<PAGE>
As filed with the Securities and Exchange Commission on November 17, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VISUAL EDGE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 7999 13-377-8895
<S> <C> <C>
(State or other jurisdiction (Principal Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
2424 NORTH FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FLORIDA 33431
(561) 750-7559
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
EARL T. TAKEFMAN
CHIEF EXECUTIVE OFFICER
VISUAL EDGE SYSTEMS INC.
2424 NORTH FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FLORIDA 33431
(561) 750-7559
(Name, address, including zip code, and telephone
number, including area code, of agent for service of process)
--------------------------
COPIES TO:
DAVID W. POLLAK, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
TEL: (212) 309-6000
FAX: (212) 309-6273
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SECURITY PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share.... 14,052 $6.625(1) $93,094.50(1) $28.21
Common Stock, par value $.01 per
share(2).................................. 100,000 $6.625(1) $662,500(1) $200.76
Common Stock, par value $.01 per
share(3).................................. 106,323 $6.625(1) $704,389.88(1) $213.45
Common Stock, par value $.01 per
share(4).................................. 1,764,706 $6.625(1) $11,691,177.25(1) $3,542.78
Common Stock, par value $.01 per share.... 100,000 (5) (5) (5)
Common Stock, par value $.01 per
share(6).................................. 100,000 (5) (5) (5)
Common Stock, par value $.01 per
share(7).................................. 260,000 (8) (8) (8)
Common Stock, par value $.01 per
share(9).................................. 1,495,000 (10) (10) (10)
Common Stock, par value $.01 per share.... 220,000 (11) (11) (11)
Total Registration Fee.................... $3,985.20
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee, based
upon the average of the bid and asked prices of the Company's Common Stock
as quoted on the Nasdaq SmallCap Market on November 14, 1997, pursuant to
Rule 457(c).
(2) Issuable upon the exercise of 100,000 warrants held by certain Selling
Stockholders.
(3) Represents additional shares of Common Stock issuable to certain Selling
Stockholders.
(4) Issuable upon the conversion of up to $7,500,000 principal amount the
Company's Convertible Notes and Preferred Stock held by certain Selling
Stockholders.
(5) These securities were registered under a previous Registration Statement
(No. 333-24675) filed by the Company. Pursuant to Rule 429, the Company is
carrying forward from such Registration Statement the 100,000 shares
registered hereby, as well as the filing fee of $337.12 previously paid with
respect to such securities.
(6) Issuable upon the exercise of warrants held by certain Selling Stockholders.
(7) Issuable upon the exercise of 130,000 warrants, each to purchase one share
of Common Stock, and 130,000 warrants, each to purchase one warrant to
purchase one share of Common Stock, held by Whale Securities Co., L.P.
(8) These securities were registered under a previous Registration Statement
(No. 333-5193) filed by the Company. Pursuant to Rule 429, the Company is
carrying forward from such Registration Statement the 260,000 shares
registered hereby, as well as the filing fee of $605.16 previously paid with
respect to such securities.
(9) Issuable upon exercise of the 1,495,000 Redeemable Warrants sold to the
public in the Company's initial public offering on July 24, 1996.
(10) These securities were registered under a previous Registration Statement
(No. 333-5193) filed by the Company. Pursuant to Rule 429, the Company is
carrying forward from such Registration Statement the 1,495,000 shares of
Common Stock registered hereby, as well as the filing fee of $2,577.58
previously paid with respect to such securities.
(11) These securities were registered under a previous Registration Statement
(No. 333-5193) filed by the Company. Pursuant to Rule 429, the Company is
carrying forward from such Registration Statement the 220,000 shares
registered hereby, as well as the filing fee of $379.31 previously paid with
respect to such securities.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
4,160,081 SHARES
VISUAL EDGE SYSTEMS INC.
COMMON STOCK
------------------
This Prospectus relates to the offer and sale from time to time by each of
the stockholders listed under "Selling Stockholders" (collectively, the "Selling
Stockholders") of an aggregate of 4,160,081 shares (the "Shares") of Common
Stock of Visual Edge Systems Inc. (the "Company"), which Shares consist of the
following: (i) 200,000 shares of Common Stock to be offered and sold by certain
Selling Stockholders, which shares were received (or underlie warrants received)
in a bridge financing consummated by the Company in March 1997, (ii) an
aggregate of 1,971,029 shares of Common Stock to be offered and sold by certain
Selling Stockholders pursuant to the bridge financing consummated by the Company
in June 1997, including Additional Grant Shares, Note Conversion Shares and
Stock Conversion Shares, each as defined herein, (iii) 220,000 shares of Common
Stock to be offered and sold by certain Selling Stockholders who invested in the
Company prior to the Company's initial public offering (the "IPO"), (iv) 260,000
shares of Common Stock underlying an aggregate of 260,000 warrants held by Whale
Securities Co., L.P. ("Whale"), the underwriter in the Company's IPO, (v)
1,495,000 shares of Common Stock underlying the Company's Redeemable Warrants,
which were sold in the IPO, and (vi) 14,052 shares of Common Stock issued as a
fee in connection with the consummation of the bridge financing consummated by
the Company in June 1997. See "Selling Stockholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the Shares
offered hereby.
The Common Stock of the Company is traded on the Nasdaq SmallCap Market
("Nasdaq") under the symbol "EDGE." On November 14, 1997, the last reported sale
price of the Common Stock as quoted on Nasdaq was $6.625 per share.
------------------------
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
---------------------
The Shares may be sold from time to time in brokerage transactions at or
near prevailing market prices through Whale or others, or in privately
negotiated transactions for the account of Whale or each of the Selling
Stockholders. The Company has agreed to bear all expenses (other than discounts,
selling commissions and stock transfer taxes relating to the Shares) in
connection with the registration and sale of the Shares being registered hereby.
See "Selling Stockholders" and "Plan of Distribution."
------------------------
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.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company, Whale or the
Selling Stockholders. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the Common Stock to which it relates.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. FOR A
LIST OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
i
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the Regional Offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601; and 7 World Trade Center, 13th Floor, New York, New York 10007.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers, including the Company, that file electronically with the Commission.
The address of such site is HTTP://WWW.SEC.GOV.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete
and are qualified in their entirety by reference to each such contract,
agreement or other document filed as an exhibit to the Registration Statement or
as previously filed with the Commission and incorporated therein by reference.
Copies of the Registration Statement and the exhibits thereto are on file at the
offices of the Commission and may be inspected and copied in the manner and at
the locations described above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, previously filed with the Commission by the
Company, are hereby incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 (as amended by Form 10-KSB/A filed April 7, 1997);
2. The Company's Quarterly Reports on Form 10-QSB for the fiscal
quarters ended March 31, 1997, June 30, 1997 (as amended by Form 10-QSB/A
filed August 29, 1997) and September 30, 1997;
3. The Company's Current Reports on Form 8-K dated March 26, 1997, June
13, 1997, June 3, 1997 (as amended by Form 8-K/A dated June 3, 1997) and
November 7, 1997 and filed with the Commission on April 14, 1997, June 23,
1997, June 25, 1997 (as amended by Form 8-K/A filed June 28, 1997) and
November 14, 1997, respectively; and
4. The description of the Common Stock set forth in the Company's
Registration Statement filed pursuant to Section 12 of the Exchange Act on
Form 8-A on July 11, 1996, and any amendment or report filed for the purpose
of updating any such description.
All reports and other documents subsequently filed by the Company after the
date of this Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents or reports.
ii
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated in this Prospectus by reference shall be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a statement
contained in this Prospectus, or in any other subsequently filed document which
also is or is deemed to be incorporated in this Prospectus by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED TO
VISUAL EDGE SYSTEMS INC., 2424 NORTH FEDERAL HIGHWAY, SUITE 100, BOCA RATON,
FLORIDA 33431, ATTENTION: EARL TAKEFMAN (561) 750-7559.
iii
<PAGE>
THE COMPANY
The Company was organized to develop and market personalized videotape golf
lessons featuring ONE-ON-ONE instruction by leading professional golfer Greg
Norman and is in the early stages of being an operational company. To date, the
Company has focused its efforts on developing and marketing computer software
which digitally combines actual video footage of a golfer's swing with a
synchronized "split-screen" comparison to Greg Norman's golf swing to produce a
45-minute ONE-ON-ONE videotape golf lesson. The Company's ONE-ON-ONE video golf
lesson analyzes a golfer's swing by comparing it to Greg Norman's swing at
several different club positions from two camera angles using Greg Norman's pre-
recorded instructional commentary and analysis and computer graphics to
highlight important golf fundamentals intended to improve a golfer's
performance.
Pursuant to a license agreement, as amended, by and among the Company, Greg
Norman and Great White Shark Enterprises, Inc. (the "Greg Norman License"), Greg
Norman agreed to grant to the Company a worldwide license to use his name,
likeness and endorsement and certain trademarks owned by him in connection with
the production and promotion of the Company's products. The Greg Norman License
originally provided that the continued use of the license by the Company was
conditioned upon guaranteed payments aggregating $3,300,000 during the
three-year period commencing July 1, 1996 to be applied against a royalty equal
to 8% of the Company's net revenues from product sales. In June 1997, the Greg
Norman License was amended to extend the initial term to June 30, 2000 and to
restructure the payments due to Mr. Norman from the Company to a total
commitment of $4 million by: (i) altering the character of the payments such
that Mr. Norman will receive $1,020,000 of his royalties in shares of the
Company's Common Stock (valued at $10.00 per share for purposes of calculating
such royalties) rather than cash as was originally contemplated, which shares
the Company has agreed to register under the Securities Act; (ii) changing the
schedule of the payments such that $2.98 million in cash will be paid to Mr.
Norman over a period of time from January 1998 through April 2000; and (iii)
granting to Mr. Norman 25,000 options to purchase shares of the Company's Common
Stock at an exercise price of $10.00 per share, which options vested immediately
and are exercisable at Mr. Norman's discretion at any time prior to their
expiration on June 30, 2000. Pursuant to the Greg Norman License, the Company
has paid Norman $600,000 in cash to date. After the initial term, which ends on
June 30, 2000, the Company has the option to renew the Greg Norman License for
two additional five-year periods. The Company's business and prospects are
dependent upon the Company's continued association with Greg Norman.
In 1995, the Company developed the software necessary to operate a video
editing and videotape production process and an initial version of a
right-handed, full swing videotape golf lesson. Since then, the Company has
developed six full swing personalized ONE-ON-ONE golf lessons with Greg Norman
for both right- and left-handed golfers. The Company's personalized products
include a lesson stressing basic golf fundamentals for either males or females,
a lesson geared towards senior golfers, an advanced lesson for lower-handicap
players and a "follow-up" lesson which measures a golfer's improvement from
prior lessons. The Company also plans to develop additional videotape golf
lessons, such as short game, sand play and putting lessons.
A Company employee operates videotaping equipment at the first tee, driving
range or other suitable location to videotape a golfer's swing which is edited
inside a ONE-ON-ONE van to create a personalized videotape golf lesson in
approximately 16 minutes.
The Company's primary marketing strategy is to sell ONE-ON-ONE videotapes on
a prearranged basis to various organizers of amateur corporate, charity and
member golf tournaments (who typically offer gifts to tournament participants),
golf professionals at private and daily fee golf courses and driving ranges and
indoor event planners who organize trade shows, conventions, sales meetings,
retail store openings and promotions and automobile dealer showroom promotions.
To implement its marketing and business strategy, the Company has already
developed 15 mobile ONE-ON-ONE vans equipped with video and personal computer
equipment to market, promote and produce the Company's products. The Company
1
<PAGE>
intends to position its ONE-ON-ONE vans in selected geographic areas that will
service golf courses and driving ranges throughout the United States, and has
initially placed its first 15 vans in Florida, Georgia, Texas, Arizona,
California, Michigan, Illinois, New York, New Jersey, Massachusetts, Maryland
and Nevada.
The Company entered into an agreement with Cadillac Motor Car Division of
General Motors on August 5, 1997. The agreement grants Cadillac the exclusive
U.S. dealership showroom rights to the Company's ONE-ON-ONE WITH GREG NORMAN
concept, allowing Cadillac to exclusively offer its customers a free video golf
lesson personally analyzed by Greg Norman if they test drive a Cadillac. The
Company is to provide each participating Cadillac dealership with all marketing
materials related to this promotion, including creative piece for print and
radio advertisements, banners, posters and direct mail invitations.
The contract includes a test phase that runs through December 31, 1997 with
a test phase termination clause ending January 31, 1998, at Cadillac's sole
option, and then guarantees the Company a total of $7,500,000 in revenue for
1998 if the agreement is not terminated. The contract runs until December 31,
2000 and provides the Company with up to approximately $34,750,000 in revenue
over the term of the agreement if the Company has an adequate number of
available vans to serve all participating Cadillac dealers. Management estimates
the Company will need to have 30 to 35 vans in operation to realize the full
revenue potential of this agreement. Cadillac may terminate the agreement as of
December 31, 1998, as long as notice is given to the Company on or before June
30, 1998, and will be responsible for the guaranteed payment for the year 1998.
Golf has become an increasingly popular form of sport and entertainment in
recent years. According to the National Golf Foundation, consumer spending on
golf-related activities, including green fees, golf equipment and related
merchandise, increased from approximately $12.7 billion in 1989 to approximately
$15.1 billion in 1994. The number of golfers and golf courses and driving ranges
has also increased and golf industry participants have sought to increase public
awareness and provide greater access to golfers of all ages and income levels.
It is estimated that golfers spend approximately $440 million annually on golf
lessons. The Company believes that the capabilities of its software, including
its ability to produce instructional commentary by Greg Norman and synchronized,
"split-screen" comparisons with Greg Norman's swing, coupled with the consumer
recognition and appeal of Greg Norman, differentiate the Company's products from
competing products and position the Company to capitalize on the growing
popularity of golf.
The Company incurred substantial up-front expenses in connection with
product development and commercialization (including the lease of ONE-ON-ONE
vans and video and computer equipment), resulting in significant operating
losses which are likely to continue for the foreseeable future. There can be no
assurance that the Company will be able to successfully implement its business
plan. See "Risk Factors."
The Company was incorporated under the laws of the State of Delaware in July
1994 under the name Golf Vision, Inc. The Company changed its name to Visual
Edge Systems Inc. in March 1995. The Company's executive offices are located at
2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431, and its
telephone number is (561) 750-7559.
RECENT BRIDGE FINANCINGS
MARCH FINANCING
In March 1997, the Company consummated a bridge financing (the "March Bridge
Financing") pursuant to which it issued to 13 investors (the "March Bridge
Investors"), including Status-One Investments Inc., a company controlled by Earl
T. Takefman, the Chief Executive Officer of the Company, an aggregate of (i)
100,000 shares of Common Stock and (ii) 100,000 warrants (the "March Bridge
Warrants") to purchase 100,000 shares of Common Stock at a price of $10.00 per
share, subject to adjustment in certain circumstances. As consideration for such
securities, the March Bridge Investors pledged an
2
<PAGE>
aggregate of $3,500,000 in cash and other marketable securities as cash
collateral (the "Cash Collateral") to Republic Bank of New York (Canada) Ltd.
and Bank Hapoalim (Switzerland) Ltd. (collectively, the "Guaranteeing Banks"),
which in turn issued stand-by letters of credit (the "Letters of Credit") to the
Company in the aggregate amount of up to $3,500,000. The Company used the
Letters of Credit to secure a $3,500,000 line of credit (the "Line of Credit")
from Barnett Bank. In June 1997, the Company used a portion of the proceeds from
the issuance and sale of certain equity securities, defined below, as defined
below, to repay the remaining outstanding balance due and owing on the Line of
Credit and returned the Letters of Credit to the Guaranteeing Banks which in
turn returned all of the Cash Collateral to the March Bridge Investors.
JUNE FINANCING
On June 13, 1997, the Company arranged a three year $7.5 million debt and
convertible equity facility (the "June Bridge Financing") with a group of
investment funds advised by an affiliate of Hunt Sports Group, a sports and
entertainment management company controlled by the Lamar Hunt family of Dallas,
Texas. The Company issued and sold to Infinity Investors Limited, Infinity
Emerging Opportunities Limited, Sandera Partners, L.P. and Lion Capital
Partners, L.P. (collectively, the "Funds") the following securities pursuant to
the Bridge Securities Purchase Agreement, dated as of June 13, 1997 (the "Bridge
Agreement"), among the Company and the Funds: (i) 8.25% unsecured convertible
bridge notes (the "Bridge Notes") in the aggregate principal amount of
$7,500,000 with a maturity date of three years from the date of issuance
(subject to the mandatory automatic exchange for the Company's preferred stock,
par value $.01 per share (the "Preferred Stock"), as discussed below), which
Bridge Notes are convertible into shares of Common Stock (the "Note Conversion
Shares") at any time and from time to time commencing January 1, 1998 at the
option of the holder thereof, subject to certain limitations on conversion set
forth in the Bridge Agreement; (ii) 93,677 shares of Common Stock, par value
$.01 per share (the "Grant Shares"); and (iii) five-year warrants (the "June
Bridge Warrants") to purchase 100,000 shares of Common Stock (the "Warrant
Shares") at an exercise price equal to $10.675. On June 13, 1997 (the "Closing
Date"), 30% of the June Bridge Warrants were assigned, with the Company's
consent, to Alpine Capital Partners, Inc. The June Bridge Warrants are
redeemable commencing October 1, 1998 at a redemption price equal to $.10 per
share, subject to adjustment based on a 20-day minimum closing bid price. The
net proceeds to the Company from the sale of the Bridge Notes, Grant Shares and
June Bridge Warrants was $7,236,938. In addition, the Company issued 14,052
shares of Common Stock to Whale Securities Co., L.P. ("Whale"), the underwriter
in the Company's initial public offering (the "IPO"), as a fee for services
rendered in connection with the transactions contemplated by the Bridge
Agreement, one-half of which shares were subsequently transferred to another
Selling Stockholder.
Pursuant to the Bridge Agreement, which states that in the event that the
closing bid price of the Company's Common Stock for each trading day during any
consecutive ten trading days from the Closing Date through December 31, 1997
does not equal at least $10.675 per share, the Company will issue to the Funds a
number of additional shares of Common Stock (the "Additional Grant Shares")
equal to the quotient obtained by dividing $1 million by the average closing bid
prices of the Common Stock for the 15 trading days prior to December 31, 1997
and subtracting 93,677 (the number of Grant Shares already issued to the Funds).
In the event that any Additional Grant Shares are issued, the exercise price of
the June Bridge Warrants will be adjusted so that the value of the June Bridge
Warrants (using a Black-Scholes or similar model) equals the value of the June
Bridge Warrants as of the Closing Date.
Interest payments on the Bridge Notes are, at the option of the Company,
payable in cash or in shares of Common Stock. On Septermber 30, 1997, the first
interest payment on the Bridge Notes was made in shares of the Common Stock. The
Company issued an aggregate of 22,462 shares of Common Stock for payment of
interest due. Effective January 1, 1998, the aggregate outstanding principal
amount of Bridge Notes exceeding $2,500,000 will be automatically exchanged for
a number of shares of Preferred Stock with an aggregate liquidation preference
equal to the principal amount of Bridge Notes so exchanged and with
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<PAGE>
terms substantially identical to the Bridge Notes, which Preferred Stock is
convertible into shares of Common Stock (the "Stock Conversion Shares"). In
addition, if the Company elects to redeem the IPO Warrants, the Company must
redeem at least $5,000,000 principal amount of the Bridge Notes with the net
proceeds of such redemption.
The Company granted to the Funds registration rights covering the Note
Conversion Shares, Stock Conversion Shares, Grant Shares, Warrant Shares and
Additional Grant Shares (collectively, the "Securities") pursuant to a
Registration Rights Agreement, dated as of June 13, 1997, among the Company and
the Funds (the "Registration Rights Agreement"). Pursuant to the Registration
Rights Agreement, the Company filed a registration statement covering the sale
of the Grant Shares, which registration statement was declared effective by the
Securities and Exchange Commission on August 12, 1997. Pursuant to the
Registration Rights Agreement, the Company is registering an aggregate of
1,971,029 shares of Common Stock, which constitute the Warrant Shares, the
Additional Grant Shares, the Note Conversion Shares and the Stock Conversion
Shares, in the Registration Statement of which this Prospectus forms a part.
Although the actual number of Additional Grant Shares, Note Conversion Shares
and Stock Conversion Shares to be issued by the Company will be based upon the
closing bid prices of the Common Stock at future dates as set forth in the
Bridge Agreement, the Company used an assumed price of $5.00 per share to
determine the number of shares to be included in the Registration Statement in
connection therewith. In the event that the number of Additional Grant Shares,
Note Conversion Shares and Stock Conversion Shares that are actually issued to
the Funds is greater than the number registered by the Company, the Company is
obligated to register a number of shares equal to such shortfall. See "Risk
Factors--Potential Influence on Market of Sale of Additional Grant Shares, Note
Conversion Shares and Stock Conversion Shares." In addition, pursuant to the
Bridge Agreement, the Company also agreed to certain covenants, including
limitations on the amount of capital expenditures and minimum limits of net
worth.
As of September 30, 1997, the Company had utilized $2.7 million of the June
Bridge Financing and $3.2 million of the proceeds from the issuance and sale of
the Securities under the Bridge Agreement, of which $2.7 million was used to
repay the outstanding balance due and owing on the Line of Credit from Barnett
Bank. On a monthly basis, the Company's cash expenditures for operations have
been averaging approximately $650,000, which funds are being utilized from the
proceeds of these bridge financings.
The Company has utilized all of the proceeds of the IPO, the majority of
which proceeds were used for product and equipment development and to repay
prior indebtedness of the Company. The Company chose to pursue and consummate
these bridge financings because management perceived a favorable reaction in the
marketplace for the Company's products at trade shows and other promotional
events and decided to accelerate its plans to purchase and operate additional
vans prior to the summer golf season. The Company's acceleration of its business
plan required the use of any remaining IPO proceeds and forced the Company to
seek additional financing earlier than it had anticipated. Thus, at the time of
the IPO, the Company believed that the IPO proceeds would sustain the Company
for 12 months when in fact such proceeds were fully utilized after nine months.
Due to its limited operating history at the time of the consummation of each
bridge financing, the Company was unable to obtain equipment financing from
traditional sources of funds, such as banks and other institutional lenders, and
instead consummated these bridge financings.
EQUIPMENT FINANCING
In August 1997, the Company entered into an equipment financing (the
"Equipment Financing") with Vision Financial Group of Pittsburgh ("Vision"),
whereby Vision agreed to provide the Company with up to $2.5 million in
financing by September 1998. Such arrangement provides the Company with
equipment financing of $100,000 for each of its next 25 vans, each of which is
anticipated to cost approximately $150,000. The Company has drawn on $800,000 of
the facility to finance eight vans purchased in May 1997. The outstanding
balance bears interest at the rate of 11.62% and is payable in 36 consecutive
monthly payments of $25,328 which commenced in August 1997, followed by one
balloon payment of $47,040.
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Further, the Company has agreed to pledge as collateral a certificate of deposit
in the amount of $25,000 per van to Vision. Such collateral is to be returned to
the Company within 5 days after the Company notifies Vision that (a) the Company
has earned $1,000,000 or more on a pre-tax basis for fiscal 1998 or 1999 or (b)
the Company's Common Stock has traded at $20.00 per share for at least 5
consecutive trading days. The Company has pledged to Vision a certificate of
deposit in the aggregate amount of $200,000 in connection with the financing of
the first eight vans.
In connection with the Equipment Financing, the Company issued to Vision,
warrants (the "Vision Warrants") to purchase 75,000 shares of Common Stock at a
price per share of $10.00 (subject to adjustment in certain circumstances) at
any time prior to August 20, 2000. The Company has the right to redeem the
Vision Warrants as follows: in the event that the closing bid price of the
Common Stock equals or exceeds $15.00 for 20 trading days ended three days prior
to the notice of redemption, the Company may, upon 10 days' notice to Vision,
redeem up to 50% of the Vision Warrant at a price equal to $.01 per share of
Common Stock issuable upon the exercise of the Vision Warrants; and 100% of the
Vision Warrants are redeemable by the Company if the closing bid price of the
Common Stock equals or exceeds $20.00 for the 20 trading days ended three days
prior to the notice of redemption.
RECENT EVENTS
On November 7, 1997, the Company's former accountants, KPMG Peat Marwick
LLP, were dismissed and Arthur Andersen LLP were engaged to audit the Company's
financial statements. Such actions were approved by the Company's Board of
Directors on November 12, 1997.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO FUTURE
EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. PROSPECTIVE INVESTORS
ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT ACTUAL EVENTS
OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE
INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED HEREIN,
INCLUDING THE MATTERS SET FORTH BELOW, WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
SIGNIFICANT AND CONTINUING LOSSES; GOING CONCERN. For the period from July
15, 1994 (inception) to December 31, 1996, the Company incurred a cumulative net
loss of $2,862,653 and, in the nine months ended September 30, 1997, the Company
incurred a net loss of $7,321,453. The Company anticipates that it will incur
continuing losses until, at the earliest, the Company generates sufficient
revenues to offset the substantial up-front capital expenditures and operating
costs (including significantly increased salaries of executives officers)
associated with enhancing and commercializing its products. The Company incurred
a non-recurring charge of $600,000 relating to the transfer of Common Stock to
Greg Norman prior to the consummation of the IPO. In addition, the Company
incurred costs of $1,615,000 relating to the IPO which was a reduction to its
equity. The Company's former independent auditors have included an explanatory
paragraph in their report on the Company's financial statements stating that the
Company's recurring losses through 1996 and contractual commitments under a
licensing agreement raise substantial doubt about its ability to continue as a
going concern unless the Company receives additional equity or other financing.
The Company anticipates that it will be able to obtain adequate additional
equipment financing from banks or other institutional lenders as it expands its
operational base of ONE-ON-ONE vans and begins to generate revenues. Further, in
the event that the IPO Warrants become redeemable by the Company pursuant to
their terms, the Company may elect (subject to consent by Whale) to call the IPO
Warrants for redemption. In the event that the IPO Warrants are called for
redemption by the Company and the market price of the Company's Common Stock
exceeds the warrant exercise price of $5.00 per share, it would become
economically advantageous to the holders thereof to exercise their contractual
right to purchase shares of Common Stock at a price per share of $5.00,
providing the Company with additional capital to finance its operations.
However, if the Company elects to redeem the IPO Warrants, the Company must
redeem at least $5,000,000 principal amount of the Bridge Notes with the net
proceeds of such redemption. There can be no assurance that the Company will
ever achieve profitable operations or will be able to obtain additional equity
or other financing.
NEED FOR ADDITIONAL FINANCING. The continued implementation of the
Company's business plan or the development of additional products will require
capital resources greater than the proceeds of the IPO, the proceeds received
from the Funds under the Bridge Agreement, the Equipment Financing or other
funds currently available to the Company. There can be no assurance that any
additional financing will be available to the Company on commercially reasonable
terms, or at all.
UNCERTAINTY OF PROPOSED PLAN OF OPERATION. The Company's plan of operation
and prospects will be largely dependent upon the Company's ability to
successfully hire and retain skilled technical, marketing and other personnel,
establish and maintain satisfactory relationships with those who arrange golf
events, successfully develop, equip and operate ONE-ON-ONE vans on a timely and
cost effective basis and achieve significant market acceptance for its products.
The Company has limited experience in developing and commercializing new
products based on innovative technology and there is limited information
available concerning the performance of the Company's video editing and
production process or market acceptance of the Company's products. There can be
no assurance that the Company will be able to successfully implement its
business plan or that unanticipated expenses, problems or technical difficulties
will not occur which would result in material delays in its implementation.
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POTENTIAL INFLUENCE ON MARKET OF SALE OF ADDITIONAL GRANT SHARES, NOTE
CONVERSION SHARES AND STOCK CONVERSION SHARES. As part of the June Bridge
Financing, the Company is obligated to issue to the Funds the Additional Grant
Shares, the Note Conversion Shares and the Stock Conversion Shares.
Specifically, the Company will issue to the Funds a number of Additional Grant
Shares equal to the quotient obtained by dividing $1 million by the average
closing bid prices of the Common Stock for the 15 trading days prior to December
31, 1997 and subtracting 93,677 (the number of Grant Shares previously issued to
the Funds). In addition, effective January 1, 1998, (i) the aggregate
outstanding principal amount of Bridge Notes exceeding $2,500,000 will be
automatically exchanged for Preferred Stock, which is convertible into the Stock
Conversion Shares, and (ii) the principal amount of the Bridge Notes that
remains outstanding is convertible into the Note Conversion Shares. Such
conversions, if they occur, are subject to the conversion rate and schedule set
forth in the Bridge Agreement, which provide for a conversion price that will be
below the market price of the Common Stock at the time of conversion. At the
time of issuance, all of the aforementioned shares will have been registered
under the Securities Act and will be freely tradeable without restriction. While
no prediction can be made as to the effect, if any, that the availability for
sale or actual sale of the Additional Grant Shares, Note Conversion Shares and
Stock Conversion Shares will have on market prices of the Common Stock
prevailing from time to time, the possibility that a substantial number of
shares of Common Stock may be sold in the public market may adversely affect
prevailing market prices and could impair the Company's ability to further raise
capital through the sale of its equity securities. See "The Company--Recent
Bridge Financings--June Financing."
DEPENDENCE ON GREG NORMAN LICENSE. Pursuant to the Greg Norman License,
Greg Norman agreed to grant to the Company a worldwide license to use his name,
likeness, endorsement and certain trademarks in connection with the production
and promotion of the Company's products. The Greg Norman License originally
provided that the continued use of the license by the Company was conditioned
upon guaranteed payments aggregating $3,300,000 during the three-year period
commencing July 1, 1996 to be applied against a royalty equal to 8% of the
Company's net revenues from product sales. In June 1997, the Greg Norman License
was amended to restructure the payments due to Mr. Norman from the Company to a
total commitment of $4 million by: (i) altering the character of the payments
such that Mr. Norman will receive $1,020,000 of his royalties in shares of the
Company's Common Stock, rather than cash as was originally contemplated, which
shares the Company has agreed to register under the Securities Act; (ii)
changing the schedule of the payments such that $2.98 million in cash will be
paid to Mr. Norman over a period of time from January 1998 through April 2000;
and (iii) granting to Mr. Norman 25,000 options to purchase shares of the
Company's Common Stock at an exercise price of $10.00 per share, which options
vested immediately and are exercisable at Mr. Norman's discretion at any time
prior to their expiration on June 30, 2000. Pursuant to the Greg Norman License,
the Company has paid Norman $600,000 to date. Failure to make any required
payment under the Greg Norman License would result in termination of the license
agreement, which would have a material adverse effect on the Company. Greg
Norman's death, disability or retirement from tournament play or any significant
decline in the level of his tournament play would, under certain circumstances,
have a material adverse effect on the Company. In addition, the commission by
Greg Norman of any serious crime or any act which adversely affects his
reputation could also have an adverse affect on the Company. The Company has
obtained "key-man" insurance on the life of Greg Norman in the amount of
$10,000,000.
UNCERTAINTY OF MARKET ACCEPTANCE AND COMMERCIALIZATION STRATEGY. The
Company's ONE-ON-ONE personalized videotape golf lesson is a new business
concept and, accordingly, demand and market acceptance for the Company's
products is subject to a high level of uncertainty. Achieving market acceptance
for the Company's products will require significant efforts and expenditures by
the Company to create awareness and demand by golf professionals at golf courses
and driving ranges and by consumers. The Company's prospects will be
significantly affected by its ability to successfully build an effective sales
organization and develop a significant number of ONE-ON-ONE vans. The Company
has only recently commenced marketing activities and has limited marketing and
technical experience and limited financial, personnel and other
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resources to independently undertake extensive marketing activities. The
Company's strategy and preliminary and future marketing plans may be subject to
change as a result of a number of factors, including progress or delays in the
Company's marketing efforts, changes in market conditions (including the
emergence of potentially significant related market segments), the nature of
possible license and distribution arrangements which may become available to it
in the future and competitive factors. To the extent that the Company enters
into third-party marketing and distribution arrangements in the future, it will
be dependent on the marketing efforts of such third parties and in certain
instances on the popularity and sales of their products. Additionally, to the
extent that the Company seeks to market its products in foreign markets, the
Company may be subject to various risks associated with foreign trade, including
customs duties, quotas and other trade restrictions, shipping delays, currency
fluctuations and international political and economic developments. There can be
no assurance that the Company's strategy will result in successful product
commercialization or that the Company's efforts will result in initial or
continued market acceptance for the Company's products.
COMPETITION. The Company faces intense competition for a finite amount of
consumer discretionary spending from numerous other businesses in the golf
industry and related market segments. The Company competes with numerous other
products and services which provide golf instruction, including instructional
golf videotapes, golf software used to analyze golf swings and golf courses,
schools and professionals who offer video golf lessons, certain of which may be
less expensive or provide other advantages to consumers. Various instructional
golf videotapes currently being marketed by leading golf professionals and
instructors such as Jack Nicklaus, Tom Kite, Nick Faldo, David Leadbetter, Jim
McLean and Greg Norman have achieved significant national, regional and local
consumer recognition. These products are marketed by companies with
substantially greater financial, marketing, distribution, personnel and other
resources than the Company, permitting such companies to implement extensive
advertising and promotional campaigns, both generally and in response to efforts
by additional competitors to enter into new markets. In addition, certain
companies offer both hardware and software to golf professionals for use in
connection with golf lessons. Moreover, the instructional golf video segment of
the industry has no substantial barriers to entry and, consequently, the Company
expects that other companies which have developed software technologies may seek
to enter into the Company's target markets and compete directly against the
Company. There can be no assurance that other companies are not developing or
will not seek to develop similar products.
The Greg Norman License prohibits Greg Norman from granting similar rights
to any person with respect to any concept which is the same as or confusingly
similar to the Company's concept or proposed products. For purposes of the Greg
Norman License, however, the self-instructional golf video product known as
BETTER GOLF featuring Greg Norman or any other form of golf instructional video
or multi-media presentation for teaching golf techniques is not deemed the same
as or confusingly similar to the Company's products. There can be no assurance
that the Company will be able to compete successfully.
POTENTIAL PRODUCT OBSOLESCENCE. The markets for the Company's products may
be characterized by rapidly changing technology which could result in product
obsolescence or short product life cycles. Accordingly, the ability of the
Company to compete may be dependent upon the Company's ability to complete
development and commercialization of the Company's products in a timely manner
and to continually enhance and improve its software. There can be no assurance
that competitors will not develop technologies or products that render the
Company's products obsolete or less marketable.
DEPENDENCE ON LIMITED PRODUCT LINE. The Company is entirely dependent on
the commencement of sales of a limited product line to generate revenues and on
the commercial success of its products. There can be no assurance that the
Company's products will prove to be commercially viable. Failure to achieve
commercial viability would have a material adverse effect on the Company.
INDUSTRY FACTORS. Sales of the Company's instructional golf videotapes are
dependent on discretionary spending by consumers, which may be adversely
affected by unfavorable general economic conditions, as
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well as a decline in the popularity of golf. Any decrease in the level of
consumer spending on golf instruction could adversely affect the Company's
business and prospects. The Company's future operating results will depend on
numerous factors beyond its control, including the popularity, price and timing
of other instructional golf videos and related products being introduced and
distributed, national, regional and local economic conditions (particularly
recessionary conditions adversely affecting consumer spending), changes in
consumer demographics, the availability and relative popularity of other forms
of sports and entertainment, and public tastes and preferences, which may change
rapidly and cannot be predicted. The Company's ability to plan for product
development and promotional activities may be affected by the Company's ability
to anticipate and respond to relatively rapid changes in consumer tastes and
preferences. To the extent that the Company targets consumers with limited
disposable income, the Company may find it more difficult to price its products
at levels which result in profitable operations. In addition, seasonal weather
conditions limiting the playing seasons in certain geographic areas may result
in fluctuations in the Company's future operating results.
UNCERTAINTY OF PATENT PROTECTION. The Company has filed a patent
application with the United States Patent and Trademark Office covering certain
aspects of its digital video editing and videotape production process. There can
be no assurance, however, as to the breadth or degree of protection which
patents may afford the Company, that any patent applications will result in
issued patents or that patents will not be circumvented or invalidated. Rapid
technological developments in the computer software industry result in extensive
patent filings and a rapid rate of issuance of new patents. Although the Company
believes that its products do not and will not infringe patents or violate
proprietary rights of others, the Company has not conducted any investigation to
determine whether its products infringe patents or violate proprietary rights of
others, and it is possible that infringement of existing or future patents or
proprietary rights of others have occurred or may occur. In the event the
Company's products infringe patents or proprietary rights of others, the Company
may be required to modify the design of its products or obtain a license. There
can be no assurance that the Company will be able to do so in a timely manner,
upon acceptable terms and conditions or at all. The failure to do any of the
foregoing could have a material adverse effect upon the Company. In addition,
there can be no assurance that the Company will have the financial or other
resources necessary to enforce or defend a patent infringement action and the
Company could, under certain circumstances, become liable for damages, which
also could have a material adverse effect on the Company.
PROPRIETARY INFORMATION. The Company relies on proprietary processes and
employs various methods to protect the concepts, ideas and documentation of its
products. However, such methods may not afford complete protection and there can
be no assurance that others will not independently develop such processes or
obtain access to the Company's proprietary processes, ideas and documentation.
Furthermore, although the Company has entered into confidentiality agreements
with certain of its employees, there can be no assurance that such arrangements
will adequately protect the Company.
DEPENDENCE ON THIRD-PARTY PRODUCTION COMPANIES AND EQUIPMENT
MANUFACTURERS. The Company relies on third-party manufacturers for all of its
supply of video and computer equipment and vans used in its operations. The
Company has not entered into agreements with any equipment manufacturer and
intends to purchase or lease equipment components pursuant to purchase orders
placed from time to time in the ordinary course of business. While the Company
is not dependent on any single supplier to continue its operations, the failure
or delay by any manufacturer in supplying components to the Company on favorable
terms could result in interruptions in its operations and adversely affect the
Company's ability to implement its business plan.
DEPENDENCE ON KEY PERSONNEL; NEED FOR QUALIFIED PERSONNEL. The success of
the Company will be dependent on the personal efforts of Earl T. Takefman, its
Chief Executive Officer, and other key personnel. The loss of the services of
Mr. Takefman could have a material adverse effect on the Company's proposed
business and prospects. The Company has entered into employment agreements with
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Mr. Takefman and other key personnel and has obtained "key-man" insurance on the
life of Mr. Takefman in the amount of $5,000,000. The success of the Company is
also dependent upon its ability to hire and retain additional qualified
marketing, technical, financial and other personnel. Competition for qualified
personnel is intense and there can be no assurance that the Company will be able
to hire or retain additional qualified personnel. Any inability to attract and
retain qualified personnel would have a material adverse effect on the Company.
CONTROL BY MANAGEMENT. Earl T. Takefman, the Company's Chief Executive
Officer, and Alan L. Lubell, Chairman of the Board of Directors of the Company,
currently beneficially own, in the aggregate, approximately 48% of the
outstanding shares of Common Stock (assuming no exercise of any of the Company's
outstanding warrants or unexercised options). Accordingly, such persons, acting
together, are effectively in a position to control the Company, elect all of the
Company's directors, cause an increase in the authorized capital or the
dissolution, merger or sale of the assets of the Company, and generally to
direct the affairs of the Company.
OUTSTANDING OPTIONS. There are currently outstanding options to purchase an
aggregate of 1,023,371 shares of Common Stock at exercise prices ranging from
$5.00 to $10.00 per share, of which options to purchase up to an aggregate of
500,000 shares (the "Executive Options") were granted to Messrs. Takefman and
Lubell upon consummation of the IPO. The Executive Options vest five years from
the date of grant, subject to acceleration if the trading price of the Common
Stock reaches certain thresholds and have an exercise price of $5.00.
Specifically, the vesting of 300,000 of the Executive Options would accelerate
to the date that the market price of the Common Stock equaled or exceeded $10.00
per share for at least five consecutive trading days on or prior to January 24,
1998, if the price reaches such threshold. This threshold was achieved on
February 7, 1997, and, accordingly, 300,000 of the Executive Options became
exercisable as of such date. The vesting of the remaining 200,000 of the
Executive Options will accelerate to the date the market price of the Common
Stock equals or exceeds $15.00 per share for five consecutive trading days on or
prior to January 24, 1999, if the price reaches such threshold. Exercise of any
of the foregoing options will have a dilutive effect on the Company's
stockholders. Furthermore, the terms upon which the Company may be able to
obtain additional equity financing may be adversely affected, since the holders
of the options can be expected to exercise them, if at all, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the options.
NO DIVIDENDS. To date, the Company has not paid any cash dividends on its
Common Stock and does not expect to declare or pay dividends on the Common Stock
in the foreseeable future. In addition, the payment of cash dividends may be
limited or prohibited by the terms of future loan agreements or the future
issuance of Preferred Stock.
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK. The Company's
Certificate of Incorporation authorizes the Company's Board of Directors to
issue up to 5,000,000 shares of Preferred Stock, from time to time, in one or
more series. The Board of Directors will be authorized, without further approval
of the stockholders, to fix the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences, and any
other rights, preferences, privileges and restrictions applicable to each new
series of Preferred Stock. The issuance of such stock could adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
make it more difficult for a third party to gain control of the Company,
discourage bids for the Common Stock at a premium, or otherwise adversely affect
the market price of the Common Stock.
VOLATILITY OF MARKET PRICE OF COMMON STOCK AND WARRANTS. Since the IPO, the
market prices of the Company's publicly traded securities have been highly
volatile as has been the case with the securities of other emerging companies.
Factors such as the Company's operating results and announcements by the Company
or its competitors may have a significant impact on the market price of the
Company's securities. In addition, in recent years, the stock market has
experienced a high level of price and volume volatility
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and market prices for the stock of many companies have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies.
POTENTIAL INFLUENCE ON MARKET OF WARRANT REDEMPTION. Each of the 1,495,000
IPO Warrants entitles the registered holder thereof to purchase one share of
Common Stock, at a price of $5.00, subject to adjustment in certain
circumstances, at any time after July 24, 1997 until July 24, 2000. The IPO
Warrants are redeemable by the Company, upon the consent of Whale, at a price of
$.10 per Warrant, and subject to the terms set forth therein. In the event that
the Company calls the IPO Warrants for redemption, it will be economically
advantageous for the warrant holders to exercise the IPO Warrants, resulting in
the issuance by the Company of up to 1,495,000 additional shares of Common
Stock. While no prediction can be made as to the effect, if any, that the
availability for sale or actual sale of such shares of Common Stock will have on
market prices prevailing from time to time, the possibility that a substantial
number of shares of Common Stock may be sold in the public market may adversely
affect prevailing market prices for the Common Stock and could impair the
Company's ability to further raise capital through the sale of its equity
securities. Further, the exercise of the IPO Warrants and issuance of shares of
Common Stock at a price of $5.00 (an amount that is likely to be below the
prevailing market price of the Common Stock since a precondition for the
redeemability of the IPO Warrants is that the price of the Common Stock is at
least $7.50, subject to certain terms and adjustments) may have an adverse
effect on the market price of the Common Stock. The Company's Board of Directors
has authorized the Company to purchase Common Stock, from time to time, at its
discretion, in order to ensure that the market price of the Common Stock remains
at a level where the Company is permitted to redeem the IPO Warrants.
POTENTIAL INFLUENCE ON THE MARKET OF WHALE. Whale, the underwriter in the
Company's IPO, makes a market in the Common Stock and the IPO Warrants and may
otherwise effect transactions in the Common Stock and the IPO Warrants. Such
activities may exert a dominating influence on the market and such activity may
be discontinued at any time. The prices and liquidity of the Company's
securities may be significantly affected to the extent, if any, that Whale
participates in such market.
SHARES ELIGIBLE FOR FUTURE SALE. Excluding the Additional Grant Shares, the
Note Conversion Shares and the Stock Conversion Shares, the Company has
4,853,190 shares of Common Stock outstanding (assuming no exercise of any of the
Company's outstanding warrants), of which 1,847,729 shares (including 1,395,000
shares registered in connection with the IPO, 334,052 of the shares offered
hereby by certain Selling Stockholders and 93,677 shares registered in
connection with the June Bridge Financing pursuant to the Company's Registration
Statement on Form S-3 filed July 28, 1997 (Registration No. 333-32247)), will be
freely tradeable without restriction or further registration under the
Securities Act. All of the remaining 3,022,462 shares of Common Stock
outstanding are "restricted securities", as that term is defined in Rule 144
promulgated under the Securities Act, and in the future may be sold only
pursuant to an effective registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. Of the 3,022,462 restricted shares, an
aggregate of 2,520,406 shares became eligible for sale, without registration,
under Rule 144 (subject to certain volume limitations prescribed by such rule
and to the contractual restrictions described below), in March 1997. In
addition, the Additional Grant Shares, Note Conversion Shares and Stock
Conversion Shares, upon issuance thereof, will have been registered under the
Securities Act and will be freely tradeable without restriction. No prediction
can be made as to the effect, if any, that sales of such securities or the
availability of such securities for sale will have on the market prices
prevailing from time to time. However, even the possibility that a substantial
number of the Company's securities may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and IPO Warrants
and could impair the Company's ability to raise capital through the sale of its
equity securities.
LIMITATIONS OF LIABILITY OF DIRECTORS AND OFFICERS. The Company's
Certificate of Incorporation includes provisions to limit, to the full extent
permitted by Delaware law, the personal liability of directors of the Company
for monetary damages arising from a breach of their fiduciary duties as
directors. The
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Certificate of Incorporation also includes provisions to the effect that
(subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent permitted under such law as it may from time to time be in effect. In
addition, the Company's By-Laws require the Company to indemnify, to the full
extent permitted by law, any director, officer, employee or agent of the Company
for acts which such person reasonably believes are not in violation of the
Company's corporate purposes as set forth in the Certificate of Incorporation.
As a result of such provisions in the Certificate of Incorporation and the
By-Laws of the Company, stockholders may be unable to recover damages against
the directors and officers of the Company for actions taken by them which
constitute negligence, gross negligence or a violation of their fiduciary
duties, which may reduce the likelihood of stockholders instituting derivative
litigation against directors and officers and may discourage or deter
stockholders from suing directors, officers, employees and agents of the Company
for breaches of their duty of care, even though such an action, if successful,
might otherwise benefit the Company and its stockholders.
USE OF PROCEEDS
The Shares of Common Stock being offered hereby are for the account of the
Selling Stockholders. Accordingly, the Company will not receive any of the
proceeds from the sale of the Shares by the Selling Stockholders. See "Selling
Stockholders."
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SELLING STOCKHOLDERS
An aggregate of up to 4,160,081 shares of Common Stock may be offered and
sold pursuant to this Prospectus consisting of the following: (i) 200,000 shares
by the March Bridge Investors, including 100,000 shares underlying the March
Bridge Warrants, (ii) an aggregate of 1,971,029 shares of Common Stock to be
offered and sold by certain Selling Stockholders pursuant to the bridge
financing consummated by the Company in June 1997, including Additional Grant
Shares, Note Conversion Shares and Stock Conversion Shares, (iii) 260,000 shares
by Whale, which shares underlie certain warrants owned by Whale, (iv) 1,495,000
shares underlying the Redeemable Warrants, which shares may be offered and sold
by holders of the Redeemable Warrants upon exercise or conversion thereof, (v)
220,000 by certain investors who invested in the Company prior to the IPO and
(vi) 14,052 shares of Common Stock issued as a fee in connection with the June
Bridge Financing. The Company has agreed to register the public offering of all
of such shares under the Securities Act and to pay all expenses in connection
therewith, and such shares have been included in the Registration Statement of
which this Prospectus forms a part. Except for Status-One Investments Inc., a
company controlled by Earl T. Takefman, the Chief Executive Officer of the
Company, Frank Williams, a former director of the Company who currently serves
in an advisory capacity to the Company's Board of Directors, and Whale, the
Company's underwriter in the IPO, none of the Selling Stockholders has ever held
any position or office with the Company or has had any other material
relationship with the Company. The Company will not receive any of the proceeds
from the sale of the Shares. All of the Selling Stockholders have an address in
care of the Company at 2424 North Federal Highway, Suite 100, Boca Raton,
Florida 33431, except for Whale, whose address is 650 Fifth Avenue, New York,
New York 10019. The following table sets forth certain information with respect
to the Selling Stockholders:
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIAL BENEFICIAL BENEFICIAL
OWNERSHIP OF AMOUNT OF OWNERSHIP OF OWNERSHIP OF
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
SELLING STOCKHOLDERS PRIOR TO SALE OFFERED AFTER OFFERING AFTER OFFERING
- ------------------------------------------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Status-One Investments Inc. (1).................. 1,157,118 20,000(2) 1,137,118 23.5%
Abbott Finance Inc............................... 28,572 28,572(2) -- --
Neil Freder...................................... 41,919 14,286(2) 27,633 *
Leonard Mendell.................................. 62,282 19,282(3) 48,000 *
Avrum Schwam Holdings Inc........................ 31,431 8,572(2) 22,859 *
Carajen International Inc........................ 42,896 8,572(2) 34,324 *
Venture Management Consultants LLC............... 28,572 28,572(2) -- --
Sandy Lang....................................... 14,286 14,286(2) -- --
Frank Leo........................................ 14,286 14,286(2) -- --
Martin Miller.................................... 22,286 14,286(2) 8,000 *
Frank Williams................................... 13,853 5,714(2) 8,139 *
Dan Elituv....................................... 14,286 14,286(2) -- --
Sol Zuckerman.................................... 19,286 14,286(2) 5,000 *
Whale Securities Co.,L.P......................... 267,026(4) 267,026 -- --
Dr. Lawrence Howard.............................. 20,000 20,000 -- --
Dr. Steven Landman............................... 5,000 5,000 -- --
John R. Tompson and Constance A. Tompson, Joint
Tenants with Right of Survivorship............. 5,000 5,000 -- --
Allan R. Lyons................................... 5,000 5,000 -- --
Jonathan Robinson................................ 5,000 5,000 -- --
Michael Weissman................................. 5,000 5,000 -- --
Isaac Kier....................................... 10,000 10,000 -- --
Craig Effron..................................... 5,000 5,000 -- --
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIAL BENEFICIAL BENEFICIAL
OWNERSHIP OF AMOUNT OF OWNERSHIP OF OWNERSHIP OF
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
SELLING STOCKHOLDERS PRIOR TO SALE OFFERED AFTER OFFERING AFTER OFFERING
- ------------------------------------------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Mark Dickstein................................... 5,000 5,000 -- --
Robert Laikin.................................... 20,000 20,000 -- --
Lisa Grossman.................................... 10,000 10,000 -- --
Gary Newman...................................... 5,000 5,000 -- --
Albert Nocciolino................................ 5,000 5,000 -- --
FGR Akel......................................... 5,000 5,000 -- --
Scott C. Gottlieb................................ 5,000 5,000 -- --
Alfonso and Federico de Riveroll, Joint Tenants
with Right of Survivorship..................... 10,000 10,000 -- --
Roderick D. MacAlpine............................ 5,000 5,000 -- --
Leonard A. Albanese.............................. 5,000 5,000 -- --
Lester Lieberman................................. 5,000 5,000 -- --
Albert Greenspoon................................ 5,000 5,000 -- --
B&B Trading Corp. Retirement Plan................ 5,000 5,000 -- --
Garland T. Duke, Jr.............................. 5,000 5,000 -- --
Charles J. Reilly and Kathleen M. Reilly......... 5,000 5,000 -- --
James H. Cooper.................................. 5,000 5,000 -- --
Wendy and Robert Ull, Joint Tenants with Right of
Survivorship................................... 5,000 5,000 -- --
Michael Freidman................................. 10,000 10,000 -- --
Edward S. Rosenthal.............................. 10,000 10,000 -- --
Nicholas Kahla................................... 5,000 5,000 -- --
Elliott Broidy................................... 20,000 20,000 -- --
Lori Kritzer..................................... 7,026 7,026 -- --
Holders of the publicly traded Warrants.......... (5) 1,495,000(5) (5) (5)
Infinity Investors Limited....................... 1,164,616(6) 1,164,616 69,684 1.4
Infinity Emerging Opportunities Limited ......... 258,805(7) 258,805 15,485 *
Sandera Partners, L.P............................ 258,804(8) 258,804 15,485 *
Lion Capital Partners, L.P....................... 258,804(9) 258,804 15,485 *
Alpine Capital Partners, Inc..................... 30,000(10) 30,000 -- --
</TABLE>
- ------------------------
* Less than 1%
(1) Status-One Investments Inc. is a Delaware corporation owned by Earl T.
Takefman, the Company's Chief Executive Officer, and certain of his family
members and controlled by Mr. Takefman.
(2) One-half of such shares of Common Stock are shares received in the March
Bridge Financing, and the other one-half of such shares are the shares of
Common Stock underlying the March Bridge Warrants received in the March
Bridge Financing. See "Recent Bridge Financings."
(3) Includes 7,141 shares of Common Stock received in the March Bridge Financing
and 7,141 shares of Common Stock underlying the March Bridge Warrants
received in the March Bridge Financing.
(4) 260,000 of such shares are shares of Common Stock which underlie certain
warrants owned by Whale. The remaining 7,026 shares were received as a fee
for services rendered in connection with the June Bridge Financing.
(5) The Company currently has outstanding 1,495,000 publicly traded Warrants.
The 1,495,000 shares of Common Stock included in this table are the shares
underlying such Warrants.
14
<PAGE>
(6) Includes 42,000 shares underlying June Bridge Warrants and an aggregate of
1,122,617 Additional Grant Shares, Note Conversion Shares and Stock
Conversion Shares, which was calculated using an assumed closing bid price
of $5.00 per share.
(7) Includes 9,334 shares underlying June Bridge Warrants and an aggregate of
249,471 Additional Grant Shares, Note Conversion Shares and Stock Conversion
Shares, which was calculated using an assumed closing bid price of $5.00 per
share.
(8) Includes 9,333 shares underlying June Bridge Warrants and an aggregate of
249,471 Additional Grant Shares, Note Conversion Shares and Stock Conversion
Shares, which was calculated using an assumed closing bid price of $5.00 per
share.
(9) Includes 9,333 shares underlying June Bridge Warrants and an aggregate of
249,471 Additional Grant Shares, Note Conversion Shares and Stock Conversion
Shares, which was calculated using an assumed closing bid price of $5.00 per
share.
(10) Includes 30,000 shares underlying June Bridge Warrants.
The Selling Stockholders identified above may have sold, transferred or
otherwise disposed of all or a portion of their Shares since the date on which
they provided the information regarding their Common Stock in transactions
exempt from the registration requirements of the Securities Act. Additional
information concerning the above listed Selling Stockholders may be set forth
from time to time in prospectus supplements to this Prospectus. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
Sales of the Shares may be made from time to time by the Selling
Stockholders, or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. Such sales may be made on Nasdaq,
in another over-the-counter market, on a national securities exchange (any of
which may involve crosses and block transactions), in privately negotiated
transactions or otherwise or in a combination of such transactions at prices and
at terms then prevailing or at prices related to the then current market price,
or at privately negotiated prices. In addition, any Shares covered by this
Prospectus which qualify for sale pursuant to Section 4(1) of the Securities Act
or Rule 144 promulgated thereunder may be sold under such provisions rather than
pursuant to this Prospectus. Without limiting the generality of the foregoing,
the Shares may be sold in one or more of the following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) an exchange distribution in accordance with the rules of such exchange; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (e) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Stockholders may arrange for other brokers or dealers to participate in
the resales.
In connection with distributions of the Shares or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares registered hereunder in the course of hedging the positions they
assume with Selling Stockholders. The Selling Stockholders may also sell Shares
short and deliver the Shares to close out such short positions. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares
registered hereunder, which the broker-dealer may resell pursuant to this
Prospectus. The Selling Stockholders may also pledge the Shares registered
hereunder to a broker or dealer and upon a default, the broker or dealer may
effect sales of the pledged Shares pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders in amounts to be
negotiated in connection with the sale. Such
15
<PAGE>
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
Information as to whether underwriters who may be selected by the Selling
Stockholders, or any other broker-dealer, is acting as principal or agent for
the Selling Stockholders, the compensation to be received by underwriters who
may be selected by the Selling Stockholders, or any broker-dealer, acting as
principal or agent for the Selling Stockholders and the compensation to be
received by other broker-dealers, in the event the compensation of such other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this Prospectus (the
"Prospectus Supplement"). Any dealer or broker participating in any distribution
of the Shares may be required to deliver a copy of this Prospectus, including
the Prospectus Supplement, if any, to any person who purchases any of the Shares
from or through such dealer or broker.
The Company has advised the Selling Stockholders that during such time as
they may be engaged in a distribution of the Shares included herein they are
required to comply with Regulation M promulgated under the Exchange Act. With
certain exceptions, Regulation M precludes any Selling Shareholder, any
affiliated purchasers and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the Common Stock.
It is anticipated that the Selling Stockholders will offer all of the Shares
for sale. Further, because it is possible that a significant number of Shares
could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Company's
Common Stock.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The financial statements of Visual Edge Systems Inc. (a development stage
company) as of December 31, 1996 and 1995 and for the years then ended and for
the period from inception (July 15, 1994) to December 31, 1996 have been
incorporated by reference herein and in the Registration Statement from the
Company's 1996 Annual Report on Form 10-KSB (as amended by Form 10-KSB/A filed
April 7, 1997) in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, included therein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
contains an explanatory paragraph that states that the Company is in its
development stage and its recurring losses through 1996 and contractual
commitments under a licence agreement raise substantial doubt about the entity's
ability to continue as a going concern unless additional financing or equity is
obtained. The financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN
THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... ii
Incorporation of Certain Information by
Reference.................................... ii
The Company.................................... 1
Risk Factors................................... 6
Use of Proceeds................................ 12
Selling Stockholders........................... 13
Plan of Distribution........................... 15
Legal Matters.................................. 16
Experts........................................ 16
</TABLE>
VISUAL EDGE SYSTEMS INC.
4,160,081 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
November , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses that will be incurred by the
Registrant in connection with the offering described in this Registration
Statement. All of such amounts (except the SEC Registration Fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $3,985.20
Legal fees and expenses......................................... 30,000.00
Accounting fees and expenses.................................... 35,000.00
Printing and engraving expenses................................. 8,000.00
Miscellaneous................................................... 3,014.80
---------
Total................................................... $80,000.00
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the "GCL") permits a corporation to indemnify certain persons made a
party or threatened to be made a party to an action by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise. In the case of an action
by or in the right of the corporation, no indemnification may be made in respect
of any matter as to which such person was adjudged liable for negligence or
misconduct in the performance of such person's duty to the corporation unless
the Delaware Court of Chancery or the court in which such action was brought
determines that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for proper expenses. To the extent such person
has been successful in the defense of any matter, such person shall be
indemnified against expenses actually and reasonably incurred by him.
Section 102(b)(7) of the GCL provides that a corporation may eliminate or
limit the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
The Registrant has adopted provisions in its By-Laws which provide for
indemnification of its officers and directors to the full extent permitted under
Delaware law. The Registrant's Certificate of Incorporation includes provisions
to limit, to the full extent permitted by Delaware law, the personal liability
of directors of the Company for monetary damages arising from a breach of their
fiduciary duties as directors.
ITEM 16. EXHIBITS
See Exhibit Index.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to include any
additional or changed material information on the plan of distribution.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Boca Raton, State of Florida, on November 17, 1997.
VISUAL EDGE SYSTEMS INC.
BY: /S/ EARL T. TAKEFMAN
-----------------------------------------
Earl T. Takefman
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Earl T. Takefman and Alan L. Lubell, and each of
them, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for such person and in such person's name,
place and stead, in any and all capacities to sign any and all amendments
(including additional amendments to this Registration Statement) and to file the
same with all exhibits thereto, and the other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ --------------------------- -------------------
/s/ EARL T. TAKEFMAN Director, Chief Executive November 17, 1997
- ------------------------------ Officer,
Earl T. Takefman Chief Financial Officer
(Principal
Executive Officer,
Principal Financial
Officer and Principal
Accounting Officer)
/s/ ALAN L. LUBELL Chairman of the Board November 17, 1997
- ------------------------------
Alan L. Lubell
/s/ EDDIE EINHORN Director November 14, 1997
- ------------------------------
Eddie Einhorn
Director November , 1997
- ------------------------------
Mark Hershhorn
/s/ BERYL ARTZ Director November 17, 1997
- ------------------------------
Beryl Artz
/s/ RICHARD PARKER Director November 17, 1997
- ------------------------------
Richard Parker
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to
the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment
No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July
24, 1996)
4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
4.4 Form of Warrant among American Stock Transfer & Trust Company, the Company and Whale Securities Co., L.P.
(Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
4.5 Form of Warrant Certificate issued to investors in the March Bridge Financing (Incorporated by reference
to Exhibit 4.5 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-24675)
effective June 12, 1997)
4.6 Form of Common Stock Purchase Warrant issued to investors in the June 1997 Bridge Financing (Incorporated
by reference to Exhibit 99.4 to the Registrant's Current Report on Form 8-K filed June 23, 1997)
4.7 Form of Convertible Note issued to investors in the June 1997 Bridge Financing (Incorporated by reference
to Exhibit 99.5 to the Registrant's Current Report on Form 8-K filed June 23, 1997)
4.8 Form of Common Stock Purchase Warrant issued to Vision Financial Group, Inc. (Incorporated by reference
to Exhibit 4.8 to the Registrant; Quarterly Report on Form 10-QSB filed November 14, 1997)
5 Opinion of Morgan, Lewis & Bockius LLP*
23.1 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5)*
23.2 Consent of KPMG Peat Marwick LLP*
24 Power of Attorney (included in Part II of Registration Statement)*
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
Exhibit 5
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS LLP]
November 17, 1997
Visual Edge Systems Inc.
2424 North Federal Highway, Suite 100
Boca Raton, FL 33431
Re: Issuance of Shares Pursuant to
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Visual Edge Systems Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), of a Registration Statement on Form S-3 (the
"Registration Statement") relating to the sale of an aggregate of 4,160,081
shares (the "Shares") of the Company's Common Stock, par value $.01 per share
(the "Common Stock").
In so acting, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of the Certificate of Incorporation
of the Company, as amended, the By-Laws of the Company, as amended, and such
other documents, records, certificates and other instruments as in our
judgment are necessary or appropriate for purposes of this opinion. We have
assumed that (i) the Registration Statement, and any amendments thereto, will
have become effective, (ii) such Shares will have been duly authorized and
reserved for issuance and certificates evidencing the same will have been
duly executed and delivered against receipt of the consideration approved
by the Board of Directors of the Company, or a committee thereof, which
will be no less than the par value thereof, and (iii) the Shares will be
issued in compliance with applicable federal and state securities laws.
Based on the foregoing, we are of the opinion that the Shares, when
issued, will be duly authorized, validly issued, fully paid and
non-assessable.
We render this opinion as members of the Bar of the State of New York
and express no opinion as to any law other than the General Corporation Law
of the State of Delaware.
<PAGE>
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement. In giving this consent, we do not admit that we are
acting within the category of persons whose consent is required under
Section 7 of the Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Visual Edge Systems Inc.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Visual Edge
Systems Inc. (a development stage company) of our report dated January 24, 1997
except as to note 9(b), which is as of April 3, 1997 included in the 1996 Annual
Report on Form 10-KSB (as amended by Form 10-KSB/A filed April 7, 1997) of
Visual Edge Systems Inc. Our report contains an explanatory paragraph that
states that the Company has suffered recurring losses through 1996 and has
contractual commitments under a license agreement which raise substantial doubt
about its ability to continue as a going concern unless additional financing or
equity is obtained. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
We also consent to the references to our firm under the captions "Recent
Events" and 'Experts" in the Prospectus, which is part of such Registration
Statement on Form S-3; however, we are not in a position to agree or disagree
with the Company's statements that (i) we were replaced by Arthur Andersen LLP
and (ii) the Company's change of accountants was approved by the Company's Board
of Directors on November 12, 1997.
/S/ KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
November , 1997
