservance, or proof of notice or demand whereby to charge the undersigned
therefor, nor shall failure of the Landlord to enforce its right against the
Tenant or concessions made by the Landlord to the Tenant affect the liability
hereunder.
Dated Denver, Colorado, ____________________________, 19___.
--------------------------------
Guarantor
<PAGE>
THIS IS EXHIBIT A AND FORMS A PART OF THAT LEASE DATED MAY 1, 1997 FERNAL
INC. LANDLORD WILLIAM D. LEARY AND PROFORMANCE RESEARCH ORGANIZATION
1. Tenant will do his own janitorial work by vacuuming the carpets once per
week including the elevator hallway plus washing the windows inside and
outside as required. In addition he will furnish the paper products for
the so called rest rooms.
2. Refrigerated air is on as required from 8 AM to 5 PM Mondays through
Fridays. Saturdays and Sundays there will be an additional charge
[$26.00 per hr. MINIMUM 4 HOURS]
3. Roller chairs require carpet protectors.
4. This is a no smoking building.
5. Tenant will furnish proper legal liability as required.
6. Strict rules regarding security must be adhered to.
7. Rent is due the 1st of the month. If not paid there is a penalty of 10%
due and payable immediately.
8. Reference is made to that certain lease dated December 29-1995 between
Fernal Inc. & William D. Leary and expired April 30-97
There is an amount due including a verbal contract and commitment of
space on the ground floor. Such deficit on that lease must be
completely paid by JUNE 15, 1997, including penalties and interest due.
9. Rents due prior to June 15, 1997 will be (with Security Deposit) due
June 15, 1997 totaling $7,837.11.
<PAGE>
EXHIBIT B
This Exhibit B is to become part of a Lease Agreement between Fernal, Inc.
and PROformance research Organization, Inc. (PRO).
The following improvements to be made at 5335 West 48th Avenue, Denver,
Colorado 80212. Improvements must have written prior estimates and
authorization must be granted with Fernal, Inc. Signature. Such
authorization will not be unreasonably upheld. All costs of such
improvements will be absorbed by PRO and deducted from all rents due, 50% at
the time of Improvement, and 50% from the last months. Such improvements
will include:
1) replace carpeting in Suite 200 with like kind carpet in Suite 206,
repair and/or replace ceiling tiles and light fixtures where necessary,
finish all office additions, build out (inner storage room as previously
discussed) and paint said offices.
2) Refurbish 2nd floor restroom (floor and counter tile, plumbing
fixtures, towel dispensers and paint).
3) replace lobby carpet on ground floor and parking level, reasonable
outside landscaping improvements (labor supplied by PRO)
<PAGE>
MACH 1
------ 4-20-98
<TABLE>
<CAPTION>
<S> <C>
2nd Yr. Monthly Rent, Includes 6% Increase $2,379.00
Monthly 10% Late Charge 237.90
Electricity 135.00
Trash 23.00
---------
Monthly Charge When Late, Total $2,774.90
</TABLE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rent Due
<S> <C> <C> <C>
97 November $ 2,774.90
97 December 2,774.90 Rent Paid
98 January 2,774.90
98 February 2,774.90 98 March 27 $4,758.00
98 March 2,774.90
98 April 2,774.90 98 April 14 2,379.00
---------- ---------
$16,649.40 Paid in 98 $7,137.00
</TABLE>
Rent Due $16,649.40
Rent Paid 7,137.00
----------
Balance Owed Through April $ 9,512.40
<PAGE>
DENVER COLO
APRIL 4, 1998
THESE DOCUMENTS FORM A PART OF THAT LEASE BETWEEN MACH-1 AND BILL LEARY AND
WORLD ASSOCIATES
TO MACH 1. BILL THOMAS AND BILL LEARY PERSONALLY
FROM MARTISCHANG - FERNAL INC.
It is agreed that Bill Leary is taking possession of the south 50% of floor
2-5335 W 48 Ave. on May 1, 1998. He is not permitted as per above, re
possession until Mach 1 has caught up the back rent with certified funds and
also rent current on the north section of floor 2, his original quarters.
Regarding Mach 1; defficient I will start with rent due Nov. 1-1997 at which
time no rent payments had been made till March 27-1998 as per the attached
tabulation shows. Payments by Leary are due on the 1st of each month and if
not paid draw a penalty of 10%. If not paid by the 5th of the month,
premises will be locked out by the landlord. Payments must be made directly
to Fernal Inc. Should a short check be issued there is an additional 10%
penalty.
<PAGE>
Fernal Inc. has a side agreement re the tenancy of the north portion of Floor 2.
Said agreement demands a payment on the 1st and 15th of each consecutive
month. Should these payments not be made when due, Mr. Leary permits Fernal
Inc. to lock him out of the premises. Leary is requesting tenants
improvements which the landlord is making. Improvements will be paid by
Leary within 10 days of statement presented. If not made, said improvements
will be removed.
I will no longer put up with the filth of the toilets. Re floor, lavs,
stools & trash. You will have them cleaned weekly by so-called professional
cleaners. If not done I will do it and bill you, and if you don't pay you
will have no pot to piss in and if you go on other floors, I will accuse you
of trespassing. Three pages.
/s/ WILLIAM D. LEARY
- ---------------------------------------
WORLD ASSOCIATES INC
AND
/s/ BILL LEARY
- --------------------------------------- -----------------------------------
Bill Leary Bill Thomas
PERSONALLY
<PAGE>
SUBLEASE
THIS LEASE, made in duplicate this 21st day of April, 1998, by and between
Mach One Corporation hereinafter called "Landlord" and P.R.O. INC. f/k/a
WORLD ASSOCIATES INC. hereinafter called "Tenant",
W I T N E S S E T H:
That in consideration of the payment of the rent and the keeping and
performance of the covenants and agreements by Tenant as hereinafter set
forth, Landlord has agreed to Lease and hereby does lease and demise unto
Tenant IN BUILDING LOCATED AT 5335 W. 48TH AVE. DENVER, COLO., SOUTH SECTION
FLOOR TWO.
IT IS EXPRESSLY UNDERSTOOD THAT ALL PAYMENTS CALLED FOR AND DEFINED
HEREIN SHALL BE MADE TO FERNAL INC.
TO HAVE AND TO HOLD the same with all the appurtenances unto Tenant from
12:00 o'clock noon on the 1st day of May 1998, for, during and until 12:00
o'clock noon on the 30th day of Sept. 1999, at and for a minimum total rental
of FORTY TWO THOUSAND & ONE HUNDRED FIFTY FOUR, ($42,154) Dollars payable in
equal monthly installments of (Except as otherwise referenced) 5 months in
1998 $11,895.00 3rd yr 1999 $30,259 ($ ) Dollars on the 1st day of each
and every month during said term, in advance, until all rental due hereunder
has been paid. All rental shall be paid without notice at the office of the
Landlord or its Agent, in Denver, Colorado, or such other place as the
Landlord from time to time in writing may designate.
1. EXHIBIT A ATTACHED FORMS A PART OF THIS LEASE.
2. THIS IS A NO SMOKING BUILDING AND WILL BE STRICTLY ENFORCED.
3. INCLUDED IN THE LEASE IS AN ESTIMATE AS TO THE ELECTRICAL USED,
LANDLORD IS BEING BILLED SEPARATELY.
3.A. FIRST MONTHS RENT $2,379.
3.B. LAST MONTHS RENT $2,521.00
QUIET ENJOYMENT
4. Landlord agrees to warrant and defend Tenant in the quiet enjoyment
and possession of the demised premises during the term of this Lease.
CHARACTER OF OCCUPANCY
5. Tenant agrees that the demised premises shall be used and occupied
only as SALES & ADMINISTRATION in a careful, safe and proper manner, and that
it will pay on demand for any damage to the premises caused by the misuse of
same by it, or its agents or employees;
That it will not use or permit the demised premises to be used for
any purposes prohibited by the laws of the United States or the State of
Colorado, or the ordinances of the City of and County of Denver.
That it will not use or keep any substance or material in or about
the demised premises which may violate or endanger the validity of the
insurance on said building or increase the hazard of the risk, or which may
prove offensive or annoying to other tenants of the building;
That it will not permit any nuisance in the demised premises.
INSPECTION AND ALTERATIONS BY LANDLORD
6. The Landlord shall have the right at any time to enter the demised
premises to examine and inspect the same, or to make such repairs, additions,
or alterations as it may deem necessary or proper for the safety, improvement
or preservation thereof, and shall at all times have the right, at its
election to make such alterations or changes to other portions of said
building as it may from time to time deem necessary and desirable.
Tenant shall make no alterations in or additions to the demised
premises without first obtaining the written consent of Landlord, and all
additions or improvements made by the Tenant (except only movable office
furniture) shall be deemed as part of the real estate and permanent structure
thereon and shall remain upon and be surrendered with said premises as a part
thereof at the end of the said term, by lapse of time, or otherwise.
SUBLETTING
7. Tenant agrees that it will not sublet the demised premises or any
part thereof, nor assign this Lease, or any interest therein, without the
written consent of the Landlord first had and obtained.
INSOLVENCY
8. Any assignment for the benefit of creditors or by operation of law
shall not be effective to transfer any rights hereunder to the said assignee
without the written consent of Landlord first having been obtained.
It is further agreed between the parties hereto that if
<PAGE>
Tenant shall be declared insolvent or bankrupt, or if any assignment of
Tenant's property shall be made for the benefit of creditors or otherwise, or
if Tenant's leasehold interest herein shall be levied upon under execution,
or seized by virtue of any writ of any court of law, or a Trustee in
Bankruptcy or a Receiver be appointed for the property of Tenant, whether
under the operation of State or Federal statutes, then and in any such case,
Landlord may, at its option, immediately, with or without notice (notice
being expressly waived) terminate this lease and immediately retake
possession of said premises, using such force as may be necessary, without
being guilty of any manner of trespass or forcible entry or detainer, and
without the same working any forfeiture of the obligations of Tenant
hereunder.
BREACH
9. The Tenant agrees to observe and perform the conditions and
agreements herein set forth to be observed and performed by the Tenant, and
further agrees that if default is made by the Tenant in the payment of said
rent, or any part thereof, or if the Tenant shall fail to observe or
perform any of said conditions or agreements, and such default shall continue
for a period of five (5) days, then and in that event, and as often as the
same may happen, it shall be lawful for the Landlord, at its election, with
or without previous notice, to terminate this Lease and to re-enter and
repossess itself of said premises, with or without legal proceedings, using
such force as may be necessary, and to remove therefrom any personal property
belonging to the Tenant without prejudice to any claim for rent or for the
breach of covenants hereof, or without being guilty of any manner of trespass
or forcible entry or detainer.
RIGHT OF LANDLORD TO POSSESSION
10. If the rent above reserved or any part thereof shall be in default,
or in case of a breach of any of the covenants or agreements herein on the
part of Tenant continued for a period of five (5) days after written notice
of such breach has been given by Landlord to Tenant, or if Tenant shall
abandon or vacate said premises before the end of the term of this Lease,
Landlord may, at its option, and without notice, and using such force as may
be necessary enter said premises, remove any signs of Tenant therefrom, and
re-let the same or any part thereof as it may see fit for the account of
Tenant, without thereby avoiding or terminating this Lease and, for the
purpose of such re-letting, Landlord is authorized to make any repairs,
changes, alterations or additions in or to said demised premises as may, in
the opinion of Landlord, be necessary or desirable for the purpose of such
re-letting, and if a sufficient sum shall not be realized from such
re-letting (after payment of all the costs and expenses of such repairs,
changes or alterations, and the expense of such re-letting and the collection
of rent accruing therefrom) each month to equal the monthly rental agreed to
be paid under the provisions of this Lease, then Tenant agrees to pay such
deficiency each month upon demand therefor.
INJURY TO PERSON OR PROPERTY
11. All personal property of any kind or description whatsoever in the
demised premises shall be at the Tenant's sole risk. The Tenant agrees
neither to hold nor attempt to hold Landlord liable for any injury or damage,
either proximate or remote, occurring through or caused by any repairs,
alterations, injury or accident to the demised premises, to adjacent premises
or other parts of the building not herein demised, whether by reason of the
negligence or default of the owners or occupants thereof, or any other
person, or otherwise, nor liable for any injury or damage occasioned by gas,
smoke, rain, snow, defective electric wiring or the breakage or stoppage of
plumbing or sewerage upon or in the building or adjacent premises, whether
said breakage or stoppage results from freezing or otherwise.
REMOVAL OF TENANT'S PROPERTY
12. If the Tenant shall fail to remove all effects from said premises
upon the abandonment thereof or upon the termination of this Lease for any
cause whatsoever, the Landlord, at its option, may remove the same in any
manner that it shall choose, and store the said effects without liability to
the Tenant for loss thereof, and the Tenant agrees to pay the Landlord on
demand any and all expenses incurred in such removal, including Court costs
and attorney's fees and storage charges on such effects for any length of
time the same shall be in the Landlord's possession; or the Landlord, at its
option, without notice, may sell said effects, or any of the same, at private
sale and without legal process, for such prices as the Landlord may obtain,
and apply the proceeds of such sale upon any amounts due under this Lease
from the Tenant to the Landlord and upon the expense incident to the removal
and sale of said effects, rendering the surplus, if any, to the Tenant.
INDEMNITY TO LANDLORD
13. The Tenant agrees to indemnify and save harmless Landlord of and
from all liability for damages or claims against Landlord on account of
injuries to the person or property of any other tenant in the building or to
any person rightfully in said building for any purpose whatsoever where the
injuries are caused by the negligence or misconduct of the Tenant, its
agents, servants or employees, or any other person entering upon the premises
under express or implied invitation of Tenant, or where such injuries are the
result of the violation of the laws or ordinances, governmental orders of any
kind, or any of the rules and regulations hereinafter provided for by any of
such persons.
TENANT'S FURNISHINGS
14. The Tenant hereby conveys to the Landlord all of the personal
property situated on the leased premises as security for the payment of all
rentals due or to become due hereunder. Said property shall not be removed
therefrom without the consent of the Landlord until all rent due or to become
due hereunder shall have first been paid and discharged. It is intended by
the parties hereto that this instrument shall have the effect of a mortgage
or lien upon such property, and the Landlord, upon default of the Tenant in
the payment of rent, may take possession of said property either to its own
use or to sell the same for the best price that can be obtained at public or
private sale, and out of the money arising therefrom pay the amount due the
Landlord, and all costs growing out of the execution of the provisions
hereof, paying the surplus, if any, to the Tenant. If said property, or any
portion thereof, shall be offered at public auction, the Landlord may become
the purchaser thereof.
REPAIRS
15. Tenant agrees to keep the demised premises in as good order,
condition and repair as when they were entered upon, loss by fire (unless
caused by the negligence of the Tenant, its agents, employees or invitees)
inevitable accident or ordinary wear excepted.
SURRENDER OF POSSESSION
16. The Tenant agrees to deliver up and surrender to the Landlord
possession of said premises at the expiration of termination of this Lease,
by lapse of time or otherwise, in as good repair as when the Tenant obtained
the same at the commencement of said term, excepting only ordinary wear and
decay, or damage by the elements (occurring without the fault of the Tenant or
other persons permitted by the Tenant to occupy or enter the demised
premises or any part thereof) or by Act of God, or by insurrection, riot,
invasion or commotion, or of military or usurped power.
FIRE, RESTORATION OF PREMISES
17. If the demised premises, or said building shall be so damaged by
fire or other casualty as to render said premises wholly untenantable, and if
such damage shall be so great that a competent architect, in good standing in
the City and County of Denver, selected by the Landlord, shall certify in
writing to the Landlord and the Tenant that said premises, with the exercise
of reasonable diligence, cannot be made fit for occupancy within one hundred
twenty (120) days from the happening thereof, then this Lease shall cease and
terminate from the date of the occurrence of such damage; and the Tenant
thereupon shall surrender to the Landlord said premises and all interest
therein hereunder, and the Landlord may re-enter and take possession of said
premises and remove the Tenant therefrom. The Tenant shall pay rent, duly
apportioned, up to the time of such termination of this Lease.
If however, the damage shall be such that such an architect so shall
certify that said demised premises can be made tenantable within said one
hundred twenty (120) days from the happening of such damage by fire or other
casualty, then the Landlord shall repair the damage so done with all
reasonable speed and the rent shall be abated only for the period during
which the Tenant shall be deprived of the use of said premises by reason of
such damage and the repair thereof.
If said demised premises, without the fault of the Tenant, shall be
slightly damaged by fire or other casualty, but not so as to render the same
untenantable, the Landlord, after receiving notice in writing of the
occurrence of the damage, shall cause the same to be repaired with reasonable
promptness, but in such event there shall be no abatement of its rent.
If the fire or other casualty causing injury to the demised premises or
other parts of the building shall have been caused by the negligence or
misconduct of the Tenant, its agents, servants or employees, or of any other
person entering upon the premises under express or implied invitation of the
Tenant, such injury shall be repaired by the Landlord at the expense of the
Tenant, despite contrary provision, if any, appearing in this Lease.
In the case the building throughout be so injured or damaged, whether by
fire or otherwise (though said demised premises may not be affected) that the
Landlord within sixty (60) days after the happening of such injury, shall
decide to reconstruct, rebuild, or raze said building, then upon thirty (30)
days notice in writing to that effect given by the Landlord to the Tenant,
this Lease shall cease and terminate from the date of the occurrence of said
damage, and the Tenant shall pay the rent properly apportioned up to such
date, and both parties thereto shall be free and discharged of all further
obligations hereunder.
ACCEPTANCE OF PREMISES BY TENANT
18. The taking possession of said premises by the Tenant shall be
conclusive evidence as against the Tenant that said premises were in good and
satisfactory condition when possession of the same was taken.
AMENDMENT OR MODIFICATION
19. The Tenant acknowledges and agrees that it has not
<PAGE>
relied upon any statements, representations, agreements or warranties,
except such as are expressed herein, and that no amendment or modification of
this Lease shall be valid or binding unless expressed in writing and executed
by the parties hereto in the same manner as the execution of this Lease.
PAYMENTS AFTER TERMINATION
20. No payments of money by the Tenant to the Landlord after the
termination of this Lease, in any manner, or after the giving of any notice
(other than a demand for the payment of money) by the Landlord to the Tenant,
shall reinstate, continue or extend the term of this Lease or affect any
notice given to the Tenant prior to the payment of such money, it being
agreed that after the service of notice or the commencement of a suit or
after final judgment granting the Landlord possession of said premises, the
Landlord may receive and collect any sums of rent due, or any other sums of
money due under the terms of this Lease, and the payment of such sums of
money, whether as rent or otherwise, shall not waive said notice, or in any
manner affect any pending suit or any judgment theretofore obtained.
HOLDING AFTER TERMINATION
21. It is mutually agreed that if, after the expiration of this Lease,
the Tenant shall remain in possession of said premises, without a written
agreement as to such holding, then such holding over shall be deemed and
taken to be a holding upon a tenancy from month to month at a monthly rental
equivalent to the last monthly payment hereinbefore provided for, payable in
advance on the same day of each month as above provided, all other terms and
conditions of this Lease remaining the same.
AVAILABILITY OF PREMISES AND ACCEPTANCE
22. That, if for any reason the said demised premises shall not be ready
or available for occupancy on the date specified herein, this Lease shall
nevertheless continue in full force and effect and the Tenant shall have no
right to rescind, cancel or terminate the same and the Landlord shall not be
liable for damages, if any, sustained by the said Tenant on account of
failure to obtain possession at the date specified for commencement of the
term herein. The Tenant acknowledges that he has examined the demised
premises and appurtenances, and the taking possession of said premises by the
Tenant shall be conclusive evidence as against the Tenant, that the said
premises and appurtenances were in good and satisfactory condition when
possession of the same were taken.
EMINENT DOMAIN
23. In the event the demised premises or any part thereof shall be taken
or condemned for public purposes by the proper authority, then and in that
event the rental shall be adjusted in a fair and appropriate manner depending
upon the portion of the demised premises so taken, otherwise insofar as the
remainder of the demised premises are concerned, the said Lease shall remain
in full force and effect at the option of the Landlord.
It is further agreed that in the event of condemnation proceedings, the
Tenant shall have no claims against the Landlord other than the adjustment of
rent as hereinabove mentioned or be entitled to any portion of any amount
that may be awarded as damages or paid as a result of said proceedings, or as
the result of of any agreement made with the Landlord.
It is further agreed that the reducing or increasing the width of or
otherwise changing the side walks adjoining the building of which the demised
premises are a part or the widening, narrowing, improving or changing of
streets or alleys adjacent to or around the building of which the demised
premises are a part, or the changing in parking regulations or prohibited
parking or anything else that shall in any manner effect vehicular traffic
shall in no way effect the within Lease or entitle the Tenant to any
reduction, rebate, allowance or any adjustment of rental or otherwise under
the within Lease.
SECURITY DEPOSIT
24. Concurrently with the execution hereof, Tenant has deposited with
the Landlord the sum of $_________, as security for the payment of rent
reserved herein and the performance of the covenants contained herein. In the
event that the Tenant shall fail to make the payment of rental when due or
shall fail to perform in accordance with the covenants and conditions herein
set forth, said sum shall be retained by the Landlord and applied towards
Landlord's damages as a result of Tenant's default. In the event that the
Tenant shall make all payments herein required and fully perform in accordance
with the terms and covenants herein contained, said sum shall be returned to
the Tenant without interest at the end of the term hereof.
RULES AND REGULATIONS
25. It is further agreed that the following rules and regulations shall
be and are hereby made a part of this Lease, and the Tenant agrees that its
employees and agents, or any others permitted by the Tenant to occupy or
enter said premises, will at all times abide by said rules and regulations
and that a default in the performance and observance thereof shall operate
the same as any other defaults herein:
(1) The sidewalks, entries, passages, stairways and elevators shall not
be obstructed by the Tenants, or its agents, or used by them for any purpose
other than ingress and egress to and from their offices.
(2) (a) Furniture, equipment or supplies shall be moved in or out of
the building only upon the elevator designated by the Landlord (if
the building is so equipped), and then only during such hours and in
such manner as may be prescribed by the Landlord.
(b) No safe or article, the weight of which may constitute a hazard
or danger to the building or its equipment shall be moved into the
premises.
(c) Safes and other equipment, the weight of which is not
excessive, shall be moved into, from or about the building only during
such hours and in such manner as shall be prescribed by the Landlord,
and the Landlord shall have the right to designate the location of
such articles in the space hereby demised.
(3) Signs, notices, advertisement, or other inscriptions shall not be
placed upon the transoms or upon any other part of the building except upon
the glass of the doors and windows opening from the halls into the demised
premises, and then only by such sign writers, and of such size, form and color,
as shall be first specified by the Landlord.
(4) The light through the transoms and glass partitions opening into the
halls and other parts of the building shall not be obstructed in any way by
the Tenant.
(5) Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of the Tenant, its agents or
employees, shall be paid by the Tenant. No person shall waste water by tying
back or wedging the faucets, or in any other manner.
(6) No animals shall be allowed in the offices, halls, corridors and
elevators in the building.
(7) Bicycles or other vehicles shall not be permitted in the offices,
halls, corridors and elevators in the building, nor shall any obstruction of
sidewalks or entrances of the building by such be permitted.
(8) No person shall disturb the occupants of this or adjoining buildings
or premises by the use of any radio or musical instrument or by the making of
loud or improper noises.
(9) The Tenant shall not allow anything to be placed on the outside
window ledges of the building, nor shall anything be thrown by the Tenant, its
agents or employees, out of the windows or doors, or down the courts, elevator
shafts, or skylights of the building.
(10) No additional lock or locks shall be placed by the Tenant on any
door in the building unless written consent of the Landlord shall first have
been obtained. A reasonable number of keys to the demised premises and to the
toilet rooms will be furnished by the Landlord, and neither the Tenant, its
agent or employees, shall have any duplicate key made. At the termination of
this tenancy, the Tenant shall promptly return to the Landlord all keys to
offices, toilet rooms or vaults.
(11) If the Tenant desires telegraphic, telephonic or other electric
connections, Landlord or its agent will direct the electricians as to where
and how the wires may be introduced, and without such direction, no boring or
cutting of wires will be permitted. Any such installation and connection
shall be made at Tenant's expense.
(12) No awnings shall be placed over the windows except by the consent of
the Landlord.
(13) The Tenant, before closing and leaving the demised premises at any
time, shall see that all windows are closed in order to avoid possible
damage from fire, storm or freezing.
(14) The Tenant shall not install or operate any steam or gas engine or
boiler, or carry on any mechanical business, in the demised premises. The use
of oil, gas or inflammable liquids for heating, lighting or any other purpose
is expressly prohibited. Explosives or other articles deemed extra hazardous
shall not be brought into the building.
(15) Any painting or decoratings as may be agreed to be done by and at
the expense of the Landlord shall be done during regular working hours;
should the Tenant desire such work done on Sundays, holidays or outside of
regular working hours, the Tenant shall pay the extra cost thereof.
(16) The Tenant shall not mark upon, paint signs upon, cut, drill into,
drive nails or screws into, or in any way deface the walls, ceilings,
partitions or floors the demised premises or of the building, and any
defacement, damage or injury caused by the Tenant, its agent or employees,
shall be paid for by the Tenant.
(17) The Landlord shall at all times have the right, by its officers or
agents, to enter the demised premises to show the same to persons wishing to
lease them, and may at any time within fifteen days next preceding the
termination of this tenancy, place upon the doors and windows of the premises
the notice "For Rent", which said notice shall not be removed by the Tenant.
(18) The Landlord reserves the right to make such other and further
reasonable rules and regulations as in its judgment may from time to time be
needful and desirable for the safety, care and cleanliness of the premises
and for the preservation of good order therein.
SUBORDINATION
26. This Lease is subject and subordinate to all present mortgages or
Deeds of Trust effecting the real estate on which the building is located and
the building of which the leased premises form a part, and to all renewals or
extensions thereof, and to any mortgage or Deed of Trust which may hereafter
be executed affecting the same.
<PAGE>
AMENDMENT OR MODIFICATION
27. Tenant acknowledges and agrees that he has not relied upon any
statements, representations, agreements or warranties, except such as are
expressed herein, and that no amendment or modification of this Lease shall
be valid or binding unless expressed in writing and executed by the parties
hereto in the same manner as the execution of this Lease.
SEVERABILITY
28. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, there be
added as a part of this Lease a clause or provision as similar in terms to
such illegal, invalid or unenforceable clause or provision as may be possible
and be legal, valid and enforceable.
GRAMMATICAL CHANGES AND PARAGRAPH HEADINGS
29. Whenever the word "Landlord" and "Tenant" are used herein, said
wording shall include "Landlords" and "Tenants" and shall apply to persons,
both men and women, companies, partnerships and corporations, and in reading
this Lease, the necessary grammatical changes required to make the provisions
alone mean and apply as aforesaid shall be made in the same manner as though
written into this Lease.
The paragraph headings are inserted herein only as a matter of
convenience and for reference, and in no way define, limit or describe the
scope or intent of this Lease, nor in any way affect this Lease.
WAIVER
30. No waiver of any breach of any one or more of the conditions or
covenants of this Lease by the Landlord shall be deemed to imply or
constitute a waiver or any succeeding or other breach hereunder.
SUCCESSORS AND ASSIGNS
31. All terms, conditions and covenants to be observed and performed by
the parties hereto shall be applicable to and binding upon their respective
heirs, administrators, successors, executors and assigns.
METHOD OF GIVING NOTICE
32. Whenever under this Lease, provision is made for notice of any
kind, it shall be deemed a sufficient notice and service thereof if the said
notice to the Tenant is in writing and addressed to the last known business
address of the Tenant or addressed to the demised premises and deposited in
the mail; and the notice to the Landlord shall be deemed sufficient notice
and service thereof if the said notice is in writing addressed to the
Landlord's last known business address and deposited in the mail.
Notices may be sent to only one Tenant or Landlord where the Tenant
or Landlord consists of more than one person.
EXHIBIT A [3 SHEETS] ATTACHED
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
/s/ D. W. THOMAS /s/ William D. Leary
- ----------------------------------- ----------------------------------
MACH ONE CORP. WAI AND/OR PROFORMANCE
- ----------------------------------- ----------------------------------
RESEARCH ORGANIZATION INC.
- ----------------------------------- ----------------------------------
Landlord Tenant
GUARANTY
FOR VALUE RECEIVED, and in consideration of the giving of the within
lease, the undersigned guarantees to the Landlord, its successors and
assigns, the full performance and observance of all the covenants,
conditions and agreements therein provided to be performed and observed by
the Tenant, without requiring any notice of nonpayment, nonperformance or
nonobservance, or proof of notice or demand whereby to charge the undersigned
therefor, nor shall failure of the Landlord to enforce its right against the
Tenant or concessions made by the Landlord to the Tenant affect the liability
hereunder.
Dated Denver, Colorado, ____________________________, 19___.
--------------------------------
Guarantor
<PAGE>
EXHIBIT A
FERNAL INC AND BILL THOMAS DBA MACH ONE
RE OFFICE FLOOR 2 - BLDG AT 5335 W 48 AVE, DENVER
1. This is a no smoking building. A MUST
2. Refrigerated air as required. Monday through Friday 8 AM to 5 PM.
Additional time must be paid by tenant requesting; at the rate of $23.00
per hour.
3. Under the terms of a verbal agreement, Martischang agreed to give 2 months
full rent for the tenant carpeting of their offices. Workmanship must be
satisfactory. If not an adjustment must be made.
5. Parking on the premises is under the control of the landlord. Covered
parking is $30.00 per month, per car, not space.
6. There must be plastic carpet protectors on any chairs with rollers,
except special occasions. See Al for specifications of the type of plastic.
7. Tenant shall have first right of refusal for the next 3 years should
landlord put the premises up for sale.
<PAGE>
The rent for the premises is approximately 25 to 30% below market. For two
reasons. You are nice people and it is assumed there will be reciprocal
favors to Martischang.
Rent is due on the first of each month. Late charges go into effect; of 10%
on the fourth day. At the end of the anniversary of year one rent will
increase by 6% to take care of CPI. Then after the second anniversary rent
will increase by 6% on the 24th months rent at that time.
MACH ONE pays their own electrical. One meter takes care of the entire floor.
Martischang will pay electrical as billed from PS Co. At this time, an amount
of $135.00 per month must be paid monthly to take care of the above.
Two fire extinguishers must be in the office. See Martischang for the type
required by Denver Fire dept.
<PAGE>
An estimate of trash removal, at $25.00 per month which has to be paid with
the rent monthly.
Premises is leased as is. Tenant must do all janitorial and maintenance as
required. Mach One share of janitorial re the rest rooms. They must be
cleaned. The other tenants on the floor will furnish paper products, as is
agreeable at this time.
Tenant must furnish personal injury and property damage liability insurance
and Legal Liability, naming the land lord as additional insured.
Tenant will furnish a list of the employees that have keys to the premises.
/s/ Al Martischang /s/ D. William Thomas
- -------------------------- --------------------------
<PAGE>
CONSULTING SERVICES AGREEMENT
THIS AGREEMENT, is made as of the 8th day of May, 1997, by and between
Sunkyong U.S.A., Inc., with offices located at 110 East 55th Street, New
York, New York 10022 ("Sunkyong"), and Proformance Research Organization,
Inc. ("Company").
WHEREAS, Company desires to appoint Sunkyong its exclusive placement
representative in the Republic of Korea (the "Exclusive Territory") with
respect to finding potential investors in Company and/or to locate franchise
or operations possibilities for Company (the "Services") and Sunkyong is
agreeable to such appointment.
NOW THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the parties hereby agree as follows:
Article I. APPOINTMENT. Subject to the terms and conditions hereinafter set
forth, Company hereby appoints Sunkyong as its exclusive service
representative in the Exclusive Territory and non-exclusive service
representative in other Pacific Rim countries (the "Non-Exclusive Territory"
and together with the Exclusive Territory, referred to herein as the
"Territory") to provide the Services described herein and further set forth
in Article II hereof during the term of this Agreement.
Article II. SERVICES. The Services to be provided or rendered by Company
shall be on a reasonable best efforts basis and shall include:
A. To furnish certain information, including but not limited to, identities
of corporations with possible interest in investing in the Company, and
information and introductions relating to product sales, possible learning
center franchises and/or golf school operations opportunities at golf courses
("Sites") in the Territory, and to solicit inquiries about investment
opportunities in the Territory without binding Company in any way, and to
furnish such information to Company; and
B. To provide Company with such other services as may from time to time be
agreed upon by the parties in writing.
Article III. FEES/EXPENSES. Company agrees that Sunkyong shall be entitled
to a fee ("Fee"), to be mutually agreed upon by the parties on a
transaction-by-transaction basis, and which shall take into account the value
of the capital investment. Sunkyong's expenses and other financial
considerations relating to a transaction facilitated by the Services (each a
"Transaction"). The Fee shall be payable to Sunkyong upon the acceptance and
closing or consummation of such Transaction. In addition to the Fee, at
Sunkyong's option, Sunkyong may obtain common stock of the Company at the
rate of $5.00 per share up to $50,000 or 10,000 shares per Site for a maximum
of thirty-two (32) Sites. Company has agreed with Merit Capital Associates
("Merit") that it shall pay a fee to Merit as finder of the relationship
between Company and Sunkyong, as mutually agreed upon based on the total
value of capital and other financial considerations relating to a
Transaction, payable to Merit upon the acceptance and closing of such
Transaction. Sunkyong shall not be obligated to pay any fees, costs or other
amounts to Merit in connection with any Transaction or services provided by
Merit. Sunkyong and Company agree that Company may accept or reject any
Transaction in its sole reasonable discretion.
Article IV. TERM AND TERMINATION. This Agreement shall be effective for an
initial term of five (5) years commencing as of the date hereof, subject to
the terms and conditions of this Agreement. Notwithstanding the foregoing,
either party may terminate this Agreement by written notice if the other
party (i) defaults in performance of any material provision of this Agreement
and fails to cure such default within thirty (30) days after notice thereof
from the non-defaulting party, (ii) appoints a receiver, trustee or
liquidator of all or
1
<PAGE>
substantially all of its assets or is unable to pay debts as they mature, or
is adjudicated bankrupt or insolvent and such condition is not cured in
thirty (30) days; or (iii) for any reason upon sixty (60) days prior written
notice.
ARTICLE V. INFORMATION PROVIDED BY COMPANY; MUTUAL NON-DISCLOSURE AGREEMENT
A. Company agrees to provide Sunkyong with all information concerning
Company which Sunkyong reasonably requests. Company represents, warrants and
covenants that all information disclosed or to be disclosed to Sunkyong under
this Agreement shall be permitted to be disclosed by it and shall be complete
and correct in all material respects. In providing the Services hereunder,
Sunkyong will be using and relying on information provided by Company,
without independent verification thereof or independent appraisal of
Company's assets. Further, in evaluating any prospective investor or
Transaction, Sunkyong will be using information provided in public reports
and other sources of information provided by the prospective investor or
third parties. Sunkyong does not assume responsibility for the accuracy or
completeness of information regarding the company or any prospective investor
or Transaction and Company releases Sunkyong from any liability and will
indemnify and hold Sunkyong and its affiliates and their respective officers,
directors, employees and agents (collectively, "Sunkyong Indemnities")
harmless from and against all suits, claims, demands, damages, costs and
expenses which are made against or incurred by Sunkyong in the performance of
its Services or related to any Transaction. Sunkyong may divulge information
regarding the Company and its operations to such third parties unless the
Company specifically notifies Sunkyong in writing that such information is
confidential.
B. Each of Sunkyong and Company agrees that except as otherwise herein
permitted, without the prior written consent of the other, which consent
shall not be unreasonably withheld, delayed or made unreasonably conditional,
it shall use the propriety non-public information ("Confidential
Information") of the other company only for the purposes stated hereinabove
and will make reasonable efforts to restrict disclosure of Confidential
Information it receives from the other party to those of the employees and
agents that it deems shall reasonably require access to the Confidential
Information, and to is accountants or legal counsel as it may deem necessary.
ARTICLE VI MISCELLANEOUS
A. Nothing herein shall be construed to place Sunkyong and Company in
relationship of partners, joint venturers or of principal and agent. The
parties hereto have negotiated and entered into this Agreement solely as
independent contractors, and no employer-employee relationship exists or
shall be deemed to exist between them.
B. Company and Sunkyong shall make no representations or warranties
concerning each other without the other's express written consent. Each of
Company and Sunkyong represents to the other that it is free to enter into
this Agreement, and that it is not under restrictive covenant, court order or
any other restriction concerning its entering into this Agreement and
performing its obligations hereunder.
C. Company agrees to fully and completely indemnify and hold harmless
Sunkyong information from any and all claims, losses, costs, fees, or
expenses (including reasonable attorney's fees) incurred in connection with
any claim, action, inquiry or investigation, statute or common law, or
otherwise relating to the Services provided hereunder or any Transaction,
unless and only to the extent caused solely by the willful misconduct by
Sunkyong or breach by Sunkyong of any material provision of this Agreement.
D. All taxes, dues, duties, fees and charges (collectively "Taxes") imposed
in the Territory on or in connection with the payment of any fees or other
amounts to Sunkyong and the services provided by Sunkyong hereunder shall be
for the account of Sunkyong. All Taxes imposed in or outside the Territory
on or in
2
<PAGE>
connection with the receipt of any capital, investment, contract or other
thing of value by Company in connection with any Transaction shall be for the
account of Company. Each party agrees to indemnify and hold harmless the
other from and against any and all penalties, losses, fees, damages,
expenses, and other amounts arising from any suit, claim or proceeding in
connection with the Taxes for which such party is responsible.
E. All notices given pursuant to this Agreement shall be in writing and
delivered by hand or sent by certified mail, return receipt requested,
commercial courier or by telex or telecopier transmission to the parties at
the addresses specified by a party for notices. Such notices shall become
effective upon receipt.
F. This Agreement sets forth the entire agreement between the parties hereto
and supersedes all prior agreements, understandings and representations
including, but not limited to that certain Agreement Addendum dated April 7,
1997 between the parties. No part of this Agreement may be amended or
modified except by a writing signed by the authorized representatives of both
parties hereto.
G. Should any disputes or questions arise between or among the parties to
this Agreement during or after the term of this Agreement with respect to the
rights, obligations and remedies hereunder of such parties or with respect to
the construction or application of this Agreement which shall not be amicably
resolved among the parties, the undersigned agree that such disputes or
questions shall be submitted in New York, New York, to the American
Arbitration Association for arbitration under its rules before a single
arbitrator. No recourse shall be made to any court other than to enforce a
final arbitral award. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to its
conflicts of laws principles. Should any provision of this Agreement be
deemed unenforceable in any judicial proceeding, such determination shall not
affect the validity and enforceability of the balance of this Agreement.
H. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and together which shall constitute one and
the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year hereinabove stated.
SUNKYONG U.S.A., INC.
By: /s/ John Song
---------------------------
Name: John Song
Title: Project Manager
PROFORMANCE RESEARCH ORGANIZATION, INC.
By: /s/ William D. Leary
---------------------------
Name:
Title: President
3
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is between Renaissance Golf Products Inc. (RENAISSANCE)
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 RENAISSANCE nor DISTRIBUTOR has any authority to make
representations, warranties or agreements for the other party.
1. SCOPE OF AGREEMENT. Renaissance warrants that they have the right to
grant the rights defined herein. The DISTRIBUTOR has the right, but not the
obligation, to sell, RENAISSANCE'S "Golf related materials". "Golf related
materials" are golf related products bearing the FILA brand including but not
limited to golf clubs, bags, balls, gloves, head wear, head covers travel
cases, umbrellas, and towels (see Exhibit A - WHLS price list - subject to
change with 90 day notice).
2. NATURE OF THE RELATIONSHIP. The success or failure of the
DISTRIBUTOR'S business is the responsibility of the DISTRIBUTOR and
RENAISSANCE does not make any projection or guarantee as to the success of
the DISTRIBUTOR business. RENAISSANCE does not exercise control over the
DISTRIBUTOR'S business methods or offer advice on how to run DISTRIBUTOR'S
business.
RENAISSANCE does require that DISTRIBUTOR not affect RENAISSANCE'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 RENAISSANCE 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 RENAISSANCE 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. As approved by RENAISSANCE in
writing, 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 does not violate this Agreement and a violation by
such persons shall be considered a violation by the DISTRIBUTOR.
4. USE OF RENAISSANCE'S PROFESSIONAL IDENTITY. Subject to the terms and
conditions contained in this agreement, and Renaissance review and written
approval, RENAISSANCE hereby grants to DISTRIBUTOR the right to utilize
RENAISSANCE's identity (including Logo's) in connection with the packaging
and any advertising and promotion of the "Golf related materials" and/or
DISTRIBUTOR'S business. RENAISSANCE 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 RENAISSANCE, the DISTRIBUTOR will not disclose such
information to any third person and will use that information only in the name
of RENAISSANCE 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
Utah (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 Salt
Lake City, Utah 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 RENAISSANCE may elect to bring a suit or proceeding
against the DISTRIBUTOR is another appropriate jurisdiction.
MISCELLANEOUS:
a. The DISTRIBUTOR has all rescission rights, in 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, and other taxes on sales by the DISTRIBUTOR.
f. RENAISSANCE 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/ William D. Leary 7-21-98
--------------------------------------
William D. Leary, President Date
RENAISSANCE / FILA:
BY: /s/ Kirk Moore
--------------------------------------
RENAISSANCE/FILA Date
<PAGE>
AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT
THIS AMENDMENT is made as of the 2nd day of November, 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").
WHEREAS, the Company and the Investor previously entered into a Common
Stock Purchase Agreement dated as of July 15, 1998 (the "Agreement"), a copy
of which is attached hereto as Exhibit A; and
WHEREAS, certain circumstances have changed since the date of that
Agreement, thereby making it necessary to clarify certain terms of the
Agreement;
NOW, THEREFORE, the Company and the Investor hereby agree as follows:
1. The Agreement, and the Investor's commitment to purchase shares of the
Company's Common Stock contained therein, are made in reference to an
offering of up to 1,000,000 shares of Common Stock of the Company at a
price of $5.00 per share, being made pursuant to a Registration Statement
on Form SB-2 filed under the Securities Act of 1933, File No. 333-61533
(the "Offering").
2. Any reference to the purchase of Series C Preferred Stock of the Company
should be disregarded.
3. All of the other terms of the Agreement are hereby confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
"Company" "Investor"
Proformance Research Organization, Inc. Proformance Research
Organization/Weiner, Inc. and/or
Vanguard 21st Century Weiner Inc.
By: /s/ William D. Leary By: /s/ John C. Weiner, Jr.
- --------------------------------------- --------------------------------
William D. Leary, President John C. Weiner, Jr., President
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion 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, and to references to our firm as experts in accounting
and auditing.
Stark Tinter & Associates, LLC
Certified Public Accountants
December 4, 1998
Englewood, Colorado
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND UNAUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 10-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> OCT-31-1998 DEC-31-1997
<CASH> 38,263 4,761
<SECURITIES> 0 0
<RECEIVABLES> 13,305 0
<ALLOWANCES> 0 0
<INVENTORY> 3,067 0
<CURRENT-ASSETS> 95,295 45,061
<PP&E> 54,472 26,858
<DEPRECIATION> 11,977 8,977
<TOTAL-ASSETS> 142,958 68,110
<CURRENT-LIABILITIES> 985,960 214,198
<BONDS> 346,000 290,000
0 0
1,296,190 797,300
<COMMON> 82,131 82,095
<OTHER-SE> (2,606,413) (1,370,623)
<TOTAL-LIABILITY-AND-EQUITY> 142,958 68,110
<SALES> 423,523 119,072
<TOTAL-REVENUES> 423,523 119,072
<CGS> 215,032 95,545
<TOTAL-COSTS> 215,032 95,545
<OTHER-EXPENSES> 1,380,519 678,214
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 60,762 31,632
<INCOME-PRETAX> (1,235,790) (689,935)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,235,790) (689,935)
<DISCONTINUED> 0 3,063
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,235,790) (692,998)
<EPS-PRIMARY> 1.371 0.798
<EPS-DILUTED> 1.371 0.798
</TABLE>
